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The main reason why Jester remembers this incident so clearly is because this unexpected incident caused the collapse of a bank.

This bank is an old bank with a century-old history.

Barings Bank.

You know, Barings Bank is not an ordinary bank like Cats and Dogs. It is a real old aristocratic bank with a profound historical background. The richest woman in the world, Her Majesty Queen Elizabeth II, also trusts this bank very much. It can be said that in the entire financial world, although Barings Bank is not as wealthy as the four major investment banks in the United States, its influence is not weak at all.

In 1763, Sir Francis Baring founded Barings Bank in London. It was the world's first commercial bank. It not only provided funds and related advice to customers, but also did business itself.

Of course, it also had to bear the risks of buying and selling stocks, land or coffee like other businessmen. Due to its flexible and innovative operations, Barings Bank soon achieved great success in the field of international finance. Its business scope is also quite wide. Whether it is refining copper ore in the Congo, selling wool from Australia, or digging the Panama Canal, Bahrain Bank can provide loans for it. However, Bahrain Bank is different from ordinary commercial banks in that it does not develop deposit business for ordinary customers, so its funding sources are relatively limited and it can only rely on its own strength to survive and develop.

In 1803, when the newly born United States purchased the southern state of Louisiana from France, all the funds came from Barings Bank. Although Barings had a strong competitor at the time, the Jewish-owned Rothschild Bank, Barings was the bank of choice for governments, major corporations and many customers.

In 1886, Barings Bank issued Guinness securities, and buyers poured into the bank with application forms in hand. Later, police had to be used to maintain it. Many people queued for hours to buy a small amount of shares. Then wait for an opportunity to throw. By the time it was sold the next day, the stock price had doubled.

At the beginning of the 20th century, Barings was honored to acquire a special client: the British Royal Family. Due to the outstanding contributions of Barings Bank, the Barings family has received 5 hereditary titles. This was a world record and laid the foundation for Barings' prominence.

Jester remembers that when the news of the bankruptcy of Barings Bank came out, it immediately caused a series of strong fluctuations in the financial circles in Asia, Europe and the Americas. The exchange rate of the pound against the mark in the Tokyo stock market fell to its lowest point in nearly two years, the London stock market also plummeted, and the Dow Jones Index in New York fell by 29 percentage points. Just from this point, we can see what kind of influence this bank has in the financial world around the world.

Many people analyze the reasons for the collapse of Barings Bank in many ways.

Some analysts, even the vast majority of analysts, will blame Nick Leeson for the collapse of Barings Bank, but Jester personally feels that this kind of blame is unreasonable, at least, it cannot be based on this matter. The most important reason is not so much this, but rather the lack of supervision by Barings Bank itself.

Nick Leeson is no ordinary figure. He is a genius trader in the international financial world. He once served as the general manager and chief trader of Bahrain Futures Company of Bahrain Bank in Singapore. Known for being steady and bold. In the futures market, he is known as the Invincible Leeson, which means that the authority given to him by Bahrain is quite large. Because his ability is indeed very high, and he can indeed earn a lot of money for his employer.

So how did the whole Barings thing happen?

It's actually very simple, because of the Plaza Accord. At the turn of the 1990s and 1980s, Japan went through the craziest period of time when money was like dirt and a taxi started at one million yen. Soon, competition began to decline, but in the 1990s Four years ago, Japan's economy has actually shown signs of recovery, which is also the consensus of many people in the financial community.

Due to some of his own internal operations, Nick Leeson has caused a large deficit to the company, amounting to as much as 50 million pounds. He must do everything possible to make up for this deficit.

Therefore, there is this Bahrain incident.

No matter what kind of transaction you make, mistakes are inevitable, but the key is how you deal with them.

This is especially true in futures trading. For example, someone may mistake a buy gesture for a sell gesture, someone may purchase a contract at the wrong price, someone may not be cautious enough, and someone may be buying June futures instead. Bought March futures, etc. Once a mistake is made, it will cause losses to the bank. After these errors occur, the bank must deal with them quickly and properly. If the error is irreversible, the only feasible way is to transfer the error to a computer called an error account account and then report to the bank's headquarters.

When Leeson worked as a futures trader in Singapore in 1992, Bahrain Bank originally had an error account with the account number 99905, which was dedicated to handling errors caused by negligence during the transaction process. This was originally a normal error account in the operation of the financial system. In the summer of 1992, Gordon Bowser, who was fully responsible for the liquidation work at the London headquarters, called Leeson and asked Leeson to set up another error account to record minor errors and handle them in Singapore by himself to avoid trouble in London. work.

So, Li Sen immediately called Liesel, who was in charge of office liquidation, and asked her whether she could create another file. Soon, Liesel typed some commands into the computer and asked him what account he needed. In Chinese culture, 8 is a very auspicious number. Therefore, Li Sen uses this as his auspicious number. Since the account number must be five digits, the wrong account with the account number 88888 was born. .

A few weeks later, another call came from the London headquarters, which had been equipped with new computers, requiring the Singapore branch to act according to the old rules. All error records were still reported directly to London through the 99905 account.

The 88888 error account was put aside as soon as it was created, but it became a real error account stored in the computer. Moreover, the headquarters had already noticed that there were many mistakes in the Singapore branch, but Li Sen cleverly avoided them. The ignored account 88888 provided Leeson with the opportunity to create false accounts in the future. If this account had been canceled at that time, Bahrain's history might have been rewritten.

July 17, 1992. Jin Wang, a trader under Li Sen who had only joined Bahrain for a week, made a mistake: When Fuji Bank asked to buy 20 Nikkei Index futures contracts, the trader mistakenly sold 20 contracts. Li Sen was discovered while doing liquidation work that night.

To correct this error, 40 contracts must be bought back, which means that based on the closing price of the day, the loss will be 20,000 pounds and should be reported to the London head office.

However, after various considerations, Li Sen decided to use the wrong account 88888 to undertake 40 short contracts of Nikkei futures to cover up this mistake. However. In this way, the transaction conducted by Leeson became an owner transaction, exposing Barings to risky positions under this account. A few days later, as the Nikkei rose 200 points, the loss on the short position increased from 20,000 pounds to 60,000 pounds. You must know that Leeson's annual salary was less than 50,000 pounds at the time.

At this time, Leeson did not dare to report this mistake to the superior.

As there are more and more similar internal operations, Nick Leeson has accumulated more and more losses in this 88888 account. The maximum amount reached 50 million pounds, which also attracted the attention of Barings Bank headquarters. They investigated Nick Leeson several times, but he dealt with them all with very clever means.

For example. Nick Leeson knew that Barings Bank rarely checked the accounts of really big customers, such as Citibank, so. He then made a false account of a deposit of 50 million pounds in Citibank to deal with the headquarters investigation against him, successfully covering up his huge loss of 50 million pounds in account 88888.

However, he also knew. He couldn't hide it like this forever. He had to do everything he could to fill this 50 million pound deficit.

With his salary of £50,000 a year plus a bonus of £100,000 there was no way he could do that.

Therefore, he must extend his hand into the company's account.

Nick Leeson also saw the Japanese market at this time. He keenly felt that now that the Japanese economy has begun to emerge from recession, the stock market will have a rising trend. So I bought a large amount of Nikkei 225 Index futures contracts and call options. However, man's calculations are not as good as God's calculations, and things went counter to expectations. On January 16, 1995, the Great Hanshin Earthquake in Kansai, Japan caused the stock market to plummet. Leeson's long positions were hit hard, with losses as high as 210 million pounds.

Two hundred and one million pounds is an astronomical figure for ordinary people, but for an established investment bank like Barings Bank, although this number is huge, it is still within his tolerance and will not shake Bahrain. The bank's status in the financial world, but such a huge loss, although it cannot shake the loss of Barings Bank, is enough to shake the status of Nick Leeson, a promising trader, in Barings Bank, and even in the entire financial world.

Just imagine, if this matter is settled like this, and he accepts a loss of more than 200 million pounds, and the fake accounts in the 88888 fake account he made before will be exposed, then the reputation and honor he has accumulated before will be exposed. , all disappeared in one day. Not only would Barings Bank no longer give him the aloof status he had before, it would even force him to pack up and get out. He would even go directly to prison and face an unknown number of years in prison. This The consequence is that he will be infamous in the entire financial circle and the entire trader circle in the future.

Lost chance of survival.

When he gets out of prison, no one will even hire him.

Who would dare to hire a trader who made a one-time profit of 200 million pounds for his client due to private transactions?

Do you think you are too rich?

Therefore, Nick Leeson made a huge gamble. This time he made a huge gamble behind the back of Barings Bank. With his genius mind, he keenly judged that the Nikkei Index would definitely rebound, so he did it in order to Turning defeat into victory, he once again covered up his positions in Nikkei 225 futures contracts and interest rate futures contracts in large quantities, with the total position reaching more than 100,000 lots.

You must know that this is a futures contract that is magnified dozens of times with the leverage effect. When the Nikkei 225 index fell below 18,500 points, Mr. Leeson's position would lose more than US$2 million for every point it fell.

Things tend to go in the worst direction, this is the summary of the strong theory.

On February 24, when the Nikkei Index accelerated its plunge again, the position losses of Bahrain Futures Company, where Leeson worked, were close to the sum of the capital and reserves of the entire Bahrain Bank Group. With no financing channels and losses irreversible, Li Sen fled in fear of crime.

Barings Bank was facing destruction, and the bank's chairman had to turn to the Bank of England, hoping to save the situation. However, the losses at this time have reached 1.4 billion US dollars, and as the Nikkei 225 Index continues to fall, the losses will further expand. Therefore, no one from all financial institutions dared to help Bahrain, the former distinguished guest, and Bahrain Bank collapsed.

Of course, Nick Leeson did bear a large responsibility in this matter, but it was definitely not the real reason for the collapse of Barings Bank.

The real reason is one - it encountered force majeure. If it hadn't been for the tsunami-like collapse of the Nikkei Index caused by the Great Hanshin Earthquake, then Barings Bank would not have collapsed, and Nick Leeson could have successfully filled the 88888 deficit. You might even make a lot of money.

After all, being optimistic about Nikkei was a trend in the world's financial community at that time.

And Nikkei did make great progress at that time.

Without the sudden incident of the Great Hanshin Earthquake, I cannot say how much the Nikkei would have risen, but it would definitely have risen.

Although Jester thought of the Great Hanshin Earthquake, there was also a problem. This was a force majeure and an emergency. He could not use his foresight to convince Sandy Weir to participate in this gamble. After all, what I have in the eyes of others is just foresight, but it is definitely not the power to predict the future.

When everyone is optimistic that the Nikkei will improve, I am bearish alone. The most important thing is that Japan has not exposed too serious problems now. I am not Soros, the king of short selling, and will definitely be People laugh at it.

The most critical thing is that ridicule is not the most critical thing. The most critical thing is because this incident would not have happened if it had not been for the Great Hanshin Earthquake.

However, if you do this yourself, it is indeed an opportunity to make huge profits.

At least billions of dollars in profits are right in front of you.

This is almost all of his current property.

Greed began to spread in Jester's heart. Should he do it or not? (To be continued...)