Nick Leeson Lands a Job

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For those you who don't remember who Nick Leeson is, he's the bloke who brought down Barings Bank a decade ago. Apparently, Galway United Football Club has seen fit to have him overlook their books. The LA Times article:

When he interviewed for the job at Galway United Football Club, he said he offered no references � and began by discussing the scandal. "The first thing you must deal with is the collapse of the bank and you don't try to put any gloss on it," he said.

This is rather unremarkable, but I want to recommend his book Rogue Trader. His account is highly entertaining with some important lessons to keep in mind. It clears up some misconceptions as to what really brought down the bank. Many times when the incident is mentioned, derivatives trading is the culprit. This is true to the extent that the losses were cause by losses in these instruments. However, these were the result of fraudulent activity on Leeson's part. The only authorized trading his operation was doing was strict arbitrage with another Asian futures exhcange. Rather, the losses were the result of a large error by one of his staff that he attempted to cover up. The Kobe earthquake caused these to explode which he further exacerbated by trading more in the error account.

Most of you probably don't think about your money and securities in your brokerage account and you're safe to an extent. Professional traders actually worry about this a lot( note: I'm refering to certain subclass of traders, from daytraders at prop shops to exchange members/off floor traders. Obviously, a trader at Goldman Sachs has no discretion over stuff like this). Because of the structure of clearing firms, LLCs which are their clients and individual traders, it's entirely possible to wake up one morning and discover somebody at the firm had wiped it out. This could be the result of fraud or poor business practices. This is why most traders don't keep more cash than they have to at their firms. Nick Leeson drives this point home; you never know when his long lost brother might blow up your firm. Like I said, this happens probably more than people outside this certain segment of finance realize.

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Read Nick's full story at his Official Website


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This page contains a single entry by Bob published on April 19, 2005 11:17 PM.

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