I want you to picture something just for a second.
Reach into your pocket or maybe check the cup
holder in your car. Find a coin, a single one
pound coin. It's a pretty trivial object, right?
You might use it for a shopping cart at the supermarket.
Maybe you get a piece of gum. It's basically
loose change. It's kind of money you drop on
the pavement and, you know, maybe not even bother
to bend over and pick up. Exactly. Now take that
one coin and I want you to imagine. Using it
to buy a bank. A piggy bank. Not a piggy bank
and not some, you know, fintech startup in a
garage. I mean, one of the oldest, most prestigious,
most aristocratic financial institutions on the
entire planet. It sounds like this set up to
a really bad joke. A man walks into a bank with
a pound of coin. But as we're going to find out,
financial history has a much darker sense of
humor than fiction. We are talking, of course,
about the spectacular, the almost unbelievable
and frankly humiliating collapse of Barings Bank.
In 1995, this institution, which had stood proud
for 264 years, was sold. To the Dutch bank, ING.
For the nominal sum of one pound. One. To really
get your head around the sheer gravity of that,
that one pound price tag. Yeah. You have to understand
the history that was being sold for scrap metal.
Right. This isn't a dot -com bubble burst. This
is the bank that financed the Napoleonic Wars.
This is the bank that effectively paid for the
Louisiana Purchase, doubling the size of the
United States. It was founded in 1762. Just think
about that for a second. That's before America
was even a country. This bank survived the American
Revolution, the French Revolution, World War
I, the Great Depression, World War II. It was
a titan. It was the financial bedrock of the
British Empire. And yet it wasn't a world war
that killed it. It wasn't a pandemic or a revolution.
It collapsed. It completely disintegrated in
a matter of weeks because of one guy. One guy.
A 28 -year -old trader in a striped jacket sitting
at a computer terminal in Singapore hiding his
mistakes. It's just the ultimate case study,
isn't it? The tension between centuries of tradition
and the raw, brutal speed of modernity. Absolutely.
On one hand, you've got gentlemanly capitalism.
titles, tea at four o 'clock. On the other, you
have the lightning fast, high risk, testosterone
fueled world of modern derivatives. And somewhere
in the middle of all that, a catastrophic failure
of risk management. And a failure of imagination.
I think that's the real key. The people in charge
in London, the ones running the bank, they just
couldn't imagine that someone like Nicolese could
destroy something as permanent, as solid as bearings.
So that's our mission for this deep dive. We're
going to trace this whole arc from being a global
superpower to just total ruin. We need to understand
how bearings literally shaped the world map and
then how a complete lack of internal controls
let one man burn the whole thing to the ground.
And what we're going to find is that the seeds
of its destruction. They were planted much, much
earlier than anyone realized at the time. It's
a story about hubris, about greed. And, you know,
what happens when you let the fox design the
security system for the hen house? OK, let's
start at the beginning. We have to understand
what was lost. We are setting the dial way back
to 1762, London. The Seven Years' War is just
winding down. The Industrial Revolution is starting
to bubble up. And a man named Francis Baring
establishes a company. Now, he was British born,
but his family was originally German from Bremen.
And it didn't start as a bank, right? They weren't
immediately building vaults and issuing bonds?
Oh, not at all. That's a very modern idea. In
1762, it was the John and Frances Baring Company.
And they were, for all intents and purposes,
import -export merchants. What were they trading?
They started with wool. Good, solid English wool.
They were operating out of offices just off Cheapside
in London. It was a very physical business. You
buy the wool, you sell the dye, you ship the
finished cloth. But Frances Baring was... He
was incredibly ambitious. They gradually moved
from just wool into all sorts of other commodities.
And this is where we have to pause and address
the darker side of that business right from the
start. You can't really tell the story of 18th
century British wealth without talking about
where some of that capital came from. You can't.
The sources are very clear on this. As they expanded
into global trade, Barings provided financial
services for the slave trade. It's a grim, inescapable
reality of that world. The slave trade significantly
enriched the Bering family and their business.
That capital allowed them to expand, to take
on bigger deals, to build their prestige. You
really can't separate the accumulation of that
early wealth from the mechanisms of the Atlantic
slave trade. It was the engine of so much colonial
wealth, and Bering's was right there in the gearbox.
It's a very sobering context for the massive
power we're about to see them use, because as
they move from just trading goods to financing
the trade of goods, they became what we now call
a merchant bank. And to do that on a global scale,
you need powerful friends. Their most important
partner was a firm called Hope & Co. out of Amsterdam.
Right, because Amsterdam was the financial center
back then, not London. Not yet, no. Amsterdam
was the heavyweight champion of the world. Hope
& Co. was the most powerful merchant bank there,
deeply involved with the Dutch East India Company.
By partnering with them, Barings tapped into
this huge network of European capital. And that
network, that partnership, allowed them to pull
off what is, I think, inarguably the biggest
real estate deal in human history. The Louisiana
Purchase. 1802, 1803, this is the moment where
Barings goes from being just another successful
London firm to being a genuine player on the
world stage. This is where they become a superpower.
I think most of us, you know, we remember the
basics from history class. Thomas Jefferson bought
a huge piece of land from France, doubled the
size of the U .S. It sounds so simple. It sounds
neat and tidy. The reality when you dig into
the mechanics of the deal is incredibly messy.
It's a geopolitical thriller. So set the scene
for us. Okay, so you've got Napoleon Bonaparte
in charge of France. He's looking at this massive
territory in North America, Louisiana, and he's
a pragmatist. He knows he can't defend it. The
British Royal Navy, it controls the seas. He
also knows he's about to go to war with Britain
again, and he needs money. He needs cash for
cannons, for ships, for paying soldiers. That
land in America is just a liability waiting to
be captured. So it's an asset he needs to liquidate
fast. Right. And on the other side of the Atlantic,
you have the United States. President Jefferson
is terrified that Napoleon is going to block
access to New Orleans and control the Mississippi
River. Which would basically strangle the entire
American economy west of the Appalachians. It
would cripple them. So he desperately wants to
buy it. The price tag was $15 million, which
even then, for that much land, sounds like a
steal. It is the bargain of the millennium. It
works out as something like four cents an acre.
But here's the problem, and this is why you need
a bank like Barings. The United States government
did not have $15 million in gold just sitting
in a vault. And even if they did? Napoleon didn't
want a check drawn on a U .S. bank. He didn't
want American IOUs. He wanted gold in Paris yesterday.
So you have a buyer with good credit, a seller
with a desirable asset, but no hard currency
to actually make the deal happen. A classic liquidity
crisis. Enter Barings. This is where the whole
sixth great power reputation begins. Francis
Baring and his partners at Hope & Co. step into
the middle. They bridge the gap between these
two empires. How did they structure it? It was
ingenious, really. The U .S. government issued
bonds, basically government IOUs, to Barings.
Barings then bought those bonds. But not for
face value, I'm guessing. Oh, absolutely not.
This is where the profit is. They bought the
bonds at a very steep discount. The sources say
they paid $87 .50 for every $100 of face value.
So that 12 .5 % haircut, that's their fee, their
risk premium. Exactly. Barry's is essentially
saying, we'll give Napoleon the cash you need
right now, and we will take on the risk of holding
these American bonds and collecting the interest
over the next 15 years. They're replacing a massive
bet on the future of the United States. Which
in 1803 was not a sure thing at all. The U .S.
was basically a startup country. It was a risky
venture. But here is the craziest part of the
whole deal. The part that really shows you the
kind of power Barings wielded. Go on. Britain
and France were on the very brink of war. In
fact, war did break out while this whole transaction
was settling. Wait a minute. So you have a British
bank, Barings, sending gold to Napoleon, which
Napoleon is then immediately using to build ships
and forge cannons. To attack Britain. Precisely.
That sounds, I mean, isn't that treason? Here's
the money to invade us, Napoleon. Good luck.
Laughs. If you or I did that today, we'd be in
a very dark room for a very long time. But back
then, high finance operated on a different plane,
almost above the nation state. The government
must have known. Oh, they knew. The British prime
minister at the time, Henry Addington, was fully
aware. But his reasoning was, and I'm paraphrasing
here. Yeah. It is arguably better that the money
should be provided by a British merchant. than
by anyone else. Wow. So the logic is, well, Napoleon's
going to get the money one way or another. So
a British bank might as well make the profit
on the deal. That's it. It was profit over patriotism
or maybe long term commercial pragmatism. Francis
Baring and the British government believed that
an expanding United States would ultimately be
good for British trade. They were playing a much
longer game. And what about the actual logistics?
This isn't a wire transfer. How do you move that
kind of value? You put your own people on boats.
Francis Baring's son, Alexander Baring, personally
traveled to Paris to negotiate with the French
Treasury. Then he sailed to the United States
to physically pick up the bonds and bring them
back to Europe. That's incredible. The bank's
own partner is sailing across the Atlantic, dodging
storms and potentially Royal Navy patrols, carrying
the paperwork that will double the size of America.
It just shows their power. By 1818, after the
wars were over, a French minister, the Duc de
Richelieu, famously declared that there were
six great powers in Europe. England, France,
Prussia, Austria, Russia, and Bering Brothers.
The sixth great power. That's not just a nickname.
That's a geopolitical statement. They're ranked
alongside empires. And they acted like one. They
weren't just observing history. They were actively
financing it. During the War of 1812, Barings
was helping to finance the United States government.
Again, with the irony, the War of 1812 was the
U .S. versus Britain. The British burned down
the White House and a British bank is funding
the other side. Capital has no nationality, as
the old saying goes. By 1843, they were the exclusive
agent to the U .S. government in Europe. They
were just deeply, deeply embedded in America's
growth. They financed the railroads that built
the West. There's a specific example in the notes
about that with the Canadian Pacific Railway.
Yes, Barings was instrumental in financing the
completion of that railway, which is what really
created the nation of Canada as a unified coast
-to -coast entity. And there's even a town named
after one of them. There is, Revelstoke in British
Columbia. It was named after the senior partner
of the bank at the time, Edward Baring, who was
the first Baron Revelstoke. They also financed
huge American railways like the Atchison, Topeka,
and Santa Fe. So they're literally building the
infrastructure of the new world. But it wasn't
all triumphs. Closer to home, they had a more
controversial chapter. The Irish famine. Yes.
This is a difficult part of their story, and
it really shows the flip side of that aristocratic,
detached worldview. In 1845, the potato crop
in Ireland failed. It was an absolute humanitarian
catastrophe. And the British government stepped
in. The prime minister, Sir Robert Peel, appointed
Barings to be the government's agent. to supply
Indian corn maize to Ireland for famine relief.
And did they do it? They did, for a time. Between
late 1845 and the summer of 1846, they acted
as the purchasing agent. But then, in 1846, the
government changed its policy and bearings. They
just walked away. You walked away in the middle
of a famine. Why? It was about reputation. They
stated officially that they would refuse any
future commissions in famine relief to avoid,
and this is a direct quote, the blame this could
so easily entail. That is unbelievably cold.
We don't want bad PR if this goes wrong. So we're
out. It's a stark look into the mindset of the
institution. They were a business first, last
and always. But despite these controversies,
their cultural dominance in the 19th century
was just absolute. This is where we get the Jules
Verne reference. Yes. around the world in 80
days. When Phileas Fogg makes his famous bet
that he can circumnavigate the globe in 80 days,
he guarantees it with a check for 20 ,000 pounds.
And that check is drawn on. Barings bank. Exactly.
Verne didn't even have to explain it. He used
bearings as shorthand for money that was as solid
as the ground beneath your feet. If your money
was with bearings, it was safe. Period. And just
to complete the picture of their establishment
credentials, there's even a link to the royal
family. There is. Ned Baring, the first Baron
Revelstoke, the man Revelstoke is named after,
his daughter Margaret was the great -grandmother
of Diana, Princess of Wales. So the bank's bloodline
is directly intertwined with the future King
of England. Yes. It all paints this picture of
utter invincibility, a power unto themselves,
connected to royalty, financing empires. What
could possibly go wrong? Well, as is so often
the case, arrogance, hubris. And the first major
crack in that invincible armor appeared in 1890.
The Panic of 1890, also known as the Bering Crisis.
It sounds like a prequel to what happened in
1995. It's frighteningly similar. It's almost
a perfect dress rehearsal. In the late 1880s,
Bering's got a bit too hungry for high returns.
They started underwriting a huge amount of debt
in South America, particularly Argentina and
Uruguay. Argentina seems to be a recurring character
in the history of financial crises. It is indeed.
There was a massive land boom going on in Argentina.
Barings was heavily, heavily exposed. They were
backing bonds for waterworks, drainage systems,
new railways. And then the music stopped. The
bubble burst. Political unrest hit Buenos Aires.
There was a revolution. The president resigned.
Argentina was on the verge of defaulting on all
its debt. And Barings was holding the bag. They
were holding the entire bag. They had guaranteed
the bonds, but they didn't have the liquid reserves
to actually make good on those guarantees. They
were, for all intents and purposes, insolvent.
But they didn't collapse. Why not? What was different
in 1890? In 1890, Barings was considered too
big to fail. Ah, that phrase. The governor of
the Bank of England at the time, a man named
William Litterdale. knew that if bearings went
under, it could trigger a global financial meltdown.
It would destroy the reputation of the city of
London. So he organized a bailout. Who paid for
it? A whole consortium of other banks, funnily
enough, headed by the Guinness family firm. The
Bank of England guaranteed the debts, and everyone
else chipped in to keep bearings afloat. So they
survived, but they must have been wounded. Deeply
wounded. It came at a massive cost. The bank
was forced to restructure from a private partnership
into a public limited liability company. The
Bering family themselves lost huge personal fortunes
because their own wealth was pledged to the bank.
And they lost their top dog status to rivals
like the Rothschilds. It was a humiliating near
-death experience. And I have to imagine that
kind of trauma changes the culture of a place.
Completely. Yeah. And this is so important for
understanding what happened a century later.
For the next 100 years, Barings became incredibly
conservative. We call it the period of caution.
They were just gun -shy. They became the boring
bank. Which, ironically, probably saved them
later on. It absolutely saved them during the
Great Depression. Well, other banks in the 1920s
were lending huge sums to Germany to help it
recover from World War I. Barings refused. They
remember the sting of Argentina. So when the
crash of 29 came and all those German loans went
bad, Barings was relatively safe. Okay, so let's
fast forward to the 1980s and early 90s. We have
this bank that is smaller, more cautious, but
still incredibly prestigious. It's seen as blue
-blooded, safe, maybe a bit dusty. But the world
of finance is exploding. Yes, the Big Bang of
deregulation in London in 1986 changed absolutely
everything. Suddenly, the old gentleman's club
was over. The markets were thrown open. Aggressive
American banks were flooding in. Everything was
getting faster, riskier, more lucrative. And
Barings looked at this new world and felt left
out. They had a serious case of what you might
call prestige anxiety. They were the old aristocrats
watching the loud, rich, new money have all the
fun. They wanted to get back in the game. They
wanted to be cool again. So they tried to modernize?
They did. They started buying up stockbrokers
and other firms to build a modern securities
business, to sit alongside their old -fashioned
banking arm. They were trying to catch up. And
that desire to catch up, that brings us to Singapore
and to the man of the hour, Nicholas Leeson.
Nick Leeson. You couldn't invent a character
more different from the traditional bearings
man. He wasn't an aristocrat. He didn't go to
Eaton or Oxford. He was a working class lad from
Watford. His dad was a plasterer. A borrow boy,
as they used to call them in the city. Exactly.
But he was sharp. He was ambitious. He had a
certain charm. In this new aggressive trading
environment, that was seen as an asset. So in
1992, Baring sent him out to Singapore to run
their new derivatives trading operation on the
SUMEX, the Singapore International Monetary Exchange.
Now, this is really important. Before we get
into the fraud, we have to understand what he
was supposed to be doing. Because on paper, his
job was meant to be boring, low risk. Oh, absolutely.
He wasn't sent there to be a cowboy. In theory,
he was there to run a money printing machine
that was perfectly safe. He was tasked with arbitrage.
Okay, let's break down arbitrage for everyone
listening. Give me the simple, real world version.
Okay. Imagine you're at a huge flea market. You
see a vintage watch at one stall, and the price
is $100. Right. You know for a fact that at a
stall on the complete other side of the market,
the exact same watch is selling for $105. If
you can run fast enough, you buy for $100, spread
across the market, and sell for $105. I've just
made $5 risk -free. The key is you have to lock
in both prices at the same time before they change.
Speed and execution. That's all it is. Leeson
was trading Nikkei 225 futures, basically, contracts
betting on the future value of the Japanese stock
market. These contracts were traded in two different
places, on the Osaka Exchange in Japan and on
the Cimex in Singapore. So it's like the watch
being sold in two different stalls. The price
might be slightly different for a split second.
Precisely. Because of tiny time lags or market
inefficiencies, the price would griefily diverge.
Leeson's entire job was to spot that tiny difference,
buy the cheap one in Osaka and simultaneously
sell the expensive one in Singapore. And because
he's doing this with millions and millions of
the bank's pounds, those tiny little pennies
on each trade add up to a huge, steady profit.
It's a volume game. It's supposed to be like
shelling peas. It's not gambling. It's just exploiting
a mathematical certainty. If you do it right,
you literally cannot lose money because your
positions are hedged. You've bought and sold
at the same time. It sounds perfect. Safe money.
So how does a guy doing something so boring manage
to destroy a 200 -year -old bank? Because of
a fatal, unforgivable flaw in how Barings set
up their Singapore office. This is the single
most critical point in the entire story. In any
properly run bank, you have the front office,
the traders, the people making the bets, and
you have the back office or settlements. They're
the accountants, the people who check the records,
confirm the trades, and make sure the money actually
goes where it's supposed to go. A separation
of powers. It is the absolute golden rule of
banking. The person writing the checks cannot
also be the person balancing the checkbook. The
poacher cannot be the gamekeeper. But in Singapore?
In Singapore, Barings was trying to save a bit
of money on headcount. They thought it was a
small, simple operation. So they allowed Nick
Leeson to hold both jobs. He was the general
manager of trading. And he was the head of settlement
operations. Wait, wait. So he was, he was checking
his own work. He was marking his own homework.
He was the student and the teacher. It meant
he could operate with zero effective supervision
from London. He could make a trade. And if it
went wrong, he could just bury it. Because he
was in charge of the burial ground. That's just,
that's insane. And that brings us to the infamous
secret account. The 888888 account. The five
eights account. In many Asian cultures, the number
eight is considered lucky. It sounds like the
word for wealth or prosper. For Barings, it was
the number of their doom. What was this account
originally for? It was set up as a standard error
account. Every trading desk has one. If a trader
makes a small mistake, buys when they meant to
sell, you know, a typo. They put the erroneous
trade in the error account to be sorted out later.
It's for small administrative screw -ups. But
Leeson used it as a secret dumping ground. It
started small. Leeson's story is that it all
began when one of his junior traders made a mistake
that lost about 20 ,000 pounds. To protect her,
to be the good guy boss, he hid the loss in account
88888. His plan was, I'll just make a few good
trades next week and earn it back. No one will
ever know. But you can't make back 20 ,000 pounds
quickly with safe arbitrage. Arbitrage makes
pennies. Exactly. To make that kind of money
back quickly, you have to gamble. And that's
the moment he crossed the line. He stopped doing
safe arbitrage and started taking naked positions.
He wasn't hedging anymore. He was just making
massive one -way bets on the future direction
of the Japanese market. He was just guessing.
He was guessing. And when he guessed wrong and
lost money, he hid the loss in 88888. When he
guessed right, he'd report the profit to London.
Now, here's the technical trick he used. He was
able to get into the computer system and alter
the reporting so that the London office would
never even see a report for that specific account.
He essentially made it invisible to his bosses.
So as far as London knew, he was this trading
genius, this whiz kid making the millions in
steady, safe profits. They see all the wins.
But they're completely blind to the ever -growing
mountain of losses in the secret account. He
was hemorrhaging cash. By December of 1994, the
secret losses in account 80 -80 -88 had ballooned
to 200 million pounds. 200 million. But, and
this is the scale of the deception, he officially
reported a profit of 102 million pounds for the
year. So there's a 300 million pound gap between
what his bosses thought was happening and reality.
And here's the real tragedy. If they had caught
him then, in December 1994, the bank could have
survived. They had about 350 million pounds in
capital. Taking a 200 million pound loss would
have been catastrophic. People would have been
fired. It would have been a huge scandal. But
the bank itself would have still existed. But
they didn't catch him. And the bets he was making
were getting bigger and bigger. You mentioned
he was using a specific, very dangerous strategy.
Yes. A short straddle. This is crucial to understanding
how the losses exploded so quickly. Explain it
to me like I'm five. Okay. A short straddle is
a bet on boredom. You are betting that the market
will stay flat, it won't go up very much, and
it won't go down very much. You're betting on
stability. And how do you make money from that?
You effectively become an insurance salesman.
You sell two types of options contracts to other
traders, one that pays out if the market goes
up a lot and one that pays out if it goes down
a lot. You collect the cash, the premium. from
selling this insurance. So Leeson is the insurance
company. He takes all this cash up front and
says, don't worry, folks, nothing exciting is
going to happen. Exactly. And as long as the
market stays calm and quiet, he just keeps all
the premium money. It looks like free cash. It's
a strategy often described as picking up pennies
in front of a steamroller. You can pick up a
lot of pennies. But if that steamroller ever
actually hits you, you're flattened. The risk
is unlimited. If the market makes a huge move
in either direction, up or down, you lose a fortune.
And Leeson had sold tens of thousands of these
contracts. He had bet the entire bank that the
Japanese stock market would remain quiet. And
then, on January 17, 1995, the universe decided
to call his bluff. The catalyst. The Black Swan
event. The Great Hanshin earthquake hits the
city of Kobe in Japan. A devastating 7 .3 magnitude
quake. Buildings collapse. Highways fall over.
Thousands of people are killed. And obviously,
a disaster of that scale is not good for the
Japanese economy. The steamrollers started to
move. It moved very, very fast. The Nicky stock
index plummeted. Market volatility went through
the roof. Leeson's short straddle strategy was
instantly massively underwater. All those insurance
policies he had sold were suddenly being cashed
in at once. Now, a normal, rational trader in
that position would call their boss, confess
everything and cut their losses immediately.
Take the pain. But Leeson wasn't rational anymore.
He was in a deep, dark hole. And his only thought
was to dig deeper. He doubled down. He made a
new, even bigger bet. He convinced himself the
market would rebound quickly. He thought the
Japanese government will step in. There will
be a construction boom to rebuild. The market
will bounce back. So what did he do? He started
buying Nikky Futures contracts, not for arbitrage,
just pure naked gambling. He started buying thousands
and thousands of them, trying to single handedly
prop up the market. At one point, Nick Leeson
personally accounted for almost half of all the
Open Nikki futures contracts on the entire Singapore
exchange. He was trying to fight the entire global
market with Barings money. He was. And to keep
those massive positions open, he needed a staggering
amount of cash every single day to pay what's
called margin to the exchange. So where did he
get the money? He asked London for it. And this
is the part of the story that just defies belief.
He would just call his bosses in London and invent
a reason. I need 50 million pounds to fund a
new trade for a big client. Or I need 20 million
to cover a short -term timing difference. And
London just sent it. No questions asked. They
sent it. They wired hundreds and hundreds of
millions of pounds to him in Singapore. But why?
Why didn't they ask to see the client's name?
Why didn't they check the paperwork? A combination
of incompetence and confirmation bias. They thought
Leeson was their golden goose. In their minds,
if he was asking for huge sums of money, it must
be because he was doing huge profitable trades.
They interpreted the massive cash drain as a
sign of incredible success. It's like a parent
who keeps giving their kid money for college
books because they can't bear to believe the
kid is actually gambling it all away. It's a
perfect analogy. And you have to remember the
culture clash. The senior managers in London
were these old school aristocratic bankers. They
didn't really understand the complex mathematics
of derivatives. They were intimidated by it.
They didn't want to ask a stupid question and
look foolish in front of this young whiz kid
from Watford. So they just signed the checks.
So the losses are just spiraling out of control.
The market keeps falling. Leasing keeps buying.
When did the music finally stop? Thursday, February
23rd, 1995. Leeson finally realized the game
was up. The bank's auditors were in the Singapore
office, and they were finally asking specific
pointed questions about the 88888 account that
he couldn't deflect. The cash demands from the
exchange were now so colossal that London had
finally said, we literally have no more cash
to send you. So what does he do? He runs. He
leaves a note on his desk that says, I'm sorry.
Walks out of the office, goes home, tells his
wife Lisa they have to leave immediately. She
had no idea about any of the fraud. And they
drive to the airport. He just flees the country.
Gets on a plane to Kuala Lumpur, Malaysia. He
checks into the region hotel and just waits.
He spends the weekend watching the news, waiting
for the world to find out what he'd done. He
then sends a fax from the hotel, a confession
note, to Peter Bering, the chairman of the bank
in London. Can you even imagine being Peter Baring
at that moment? You're the head of this ancient,
invincible institution. And you get a fax that
says, so sorry, I seem to have lost the bank.
It was pure chaos in London. The auditors in
Singapore finally forced their way into the computer
system and opened up the IDON88888 account file.
The numbers were just horrifying. The final tally
of the losses was 827 million pounds. 827 million.
About 1 .3 billion U .S. dollars at the time.
And how did that compare to the bank's total
capital? It was more than double the bank's entire
available trading capital. He had lost every
penny the bank owned and then lost it all over
again. The bank wasn't just broke. It was a black
hole of debt. Utter annihilation. The Bank of
England tried to orchestrate a rescue. Just like
they did in 1890, the governor got all the heads
of the other big banks together for a secret
weekend meeting. They tried to put together a
bailout package. But this time, the hole was
just too deep. And crucially, the risk was unquantifiable.
No one knew for sure if there were even more
losses hidden somewhere. No one was willing to
touch it. The too -big -to -fail principle didn't
apply this time. Not this time. So on Sunday,
February 26, 1995, the Bank of England announced
that Barings Bank was insolvent. Done. Finished.
Administrators were called in. And all the employees
around the world. They showed up for work on
Monday morning in London, New York, Tokyo, Hong
Kong to find the doors locked and a notice on
the door. Jobs gone. And for many senior people,
their life savings gone because their bonuses
were paid in Barings stock, which was now worthless.
Just a brutal, brutal end. So the bank is dead.
But the brand name, the client lists, it must
have been worth something. It was. The Dutch
bank ING saw an opportunity. They were interested
in the asset management and corporate finance
parts of the business, so they swooped in and
bought the entire bank for the sum of one pound.
There's that coin again? Of course, the real
price was that ING also had to assume all of
Bering's massive liabilities. But the symbolic
headline price to buy 233 years of British history
was one single pound coin. And Nick Leeson, the
man who did all this, he's hiding out in a hotel
in Malaysia. He didn't stay hidden for long.
He tried to fly back to Europe, hoping he'd get
a more lenient sentence in a British court. But
he was arrested during a layover in Frankfurt,
Germany on March 2nd. And extradited back to
Singapore. Yes. And Singapore has a very, very
tough reputation for financial crime. He was
sentenced to six and a half years in the infamous
Chengi prison. And did he serve the full term?
He served about four years. He was released early
in 1999 after being diagnosed with colon cancer
in prison, which he survived. And then in this
bizarre twist that only seems to happen in the
modern world, he became a kind of celebrity.
He absolutely did. It's wild. He wrote a book
in prison, Rogue Trader. which was then turned
into a Hollywood film starring Ewan McGregor.
He became a fixture on the after -dinner speaking
circuit, getting paid to tell his story. He was
even briefly the CEO of an Irish football club.
It's just incredible. And there's a detail in
the notes that perfectly captures how strange
this whole saga became. In 2007, his old trading
jacket, the one he wore on the floor of the Cimex.
The blue and yellow striped one. It was sold
on eBay for £21 ,000. People love a villain,
I suppose, or at least a souvenir from a famous
disaster. It's a relic from one of the most spectacular
financial crashes in history. We should mention,
though, that one small piece of the Bering legacy
did actually survive the crash. That's right.
The Bering Foundation. It's a charitable foundation
that the family had established back in 1969.
And because its assets were legally ring -fenced
and separate from the bank, it was untouched
by the collapse. It's still around today. giving
out millions in grants. So some of that historic
wealth, which, as we discussed, has a complex
history. A very complex history, tracing all
the way back to wool and the slave trade and
empire. Some of it is now being used for good
causes. A small silver lining, I suppose. A very
small one. So let's step back. We've gone from
financing the Louisiana Purchase to a guy in
his 20s hiding losses in a computer account named
after lucky numbers. What's the big takeaway
here? For me, it's the fragility of it all. We
think of these huge ancient institutions as being
permanent fixtures of the world. Bering survived
Napoleon. It survived two world wars and the
Great Depression. It had traditions and connections
that seemed unbreakable. But it couldn't survive
one unsupervised employee with a computer. Exactly.
Technology is a force multiplier. In the 1800s,
if a partner made a bad bet in Argentina, it
took weeks for the ship to sail back to London
with the bad news. You had time to react. In
1995, and even more so today, you could lose
a billion dollars in the blink of an eye. It
really raises a pretty provocative question for
all of us now, doesn't it? We like to think our
modern financial system is safer. We have better
regulations. We have compliance officers. We
have AI monitoring trades. We've learned the
lesson of bearings. But have we? Really? That
is the multi -trillion dollar question. Because
if the person who is supposed to be watching
the system is also the person who can manipulate
the system, history would suggest no institution
is ever truly safe. The tools get faster, the
money gets bigger. The basic human psychology,
the greed, the fear, the desperate need to hide
a mistake, that hasn't changed one bit since
1762. Does the speed of information today just
mean that a 200 -year -old institution can be
destroyed even faster than Barings was? I think
the answer is almost certainly yes. In a digital
world, trust and capital can evaporate in seconds.
Barings was really the first great casualty of
the digital trading age, and I very much doubt
it will be the last. On that slightly terrifying
note, I think I'm going to go check my own bank
balance just to be on the safe side. Probably
not a bad idea. Thanks for listening to this
deep dive. We'll see you next time.