WEBVTT 00:00:00.000 --> 00:00:05.299 827 million pounds. I want you to just sit with 00:00:05.299 --> 00:00:07.719 that number for a moment. Don't just let it wash 00:00:07.719 --> 00:00:10.060 over you like another headline about, you know, 00:00:10.060 --> 00:00:11.779 the national debt or a tech company valuation. 00:00:12.220 --> 00:00:15.480 Picture it in cash. Picture it in 1995. Yeah, 00:00:15.560 --> 00:00:18.140 that's the key. This isn't today's money. At 00:00:18.140 --> 00:00:20.219 the time, in U .S. dollars, you're talking about 00:00:20.219 --> 00:00:24.460 roughly 1 .4 billion dollars. 1 .4 billion. Gone. 00:00:24.620 --> 00:00:28.760 Just evaporated into thin air. It is a staggering 00:00:28.760 --> 00:00:30.879 sum. I mean, to put that into perspective, that 00:00:30.879 --> 00:00:32.640 amount of money could have funded the construction 00:00:32.640 --> 00:00:35.259 of, I don't know, multiple hospitals, finance 00:00:35.259 --> 00:00:38.299 small nations. Or as it turns out. Or as it turns 00:00:38.299 --> 00:00:40.219 out, it could completely wipe out an institution 00:00:40.219 --> 00:00:42.439 that had stood for over two centuries. And that 00:00:42.439 --> 00:00:44.869 is the key here. We aren't talking about a loss 00:00:44.869 --> 00:00:47.710 spread across a decade of bad quarterly earnings 00:00:47.710 --> 00:00:51.130 or a slow agonizing decline where everyone sees 00:00:51.130 --> 00:00:53.609 the end coming. No, this is a cliff. It was a 00:00:53.609 --> 00:00:56.689 cratering event, a nuclear detonation in the 00:00:56.689 --> 00:00:58.950 financial sector. And the victim wasn't just 00:00:58.950 --> 00:01:02.469 any bank. It was Barings Bank. The Queen's Bank. 00:01:02.750 --> 00:01:05.269 The Queen's Bank. I mean, come on. This is the 00:01:05.269 --> 00:01:08.150 United Kingdom's oldest merchant bank. We are 00:01:08.150 --> 00:01:10.760 talking about an institution with deep. deep 00:01:10.760 --> 00:01:13.879 roots. This is the bank that financed the Napoleonic 00:01:13.879 --> 00:01:16.540 Wars. Unbelievable. When the United States bought 00:01:16.540 --> 00:01:19.480 the Louisiana territory from France, the Louisiana 00:01:19.480 --> 00:01:22.040 purchase bearings helped finance that deal. It 00:01:22.040 --> 00:01:24.159 survived the Great Depression. It survived two 00:01:24.159 --> 00:01:27.340 world wars. It felt permanent, you know, like 00:01:27.340 --> 00:01:29.900 the Tower of London or the monarchy itself. And 00:01:29.900 --> 00:01:32.519 then effectively overnight, it was brought to 00:01:32.519 --> 00:01:35.040 its knees. And usually when you see a collapse 00:01:35.040 --> 00:01:37.359 of that magnitude, particularly of an institution 00:01:37.359 --> 00:01:41.260 that that. entrenched, you expect a really complex 00:01:41.260 --> 00:01:44.480 web of causes. Right. You expect a rival nation 00:01:44.480 --> 00:01:47.159 state conducting economic warfare. You expect 00:01:47.159 --> 00:01:50.000 systemic rot involving the entire board of directors 00:01:50.000 --> 00:01:53.299 or, you know, a massive, sophisticated criminal 00:01:53.299 --> 00:01:56.739 syndicate with hundreds of operatives and supercomputers. 00:01:56.840 --> 00:01:58.439 Right. You expect a Bond villain. You expect 00:01:58.439 --> 00:02:01.060 Blofeld stroking a cat in a volcano lair. Exactly. 00:02:01.239 --> 00:02:03.519 But here we don't have a syndicate. We don't 00:02:03.519 --> 00:02:06.819 have a geopolitical conspiracy. We have Nick 00:02:06.819 --> 00:02:10.560 Leeson. What? One guy, a 28 -year -old derivatives 00:02:10.560 --> 00:02:13.860 trader. A working class kid from Watford. That 00:02:13.860 --> 00:02:15.960 is the part that absolutely blows my mind. This 00:02:15.960 --> 00:02:18.740 isn't a story about a boardroom of gray -haired 00:02:18.740 --> 00:02:21.639 executives in smoke -filled rooms plotting to 00:02:21.639 --> 00:02:23.960 defraud the public. No. It's about one young 00:02:23.960 --> 00:02:26.860 man in a brightly colored trading jacket in Singapore, 00:02:27.060 --> 00:02:30.819 basically gambling the house, the whole house, 00:02:30.900 --> 00:02:33.689 and losing. It really is the ultimate case study 00:02:33.689 --> 00:02:36.189 in the butterfly effect, or maybe more accurately, 00:02:36.289 --> 00:02:38.669 the snowball effect. The snowball effect. I like 00:02:38.669 --> 00:02:41.689 that. It's about how a small snowball, a tiny 00:02:41.689 --> 00:02:45.490 little lie rolling down a very steep hill, can 00:02:45.490 --> 00:02:47.789 eventually trigger an avalanche that just buries 00:02:47.789 --> 00:02:50.009 a mountain. So that is our mission for this deep 00:02:50.009 --> 00:02:52.169 dive. We are going to unpack how on earth this 00:02:52.169 --> 00:02:55.000 happened. How did a boy from a council estate 00:02:55.000 --> 00:02:57.599 in Watford end up holding the fate of the global 00:02:57.599 --> 00:03:00.520 financial markets in his hands? We aren't just 00:03:00.520 --> 00:03:01.879 going to look at the numbers. We're going to 00:03:01.879 --> 00:03:05.319 look at the psychology of the cover -up. We need 00:03:05.319 --> 00:03:07.979 to understand the sunk cost fallacy that drove 00:03:07.979 --> 00:03:11.479 him, the absolute failure of the checks and balances 00:03:11.479 --> 00:03:13.900 that should have stopped him, and just the human 00:03:13.900 --> 00:03:17.580 story of how a little lie becomes a billion -dollar 00:03:17.580 --> 00:03:20.189 disaster. And we have a great stack of sources 00:03:20.189 --> 00:03:22.909 for this one. We're analyzing the biography and 00:03:22.909 --> 00:03:25.750 criminal proceedings of Leeson, his own accounts 00:03:25.750 --> 00:03:28.449 from his autobiography, Rogue Trader, and, of 00:03:28.449 --> 00:03:30.729 course, the official inquiry reports. It's going 00:03:30.729 --> 00:03:33.289 to be good. It is a fascinating and, frankly, 00:03:33.409 --> 00:03:36.030 a terrifying look at the man behind the headlines. 00:03:36.270 --> 00:03:38.770 So let's rewind. Let's go all the way back to 00:03:38.770 --> 00:03:42.810 the beginning. Who is Nick Leeson? Because when 00:03:42.810 --> 00:03:45.169 I think rogue trader destroying a merchant bank, 00:03:45.349 --> 00:03:49.169 I picture someone who went to Eaton. Then Oxford. 00:03:49.710 --> 00:03:52.189 Someone born with a silver spoon. Exactly. Someone 00:03:52.189 --> 00:03:53.729 born with a silver spoon in their mouth, wearing 00:03:53.729 --> 00:03:56.009 a signet ring and speaking in that very specific 00:03:56.009 --> 00:03:58.530 upper crust received pronunciation. And this 00:03:58.530 --> 00:04:00.469 is the first misconception we need to clear up. 00:04:00.509 --> 00:04:02.969 And it's so crucial to understanding the psychology 00:04:02.969 --> 00:04:05.389 at play here. Nick Leeson was born on February 00:04:05.389 --> 00:04:10.069 25, 1967 in Watford, Hertfordshire. His background 00:04:10.069 --> 00:04:13.349 was very much working class. The sources mentioned 00:04:13.349 --> 00:04:15.729 he grew up on a council estate. For our international 00:04:15.729 --> 00:04:17.990 listeners, that's basically public housing. Exactly. 00:04:18.149 --> 00:04:20.980 His father. was a self -employed plasterer. His 00:04:20.980 --> 00:04:23.199 mother was a nurse. This was a grounded blue 00:04:23.199 --> 00:04:25.379 -collar upbringing. Right. He attended Kingway 00:04:25.379 --> 00:04:27.800 Junior School and then Parmiter School in Garston. 00:04:28.160 --> 00:04:30.379 He wasn't rubbing shoulders with the children 00:04:30.379 --> 00:04:33.420 of dukes and earls. Not at all. And academically. 00:04:33.680 --> 00:04:36.420 Was he some sort of goodwill -hunting -style 00:04:36.420 --> 00:04:39.420 secret genius? Did he show early signs of financial 00:04:39.420 --> 00:04:41.980 brilliance? Not in the traditional academic sense, 00:04:42.040 --> 00:04:45.120 no. He left school after the sixth form in 1985. 00:04:46.079 --> 00:04:48.439 He had six O -levels and two A -level passes. 00:04:48.899 --> 00:04:51.199 It's respectable, certainly. It shows he was 00:04:51.199 --> 00:04:54.199 competent. But it is not the academic pedigree 00:04:54.199 --> 00:04:56.459 you would typically associate with the high -flying 00:04:56.459 --> 00:04:58.339 world of international derivatives trading in 00:04:58.339 --> 00:05:00.560 the 80s and 90s. Not at all. I mean, in that 00:05:00.560 --> 00:05:02.819 era, the city of London was still very much an 00:05:02.819 --> 00:05:05.259 old boys club. It really highlights the contrast, 00:05:05.459 --> 00:05:08.139 doesn't it? You have this incredibly old -school, 00:05:08.180 --> 00:05:10.899 aristocratic institution like Barings, where 00:05:10.899 --> 00:05:13.000 pedigree was everything, and then you have Leeson. 00:05:13.319 --> 00:05:16.199 It makes his rise seem even more impressive at 00:05:16.199 --> 00:05:18.519 first. It does. He must have had a massive chip 00:05:18.519 --> 00:05:20.259 on his shoulder. I think that's a fair assessment. 00:05:20.420 --> 00:05:23.360 He started at the absolute bottom. His first 00:05:23.360 --> 00:05:26.899 job was as a clerk at Coutts' private bank on 00:05:26.899 --> 00:05:30.259 Lombard Street. Coutts. Again, very posh. Very 00:05:30.259 --> 00:05:33.399 posh. That's where the royal family banks. But 00:05:33.399 --> 00:05:35.800 Leeson wasn't managing their wealth. He was settling 00:05:35.800 --> 00:05:38.000 paper checks. He was in the plumbing of the banking 00:05:38.000 --> 00:05:40.959 world. Precisely. Crediting and debiting accounts. 00:05:41.279 --> 00:05:44.480 It's tedious, detailed work. But, and this is 00:05:44.480 --> 00:05:46.759 important, it teaches you the mechanics of how 00:05:46.759 --> 00:05:48.600 money moves. It teaches you where the cracks 00:05:48.600 --> 00:05:51.980 are in the system. Right. So in 1987, he moves 00:05:51.980 --> 00:05:54.600 to Morgan Stanley. moving up in the world. A 00:05:54.600 --> 00:05:57.139 big hitter. A massive step up. But he was still 00:05:57.139 --> 00:05:59.319 in the back office. He was in the futures and 00:05:59.319 --> 00:06:01.819 options back office, clearing and settling derivatives. 00:06:02.540 --> 00:06:04.680 And this distinction is going to be the engine 00:06:04.680 --> 00:06:06.600 of our entire story, the difference between the 00:06:06.600 --> 00:06:09.120 front office and the back office. OK, let's break 00:06:09.120 --> 00:06:11.040 that down, because I feel like the cultural difference 00:06:11.040 --> 00:06:13.959 between those two rooms is everything. Front 00:06:13.959 --> 00:06:16.180 office is the glamour, right? That's the trading 00:06:16.180 --> 00:06:18.220 floor, the shouting, the phone slamming, the 00:06:18.220 --> 00:06:20.720 buying and selling. It's the Wolf of Wall Street. 00:06:21.180 --> 00:06:24.300 Correct. The front office creates the revenue. 00:06:24.480 --> 00:06:26.600 They are the rock stars. They get the massive 00:06:26.600 --> 00:06:30.139 bonuses, the client dinners, the glory. The back 00:06:30.139 --> 00:06:33.439 office is the engine room. They do the paperwork, 00:06:33.639 --> 00:06:35.560 the settlement, making sure the trades actually 00:06:35.560 --> 00:06:37.920 happen and the money is where it's supposed to 00:06:37.920 --> 00:06:42.480 be. They are often viewed by the traders as support 00:06:42.480 --> 00:06:46.060 staff or worse as bureaucratic hurdles. The roadies 00:06:46.060 --> 00:06:48.509 versus the band. That is the perfect analogy. 00:06:48.829 --> 00:06:51.269 And the traders often treat the back office with 00:06:51.269 --> 00:06:53.750 a certain level of disdain. Leeson was in the 00:06:53.750 --> 00:06:55.709 back office, but he desperately wanted to be 00:06:55.709 --> 00:06:57.470 in the front. And he hit a ceiling at Morgan 00:06:57.470 --> 00:07:00.610 Stanley. He did. Without a university degree, 00:07:00.870 --> 00:07:03.069 the path to the trading floor just wasn't there 00:07:03.069 --> 00:07:06.350 for him. So in 1989, he joined Barings Bank. 00:07:06.610 --> 00:07:10.009 For the princely sum of £12 ,000 a year. Which, 00:07:10.050 --> 00:07:13.269 to be fair, is about £42 ,000 in today's money. 00:07:14.600 --> 00:07:17.759 A decent starting wage for a young man, but he 00:07:17.759 --> 00:07:21.360 wasn't rich. However, at Barings, he started 00:07:21.360 --> 00:07:24.279 to carve out a reputation for himself, not as 00:07:24.279 --> 00:07:27.139 a trader yet, but as a troubleshooter, a fixer. 00:07:27.199 --> 00:07:29.279 I love this part of the story because it shows 00:07:29.279 --> 00:07:32.560 he was actually good at his job. He wasn't incompetent. 00:07:32.560 --> 00:07:35.399 He was actually a very effective operator. Incredibly 00:07:35.399 --> 00:07:38.120 competent at the administrative side. There's 00:07:38.120 --> 00:07:41.500 a specific incident in 1990 that really cemented 00:07:41.500 --> 00:07:44.769 his reputation. He was sent to Jakarta, Indonesia. 00:07:45.970 --> 00:07:48.129 Barings had a massive mess on their hands, about 00:07:48.129 --> 00:07:50.810 $100 million in unpaid share certificates. Just 00:07:50.810 --> 00:07:52.509 sitting there. Just sitting in piles. It was 00:07:52.509 --> 00:07:54.970 a backlog nightmare. The back office in Jakarta 00:07:54.970 --> 00:07:58.149 had completely melted down. Leeson goes in, rolls 00:07:58.149 --> 00:08:00.730 up his sleeves, and he sorts it out. He untangled 00:08:00.730 --> 00:08:03.050 the knot. He did. He cleared the backlog. He 00:08:03.050 --> 00:08:05.170 proved he could handle pressure, that he could 00:08:05.170 --> 00:08:07.589 navigate chaos, and that he understood the systems 00:08:07.589 --> 00:08:09.889 better than anyone else. So to the executives 00:08:09.889 --> 00:08:12.360 back in London. He looked like a safe pair of 00:08:12.360 --> 00:08:15.000 hands. The safest. And then he even investigated 00:08:15.000 --> 00:08:19.060 fraud, didn't he? Yes. The supreme irony of this 00:08:19.060 --> 00:08:23.279 timeline. In 1991, he returned to London to investigate 00:08:23.279 --> 00:08:25.759 a case where another employee was using a client's 00:08:25.759 --> 00:08:27.800 account to trade on their own behalf. He helped 00:08:27.800 --> 00:08:31.560 unravel that scheme. So by 1992, Barings looked 00:08:31.560 --> 00:08:34.960 at Nick Leeson and saw a loyal, effective, sharp 00:08:34.960 --> 00:08:37.139 employee who understood the plumbing of the bank 00:08:37.139 --> 00:08:39.750 better than anyone. Which... makes what happens 00:08:39.750 --> 00:08:42.250 next so tragic. He had built this solid reputation. 00:08:42.470 --> 00:08:44.850 He was the guy you sent in to fix the mess. So 00:08:44.850 --> 00:08:47.190 naturally, when Barings decides to expand, they 00:08:47.190 --> 00:08:50.669 look to him. April 1992. Barings opens a futures 00:08:50.669 --> 00:08:53.149 and options office in Singapore. Their goal is 00:08:53.149 --> 00:08:55.009 to trade on Cimex, the Singapore International 00:08:55.009 --> 00:08:57.710 Monetary Exchange. The Asian markets are exploding 00:08:57.710 --> 00:08:59.590 at this time. It's the place to be. That's where 00:08:59.590 --> 00:09:01.450 all the action is. They need someone to run it. 00:09:01.490 --> 00:09:03.549 They choose Leeson. He's appointed general manager. 00:09:04.080 --> 00:09:06.039 This is his big break. He's going to run the 00:09:06.039 --> 00:09:08.299 show in Singapore. He is finally getting a shot 00:09:08.299 --> 00:09:10.759 at the big time. Everything he wanted. But before 00:09:10.759 --> 00:09:13.600 he even gets on the plane, there is a massive 00:09:13.600 --> 00:09:17.460 red flag, a huge sliding doors moment that nobody 00:09:17.460 --> 00:09:20.720 seems to notice, or rather a red flag that gets 00:09:20.720 --> 00:09:23.600 buried. This is a critical moment. Before leaving 00:09:23.600 --> 00:09:26.360 for Singapore, Leeson applied for a broker's 00:09:26.360 --> 00:09:29.039 license in the UK. You need a license to trade. 00:09:29.559 --> 00:09:32.899 And he was denied. Denied? Why? He was their 00:09:32.899 --> 00:09:35.960 golden boy fixer. Fraud on his application. Oof. 00:09:36.519 --> 00:09:39.419 That is a heavy word. What did he do? He had 00:09:39.419 --> 00:09:42.279 a county court judgment against him for an unpaid 00:09:42.279 --> 00:09:44.879 debt to National Westminster Bank. It wasn't 00:09:44.879 --> 00:09:46.919 a huge amount of money, but it was a legal judgment. 00:09:47.139 --> 00:09:49.620 Okay. On the license application, there's a box 00:09:49.620 --> 00:09:52.039 that asks, do you have any county court judgments 00:09:52.039 --> 00:09:56.399 against you? Leeson ticked no. He lied. He lied. 00:09:56.639 --> 00:09:58.919 The regulators in the UK checked the records, 00:09:59.019 --> 00:10:01.100 saw that he lied, and they denied the license. 00:10:01.440 --> 00:10:04.159 Flat out. So he can't be a broker in the UK because 00:10:04.159 --> 00:10:06.360 he lied about a debt. But he's about to go to 00:10:06.360 --> 00:10:08.879 Singapore to run a trading desk. Did Barings 00:10:08.879 --> 00:10:11.490 know? The source material indicates that neither 00:10:11.490 --> 00:10:14.129 Leeson nor Barings disclosed this denial when 00:10:14.129 --> 00:10:16.370 he applied for his license in Singapore. So they 00:10:16.370 --> 00:10:18.629 just glossed over it, looked the other way. It 00:10:18.629 --> 00:10:20.870 appears so. Whether it was a communication breakdown, 00:10:21.029 --> 00:10:23.929 I thought you told them, or a willful blinding 00:10:23.929 --> 00:10:25.870 to get their man in place. The result is the 00:10:25.870 --> 00:10:27.889 same. The result was that the Singapore authorities 00:10:27.889 --> 00:10:31.409 were unaware of his history in the UK. He got 00:10:31.409 --> 00:10:33.990 the license in Singapore. That is foreshadowing 00:10:33.990 --> 00:10:36.370 if I've ever heard it. He starts his new life 00:10:36.370 --> 00:10:39.620 with a secret. But the real issue wasn't just 00:10:39.620 --> 00:10:42.100 his license, right? It was the job description 00:10:42.100 --> 00:10:45.559 itself. This is where the expert in you must 00:10:45.559 --> 00:10:47.940 be screaming at the transcript. Oh, this is the 00:10:47.940 --> 00:10:50.419 part that makes every risk manager, auditor, 00:10:50.679 --> 00:10:53.240 and compliance officer in the world wake up in 00:10:53.240 --> 00:10:56.600 a cold sweat. Laughs. I'd imagine. In Singapore, 00:10:56.879 --> 00:10:59.519 Leeson was appointed general manager. That meant 00:10:59.519 --> 00:11:01.679 he was in charge of the front office, the traders 00:11:01.679 --> 00:11:04.919 executing the bets on the SimEx floor. But he 00:11:04.919 --> 00:11:06.980 was also in charge of the back office, the people 00:11:06.980 --> 00:11:09.100 settling the trades and checking the accounts. 00:11:09.379 --> 00:11:12.000 Okay, let's unpack this. Why is that such a bad 00:11:12.000 --> 00:11:14.320 thing? To a layman, it sounds like efficiency. 00:11:14.659 --> 00:11:17.830 One boss for the whole branch. It is a fundamental 00:11:17.830 --> 00:11:20.529 violation of financial safety. It's called segregation 00:11:20.529 --> 00:11:23.590 of duties. You need the person keeping the score 00:11:23.590 --> 00:11:25.789 to be different from the person playing the game. 00:11:25.850 --> 00:11:28.190 If the person making the bets is also the person 00:11:28.190 --> 00:11:29.909 writing down the results, they can write down 00:11:29.909 --> 00:11:32.909 whatever they want. There's no referee. He is 00:11:32.909 --> 00:11:35.750 the pitcher and the umpire. Exactly. There was 00:11:35.750 --> 00:11:37.950 no one to check his work because he was his own 00:11:37.950 --> 00:11:40.470 boss in both departments. He could make a trade 00:11:40.470 --> 00:11:43.090 on the floor, lose money, walk back to the office, 00:11:43.289 --> 00:11:45.860 and essentially... Tell the computer system and 00:11:45.860 --> 00:11:48.799 the staff he managed to ignore that trade or 00:11:48.799 --> 00:11:51.580 record it differently. It removed the only safety 00:11:51.580 --> 00:11:54.100 net that exists in banking. The only one that 00:11:54.100 --> 00:11:56.399 matters. And Barings allowed this. They did. 00:11:56.580 --> 00:11:58.840 It was a satellite office. They wanted to keep 00:11:58.840 --> 00:12:02.139 costs down. Why hire two managers when Nick the 00:12:02.139 --> 00:12:05.019 fixer could do both? They trusted him. And at 00:12:05.019 --> 00:12:08.019 first, that trust seemed well placed. He arrives 00:12:08.019 --> 00:12:11.100 in Singapore. He starts trading. And he's killing 00:12:11.100 --> 00:12:14.080 it. He was seen as a superstar. Now, we have 00:12:14.080 --> 00:12:15.840 to clarify what he was supposed to be doing. 00:12:15.899 --> 00:12:17.820 He was supposed to be doing arbitrage. Right. 00:12:17.940 --> 00:12:20.740 Let's define that. Arbitrage sounds fancy, but 00:12:20.740 --> 00:12:22.659 it's actually a very low risk strategy, isn't 00:12:22.659 --> 00:12:24.860 it? Theoretically, yes. It's supposed to be boring. 00:12:25.440 --> 00:12:28.019 Arbitrage is exploiting a tiny price difference 00:12:28.019 --> 00:12:30.720 between two markets. In this case, Leeson was 00:12:30.720 --> 00:12:35.039 trading Nikkei 225 futures. He would buy contracts 00:12:35.039 --> 00:12:37.799 on the CMAX in Singapore. and sell them on the 00:12:37.799 --> 00:12:41.580 Osaka exchange in Japan, or vice versa. If the 00:12:41.580 --> 00:12:44.700 price in Singapore is $100 and the price in Osaka 00:12:44.700 --> 00:12:48.960 is $101? You buy in Singapore, sell in Osaka, 00:12:49.179 --> 00:12:51.980 and pocket the $1 difference. Exactly. It's free 00:12:51.980 --> 00:12:54.240 money, basically. Or at least it should be. It's 00:12:54.240 --> 00:12:57.120 steady, boring money. You aren't betting on the 00:12:57.120 --> 00:12:58.860 market going up or down. You are just betting 00:12:58.860 --> 00:13:01.960 on that little price gap closing. London thought 00:13:01.960 --> 00:13:05.019 he was doing this safe, boring trading. But because 00:13:05.019 --> 00:13:07.370 of his dual role. He could hide the fact that 00:13:07.370 --> 00:13:09.230 he was doing something very, very different. 00:13:09.450 --> 00:13:11.289 He wasn't just doing arbitrage. He was gambling. 00:13:11.570 --> 00:13:14.750 But initially, the gambling paid off. Big time. 00:13:15.029 --> 00:13:17.809 He made 10 million pounds for bearings, which 00:13:17.809 --> 00:13:20.889 was roughly 10 % of their entire annual profit 00:13:20.889 --> 00:13:22.970 at the time. Just stop and think about that. 00:13:23.049 --> 00:13:26.330 One guy in a small office in Singapore is generating 00:13:26.330 --> 00:13:29.649 10 % of a historic bank's entire annual profit. 00:13:29.889 --> 00:13:32.409 He must have been treated like a king. Untouchable. 00:13:32.779 --> 00:13:37.200 He earned a bonus of £130 ,000 on top of his 00:13:37.200 --> 00:13:40.980 £50 ,000 salary. He was the golden goose. But 00:13:40.980 --> 00:13:43.019 beneath the surface, the mechanism for disaster 00:13:43.019 --> 00:13:46.200 was already running. This brings us to the infamous 00:13:46.200 --> 00:13:48.840 account number. You know this story, you know 00:13:48.840 --> 00:13:53.259 the number. 8888. A very lucky number in Chinese 00:13:53.259 --> 00:13:57.580 culture. 8 symbolizes prosperity. The irony is 00:13:57.580 --> 00:14:01.820 just, it's painful. So... What was this account 00:14:01.820 --> 00:14:04.659 actually supposed to be? Officially, it was an 00:14:04.659 --> 00:14:07.549 error account. In trading, especially back then, 00:14:07.649 --> 00:14:11.129 with open outcry, pits people shouting, using 00:14:11.129 --> 00:14:14.350 hand signals, paper tickets mistakes happen constantly. 00:14:14.590 --> 00:14:17.470 You buy when you meant to sell. You buy 100 contracts 00:14:17.470 --> 00:14:19.730 instead of 10. These small discrepancies happen 00:14:19.730 --> 00:14:21.669 every single day. So it's like a junk drawer 00:14:21.669 --> 00:14:23.549 for small mistakes until you can sort them out. 00:14:23.850 --> 00:14:25.850 Precisely. You put the bad trade in the error 00:14:25.850 --> 00:14:27.850 account, you unravel it, you take the small loss, 00:14:27.990 --> 00:14:29.990 you report it, and you move on. It is standard 00:14:29.990 --> 00:14:32.710 practice. But Leeson began using it for a very 00:14:32.710 --> 00:14:34.509 different purpose. And the sources say the first 00:14:34.509 --> 00:14:36.730 time he used it, elicitly. It wasn't even for 00:14:36.730 --> 00:14:38.950 his own mistake. That's the story Leeson tells, 00:14:39.110 --> 00:14:41.789 and it aligns with the timeline. He claims he 00:14:41.789 --> 00:14:45.230 first used account 88888 to hide a mistake made 00:14:45.230 --> 00:14:48.549 by a subordinate. A young, inexperienced team 00:14:48.549 --> 00:14:51.649 member had been assigned to buy 20 futures contracts 00:14:51.649 --> 00:14:54.809 for Fuji Bank. Instead, she sold them. She sold 00:14:54.809 --> 00:14:57.769 them. A classic mix -up. But the market moved, 00:14:57.970 --> 00:15:00.889 and suddenly that mistake has a price tag. How 00:15:00.889 --> 00:15:04.250 much? It cost Barings 20 ,000 pounds. Now, in 00:15:04.250 --> 00:15:07.009 the grand scheme of a merchant bank, 20 ,000 00:15:07.009 --> 00:15:09.590 pounds is a rounding error. It is manageable. 00:15:09.990 --> 00:15:11.929 Right. If he had reported it. He would have taken 00:15:11.929 --> 00:15:14.149 a slap on the wrist. Maybe the junior staffer 00:15:14.149 --> 00:15:16.210 would have been reprimanded. But life would have 00:15:16.210 --> 00:15:18.690 gone on. But Leeson didn't report it. Why? He 00:15:18.690 --> 00:15:20.850 wanted to protect his team. He wanted to be the 00:15:20.850 --> 00:15:23.490 good boss. And perhaps, more importantly, he 00:15:23.490 --> 00:15:25.570 wanted to protect his own image as the manager 00:15:25.570 --> 00:15:28.610 who ran a tight, flawless ship. He didn't want 00:15:28.610 --> 00:15:31.149 London to think his office was... sloppy. So 00:15:31.149 --> 00:15:34.649 he hid the loss in account 88888. He did. And 00:15:34.649 --> 00:15:36.389 that is the first step on the slippery slope. 00:15:36.590 --> 00:15:39.009 Once you realize you can hide a 20 ,000 pound 00:15:39.009 --> 00:15:42.090 loss and no one notices, it becomes a tool. It 00:15:42.090 --> 00:15:45.009 becomes a solution to every problem. He used 00:15:45.009 --> 00:15:47.289 it to cover mistakes by a trader who came in 00:15:47.289 --> 00:15:50.009 hungover. It became the rug under which he swept 00:15:50.009 --> 00:15:53.309 all the dirt. But then, Leeson himself made a 00:15:53.309 --> 00:15:56.250 massive error. Okay. He forgot to reconcile a 00:15:56.250 --> 00:15:59.629 discrepancy of 500 contracts. 500 contracts. 00:15:59.789 --> 00:16:02.490 That is a significantly larger problem than 20 00:16:02.490 --> 00:16:04.309 contracts. We're talking about a U .S. dollar 00:16:04.309 --> 00:16:08.559 loss of $1 .7 million. Wow. OK, so now the stakes 00:16:08.559 --> 00:16:10.519 are totally different. Twenty thousand pounds 00:16:10.519 --> 00:16:13.080 is a sorry boss moment. One point seven million 00:16:13.080 --> 00:16:15.700 dollars is a you're fired, your career is over 00:16:15.700 --> 00:16:18.320 and maybe you get sued moment. Exactly. He concluded 00:16:18.320 --> 00:16:20.879 that the only way to keep his job, his lifestyle, 00:16:21.080 --> 00:16:24.139 his reputation as a star was to hide it. So he 00:16:24.139 --> 00:16:25.899 shoves it in the five eights account. He did. 00:16:26.080 --> 00:16:28.379 And because he controlled the back office, he 00:16:28.379 --> 00:16:31.240 could instruct the system to simply exclude account 00:16:31.240 --> 00:16:33.740 88888 from the reports that were sent to London. 00:16:33.919 --> 00:16:35.960 So London sees the profits he's reporting from 00:16:35.960 --> 00:16:38.419 his winning trades, but they don't see the losses 00:16:38.419 --> 00:16:40.899 accumulating in the secret drawer. They are looking 00:16:40.899 --> 00:16:43.279 at a balance sheet that is effectively a fiction. 00:16:43.360 --> 00:16:46.990 A complete fiction. London thought he was executing 00:16:46.990 --> 00:16:50.730 a very specific low risk strategy. They saw the 00:16:50.730 --> 00:16:53.429 profits coming in. What they didn't see was that 00:16:53.429 --> 00:16:55.990 to generate those profits, he was taking wild, 00:16:56.330 --> 00:16:59.289 unapproved risks. And every time he lost, he 00:16:59.289 --> 00:17:01.090 just hid the evidence. And there's a question 00:17:01.090 --> 00:17:04.339 about personal gain here, too. Leeson always 00:17:04.339 --> 00:17:06.619 insisted he didn't use the account to steal money 00:17:06.619 --> 00:17:09.079 for himself, rightly. He wasn't siphoning cash 00:17:09.079 --> 00:17:11.480 into a Swiss bank account to run away to a tropical 00:17:11.480 --> 00:17:14.119 island. He has always maintained that. He claims 00:17:14.119 --> 00:17:16.160 it was all about reputation management, keeping 00:17:16.160 --> 00:17:19.980 his job, and maintaining that star status. However, 00:17:20.140 --> 00:17:23.420 we have to be objective with the sources. Investigators 00:17:23.420 --> 00:17:26.660 later located approximately $35 million in various 00:17:26.660 --> 00:17:29.119 bank accounts tied to him. That is a significant 00:17:29.119 --> 00:17:31.299 discrepancy from, I just wanted to keep my job. 00:17:31.460 --> 00:17:33.960 It is. Whether that money was... bonuses he felt 00:17:33.960 --> 00:17:36.460 he earned through his fraudulent profits or direct 00:17:36.460 --> 00:17:39.500 skimming is, I think, up for debate. But regardless 00:17:39.500 --> 00:17:41.440 of whether he was lining his own pocket, the 00:17:41.440 --> 00:17:43.519 primary driver of the collapse was the trading 00:17:43.519 --> 00:17:46.160 losses themselves. The hole he was digging was 00:17:46.160 --> 00:17:48.759 getting deeper every single day. And this brings 00:17:48.759 --> 00:17:51.559 us to the psychology of the gambler. Because 00:17:51.559 --> 00:17:54.180 that's what he became. He wasn't trading anymore. 00:17:54.319 --> 00:17:57.539 He was gambling. And he had a specific strategy 00:17:57.539 --> 00:18:00.799 for when he was losing. The doubling strategy. 00:18:01.440 --> 00:18:03.740 In gambling theory, it's often called the Martingale 00:18:03.740 --> 00:18:06.619 system. It's seductive because the math seems 00:18:06.619 --> 00:18:09.819 to work. Right. The idea is simple. If you lose, 00:18:10.000 --> 00:18:11.940 you just double your bet next time. Exactly. 00:18:11.980 --> 00:18:14.640 Because if you win the double bet, you make back 00:18:14.640 --> 00:18:17.779 your original loss plus a profit. If you bet 00:18:17.779 --> 00:18:20.500 100 pounds and lose, you're down 100. So you 00:18:20.500 --> 00:18:23.339 bet 200. If you win, you're now up 100 overall. 00:18:23.539 --> 00:18:26.920 If you lose that, you bet 400. Then 800. It works 00:18:26.920 --> 00:18:29.359 mathematically until you run out of money. Or 00:18:29.359 --> 00:18:32.000 until a house limits your bet. But here, Leeson 00:18:32.000 --> 00:18:34.279 was the house. He was the one approving the funds 00:18:34.279 --> 00:18:36.839 from London. He was the one overriding the limits. 00:18:37.079 --> 00:18:39.299 And the most dangerous part. It had worked for 00:18:39.299 --> 00:18:42.839 him before. It had. In 1993, he had a negative 00:18:42.839 --> 00:18:45.920 balance of £6 million in the error account. He 00:18:45.920 --> 00:18:47.960 doubled down, the market turned in his favor, 00:18:48.099 --> 00:18:50.500 and he cleared the debt. He got back to zero. 00:18:50.759 --> 00:18:53.400 He even vowed he would stop. But you never stop 00:18:53.400 --> 00:18:55.759 when you're winning like that. That just reinforces 00:18:55.759 --> 00:18:58.319 the bad behavior. It tells you, I can fix this. 00:18:58.480 --> 00:19:02.240 I fixed it last time. I'm invincible. That is 00:19:02.240 --> 00:19:05.380 the success bias. He believed he was a trading 00:19:05.380 --> 00:19:07.940 genius who could outsmart the market. He thought 00:19:07.940 --> 00:19:10.619 he could bend the mickey to his will. But the 00:19:10.619 --> 00:19:12.640 numbers started to turn against him and they 00:19:12.640 --> 00:19:15.019 turned aggressively. Let's look at the timeline 00:19:15.019 --> 00:19:17.500 of these losses because the acceleration is just 00:19:17.500 --> 00:19:21.269 terrifying. At the end of 1992, the error count 00:19:21.269 --> 00:19:25.509 is down 2 million pounds. Manageable for a bank 00:19:25.509 --> 00:19:29.349 like Barings, but bad. Okay. By late 1993, it's 00:19:29.349 --> 00:19:32.009 down 23 million. This is now a serious crisis. 00:19:32.430 --> 00:19:35.250 A huge problem. And by the end of 1994, it has 00:19:35.250 --> 00:19:39.210 ballooned to 208 million pounds. 208 million 00:19:39.210 --> 00:19:41.440 pounds. That is. I mean, how do you hide a hole 00:19:41.440 --> 00:19:43.500 that big? You can't just slide that under the 00:19:43.500 --> 00:19:45.299 carpet. That's a mountain under the carpet. You 00:19:45.299 --> 00:19:47.339 have to lie constantly. You have to become a 00:19:47.339 --> 00:19:50.339 master manipulator. Leeson had to fabricate stories 00:19:50.339 --> 00:19:52.720 to London to explain why he needed more and more 00:19:52.720 --> 00:19:56.339 cash. Right. Because trading requires cash. It 00:19:56.339 --> 00:19:58.519 requires margin. Can you explain that for us? 00:19:58.680 --> 00:20:01.359 Sure. When you trade futures, you don't pay the 00:20:01.359 --> 00:20:04.079 full price up front. You put down a deposit, 00:20:04.180 --> 00:20:06.599 which is called a margin. If the market moves 00:20:06.599 --> 00:20:09.630 against you, if you are losing money. The exchange, 00:20:10.130 --> 00:20:13.430 in this case Cimex, issues a margin call. They 00:20:13.430 --> 00:20:15.809 call you up. They say, you are risky right now. 00:20:16.069 --> 00:20:18.950 Give us more cash to cover your position or we're 00:20:18.950 --> 00:20:21.450 closing you out. So Cimex is calling Leeson saying, 00:20:21.549 --> 00:20:24.450 we need $10 million today. And Leeson has to 00:20:24.450 --> 00:20:26.809 call London to get it. Exactly. And he would 00:20:26.809 --> 00:20:29.589 tell London, hey, business is booming. We're 00:20:29.589 --> 00:20:31.450 doing so many trades for clients. I need more 00:20:31.450 --> 00:20:33.589 liquidity to fund these profitable positions. 00:20:34.730 --> 00:20:36.890 Or he would say the exchanges raised their rates 00:20:36.890 --> 00:20:40.609 or a client is late paying. He made up endless 00:20:40.609 --> 00:20:42.990 excuses. And London sent the money. He sent the 00:20:42.990 --> 00:20:45.890 money without close scrutiny because Leeson was 00:20:45.890 --> 00:20:47.609 their star performer. You don't question the 00:20:47.609 --> 00:20:49.490 goose laying the golden eggs, even if the goose 00:20:49.490 --> 00:20:51.390 is asking for an awful lot of bird seed. They 00:20:51.390 --> 00:20:53.809 were blinded by the reported profits. They thought 00:20:53.809 --> 00:20:55.890 they were funding a money printing machine. There 00:20:55.890 --> 00:20:58.470 is a famous story where the auditors actually 00:20:58.470 --> 00:21:01.390 got close. They asked about a discrepancy. And 00:21:01.390 --> 00:21:04.049 Leeson forged a bank statement. Forged it how? 00:21:04.390 --> 00:21:06.990 He physically cut and pasted numbers from one 00:21:06.990 --> 00:21:09.190 statement to another using scissors and glue, 00:21:09.410 --> 00:21:12.529 photocopied it to hide the cut lines, and faxed 00:21:12.529 --> 00:21:15.910 it to the auditors. High -tech fraud. Scissors 00:21:15.910 --> 00:21:18.990 and glue. And it worked. They signed off. So 00:21:18.990 --> 00:21:23.509 we enter 1995. The hole is massive, $208 million. 00:21:23.970 --> 00:21:26.769 But maybe, just maybe, if the market stays calm, 00:21:26.829 --> 00:21:29.549 if nothing crazy happens, he can slowly trade 00:21:29.549 --> 00:21:31.650 his way out of it. That was likely his hope. 00:21:31.769 --> 00:21:34.049 He needed stability. He needed the market to 00:21:34.049 --> 00:21:36.730 be boring so he could earn premiums and slowly, 00:21:36.789 --> 00:21:40.349 slowly fill that hole. So on January 16, 1995, 00:21:40.730 --> 00:21:43.309 he placed a massive bet designed to profit from 00:21:43.309 --> 00:21:46.170 a quiet market. He placed a short straddle on 00:21:46.170 --> 00:21:48.470 the Singapore and Tokyo exchanges. OK, short 00:21:48.470 --> 00:21:50.470 straddle. That sounds technical. Break it down 00:21:50.470 --> 00:21:52.910 for us. What was he betting on? A short straddle 00:21:52.910 --> 00:21:55.430 is a volatility strategy. You are betting that 00:21:55.430 --> 00:21:57.589 the market will not move significantly up or 00:21:57.589 --> 00:21:59.910 down. So stability. You want the price to stay 00:21:59.910 --> 00:22:02.150 within a tight range. You're essentially selling 00:22:02.150 --> 00:22:04.650 the potential for big movement. If the market 00:22:04.650 --> 00:22:07.069 stays calm, you collect the premiums, the fees 00:22:07.069 --> 00:22:09.829 and make a profit. It's a bet on boredom. So 00:22:09.829 --> 00:22:11.650 he's looking at the Japanese economy and saying, 00:22:11.750 --> 00:22:14.900 stay still. Don't do anything crazy. Just have 00:22:14.900 --> 00:22:18.519 a normal Tuesday. Yes. He practically bet his 00:22:18.519 --> 00:22:21.779 life and the bank's life on a quiet day in the 00:22:21.779 --> 00:22:24.660 markets. And then the universe intervened. January 00:22:24.660 --> 00:22:28.880 17th, 1995. The very next day. The Great Hanshin 00:22:28.880 --> 00:22:31.559 Earthquake hits Kobe, Japan. It was a catastrophe. 00:22:32.299 --> 00:22:35.299 A magnitude 6 .9 earthquake. It devastated the 00:22:35.299 --> 00:22:37.859 city of Kobe. Bridges collapsed. Buildings fell. 00:22:38.079 --> 00:22:41.259 Fires raged. Thousands of people lost their lives. 00:22:41.440 --> 00:22:44.400 A massive humanitarian disaster. And naturally, 00:22:44.579 --> 00:22:47.039 the Asian financial markets reacted. They reacted 00:22:47.039 --> 00:22:49.500 violently. The foundation of the Japanese economy 00:22:49.500 --> 00:22:52.599 was shaking, literally and metaphorically. The 00:22:52.599 --> 00:22:54.920 Nikkei index plummeted. And Leeson's bet was 00:22:54.920 --> 00:22:57.000 that the market would stay stable. Instead, it 00:22:57.000 --> 00:22:59.480 swung wildly downwards. His short straddle was 00:22:59.480 --> 00:23:01.559 decimated instantly. He was losing millions. 00:23:01.680 --> 00:23:03.779 by the minute. This is the moment. This is the 00:23:03.779 --> 00:23:06.299 ultimate crossroads. He could have stopped. He 00:23:06.299 --> 00:23:08.200 could have picked up the phone, called London 00:23:08.200 --> 00:23:10.079 and said, there's been an earthquake. It's a 00:23:10.079 --> 00:23:12.920 natural disaster. The positions are blown. We've 00:23:12.920 --> 00:23:15.359 lost a lot of money. It would have been a career 00:23:15.359 --> 00:23:17.539 -ending phone call. He would have been fired. 00:23:17.700 --> 00:23:19.579 He would have been investigated for the previous 00:23:19.579 --> 00:23:22.200 losses, for sure. But bearings would have survived. 00:23:22.599 --> 00:23:24.480 They would have taken a massive hit, maybe hundreds 00:23:24.480 --> 00:23:26.759 of millions, but they likely would have survived. 00:23:27.079 --> 00:23:29.079 The earthquake would have been the excuse. It 00:23:29.079 --> 00:23:31.500 was an act of God. But he didn't make the call. 00:23:31.640 --> 00:23:36.019 No, he did the opposite. This is the sunk cost 00:23:36.019 --> 00:23:39.259 fallacy taking over his entire brain. He tried 00:23:39.259 --> 00:23:41.740 to recoup everything in one go. What did he do? 00:23:41.960 --> 00:23:45.059 He looked at the crashing market and decided 00:23:45.059 --> 00:23:47.900 to bet on a rapid recovery. He bet that the Japanese 00:23:47.900 --> 00:23:50.400 economy would bounce back immediately after a 00:23:50.400 --> 00:23:52.940 massive earthquake. That seems insane. It was 00:23:52.940 --> 00:23:56.799 a long, long future arbitrage. A desperate, massive 00:23:56.799 --> 00:23:59.279 bet that the Nikkei stock average would rise. 00:23:59.380 --> 00:24:01.599 He was buying futures contracts aggressively. 00:24:02.160 --> 00:24:04.460 He was effectively trying to prop up the entire 00:24:04.460 --> 00:24:07.500 Japanese stock market single -handedly with Barings 00:24:07.500 --> 00:24:09.319 money. He was trying to catch a falling knife. 00:24:09.519 --> 00:24:11.539 And he was doing it with money Barings didn't 00:24:11.539 --> 00:24:13.279 really have. He was leveraging the bank to the 00:24:13.279 --> 00:24:16.410 hilt. But the recovery never happened. The aftershocks 00:24:16.410 --> 00:24:18.630 continued, the damage assessment grew worse, 00:24:18.789 --> 00:24:21.289 and the market stayed down. And the losses just 00:24:21.289 --> 00:24:23.730 kept ticking up. Every time the number on the 00:24:23.730 --> 00:24:26.670 screen dropped, Barings lost millions more. By 00:24:26.670 --> 00:24:29.670 February, the game was up. The losses in account 00:24:29.670 --> 00:24:35.250 808 .88 reached 827 million pounds. 827 million. 00:24:35.509 --> 00:24:37.630 Which was twice the available trading capital 00:24:37.630 --> 00:24:39.970 of their entire Barings group. He had bet the 00:24:39.970 --> 00:24:43.289 bank. Literally. Yeah. And lost it twice over. 00:24:43.430 --> 00:24:46.390 He lost the bank. The equity was gone. The reserves 00:24:46.390 --> 00:24:49.430 were gone. It was all gone. So what does he do? 00:24:49.569 --> 00:24:52.569 The walls are closing in. The margin calls are 00:24:52.569 --> 00:24:54.990 coming in. And he has no more lies to tell. Does 00:24:54.990 --> 00:24:58.410 he face the music? On February 23, 1995, Nick 00:24:58.410 --> 00:25:00.970 Leeson leaves a note on his desk. Two words. 00:25:01.069 --> 00:25:03.750 What did it say? I'm sorry. And he flees. He 00:25:03.750 --> 00:25:06.029 runs. He and his wife Lisa, they flee Singapore. 00:25:06.730 --> 00:25:09.109 Imagine that flight. You're sitting in economy 00:25:09.109 --> 00:25:12.009 class knowing that when you land, the entire 00:25:12.009 --> 00:25:13.890 global financial system is going to be talking 00:25:13.890 --> 00:25:17.009 about you. Knowing you've destroyed a 233 -year 00:25:17.009 --> 00:25:19.329 -old institution. Three days later, February 00:25:19.329 --> 00:25:23.069 26, Barings Bank is declared insolvent. There 00:25:23.069 --> 00:25:25.529 was a frantic attempt in London to organize a 00:25:25.529 --> 00:25:28.259 bailout. The Bank of England got all the major 00:25:28.259 --> 00:25:31.859 banks in a room. We need to save Barings. But 00:25:31.859 --> 00:25:33.839 when the other banks saw the scale of the black 00:25:33.839 --> 00:25:37.480 hole, that 827 million number, they walked away. 00:25:37.799 --> 00:25:40.440 Nobody wanted to touch it. Nobody. The Bank of 00:25:40.440 --> 00:25:42.660 England didn't step in to save it, and Barings 00:25:42.660 --> 00:25:45.480 collapsed. Imagine the scene in London. People 00:25:45.480 --> 00:25:47.680 showing up to work at this centuries -old bank, 00:25:47.779 --> 00:25:50.960 finding out it's gone. 1 ,200 employees lost 00:25:50.960 --> 00:25:53.900 their jobs. People lost their pensions. All because 00:25:53.900 --> 00:25:57.539 of account 88888. Meanwhile, Leeson is on the 00:25:57.539 --> 00:26:00.279 run. Where did he go? It was a global manhunt. 00:26:00.440 --> 00:26:02.480 He was the most wanted man in the world. He went 00:26:02.480 --> 00:26:04.880 to Malaysia, then Thailand, and finally made 00:26:04.880 --> 00:26:06.579 his way to Germany. He was trying to get back 00:26:06.579 --> 00:26:08.660 to the UK, right? He was. He thought he would 00:26:08.660 --> 00:26:11.200 get a fairer trial there. He was terrified of 00:26:11.200 --> 00:26:13.480 the Singaporean judicial system. Singapore is 00:26:13.480 --> 00:26:15.680 known for being very strict. He did not want 00:26:15.680 --> 00:26:18.259 to end up in Changi prison. But he didn't make 00:26:18.259 --> 00:26:21.019 it to Heathrow. No. He was arrested in Frankfurt 00:26:21.019 --> 00:26:25.099 on November 20, 1995. And then the extradition 00:26:25.099 --> 00:26:27.559 battle begins. Which he lost. He was sent back 00:26:27.559 --> 00:26:30.220 to Singapore. The Singaporean authorities wanted 00:26:30.220 --> 00:26:32.680 to make an example of him. This happened on their 00:26:32.680 --> 00:26:35.440 watch, on their exchange. They needed to show 00:26:35.440 --> 00:26:38.720 that their financial laws had teeth. Right. And 00:26:38.720 --> 00:26:40.700 that you couldn't just treat their market like 00:26:40.700 --> 00:26:43.450 a casino. So he goes to trial. What was the charge 00:26:43.450 --> 00:26:46.710 exactly? He pleaded guilty to two counts, deceiving 00:26:46.710 --> 00:26:48.869 the bank's auditors and cheating the Singapore 00:26:48.869 --> 00:26:51.930 exchange, which included forging documents. Remember 00:26:51.930 --> 00:26:54.650 the scissors and glue? Scissors and glue. And 00:26:54.650 --> 00:26:57.109 the sentence. It's been enough years. In Shandy 00:26:57.109 --> 00:26:59.849 Prison. Now, Changi has a reputation. It's not 00:26:59.849 --> 00:27:02.349 a country club. It's not one of these white -collar 00:27:02.349 --> 00:27:05.460 resort. prisons? Not at all. It's a very strict, 00:27:05.579 --> 00:27:08.019 tough prison. We're talking sleeping on concrete 00:27:08.019 --> 00:27:10.880 floors, minimal comfort, strict discipline. And 00:27:10.880 --> 00:27:13.599 while he was in there, his life continued to 00:27:13.599 --> 00:27:15.779 fall apart. He got sick, right? Very sick. He 00:27:15.779 --> 00:27:17.900 was diagnosed with colon cancer. That is just 00:27:17.900 --> 00:27:21.039 brutal. Facing a prison sentence in a foreign 00:27:21.039 --> 00:27:23.279 country and then getting a potentially terminal 00:27:23.279 --> 00:27:26.220 diagnosis. The forecasts were grim. It wasn't 00:27:26.220 --> 00:27:27.599 clear at all if he would survive the sentence. 00:27:27.940 --> 00:27:30.910 And his personal life. His wife, Lisa. Yeah, 00:27:30.950 --> 00:27:33.210 his wife, Lisa. Remember, she worked at Barings, 00:27:33.210 --> 00:27:35.650 too. They met in Jakarta. She was part of that 00:27:35.650 --> 00:27:38.029 world. She was with him when he fled. She stood 00:27:38.029 --> 00:27:41.109 by him initially. But the strain was too much. 00:27:41.269 --> 00:27:44.210 The revelations of his infidelity, the constant 00:27:44.210 --> 00:27:46.769 lies, the pressure of the media. She divorced 00:27:46.769 --> 00:27:49.190 him in 1997 while he was still incarcerated. 00:27:49.549 --> 00:27:51.869 So he's in a Singaporean prison. He has cancer. 00:27:51.910 --> 00:27:54.630 His wife has left him. And he's the most hated 00:27:54.630 --> 00:27:57.730 man in banking. That is rock bottom. It really 00:27:57.730 --> 00:28:01.250 is. Against the odds, he survived the cancer, 00:28:01.450 --> 00:28:03.789 he received treatment, and he was released in 00:28:03.789 --> 00:28:07.009 July 1999 for good behavior. He served four years 00:28:07.009 --> 00:28:08.829 and four months. When he gets out, the world 00:28:08.829 --> 00:28:12.750 has changed. But his name is famous. Infamous. 00:28:12.809 --> 00:28:15.730 He had become a brand. While in prison, he wrote, 00:28:16.190 --> 00:28:18.349 He published his autobiography, Rogue Trader, 00:28:18.430 --> 00:28:21.069 in 1996. Which became a massive bestseller and 00:28:21.069 --> 00:28:23.250 then a movie. Starring Ewan McGregor. Which is 00:28:23.250 --> 00:28:26.210 wild. You destroy a bank, you go to prison, and 00:28:26.210 --> 00:28:28.869 Obi -Wan Kenobi plays you in the movie. It almost 00:28:28.869 --> 00:28:31.990 glamorizes it, doesn't it? It certainly cemented 00:28:31.990 --> 00:28:34.670 his place in pop culture. It turned him from 00:28:34.670 --> 00:28:37.910 a criminal into a character. But he didn't just 00:28:37.910 --> 00:28:40.150 stop at the book. He tried to rebuild a life. 00:28:40.430 --> 00:28:42.390 And this is where the story takes a very weird 00:28:42.390 --> 00:28:46.420 turn for me. He goes into... Football. Laughs. 00:28:46.420 --> 00:28:49.240 Yes. This is one of those facts that sounds like 00:28:49.240 --> 00:28:53.440 bad fiction. In 2005, Leeson joined Galway United 00:28:53.440 --> 00:28:56.400 FC. In Ireland? A League of Ireland football 00:28:56.400 --> 00:28:58.440 club, yes. What was he doing? Was he the star 00:28:58.440 --> 00:29:00.519 striker? No, no. He was appointed commercial 00:29:00.519 --> 00:29:03.720 manager. Then he rose to general manager. And 00:29:03.720 --> 00:29:07.460 by July 2007, Nick Leeson, the man who bankrupted 00:29:07.460 --> 00:29:10.500 Barings, was the CEO of a football club. That 00:29:10.500 --> 00:29:12.799 is an incredible second act. I used to run a 00:29:12.799 --> 00:29:14.880 bank into the ground. Now I run a football club. 00:29:14.960 --> 00:29:17.920 How did that go? Well... There is a bit of irony 00:29:17.920 --> 00:29:21.359 here. He resigned in 2011 after the club suffered 00:29:21.359 --> 00:29:23.640 financial difficulties. You can't make this stuff 00:29:23.640 --> 00:29:26.000 up. You really can't. To be fair to him, Irish 00:29:26.000 --> 00:29:27.980 football clubs often struggle financially, so 00:29:27.980 --> 00:29:30.099 it wasn't necessarily a Leeson scandal or fraud. 00:29:30.220 --> 00:29:32.819 But the headline writes itself, Leeson leaves 00:29:32.819 --> 00:29:35.680 amidst financial trouble. Right. It's just too 00:29:35.680 --> 00:29:39.210 perfect. But he also pursued education. In 2003, 00:29:39.390 --> 00:29:42.210 as a mature student, he completed a Bachelor 00:29:42.210 --> 00:29:45.069 of Science in Psychology at Middlesex University. 00:29:45.509 --> 00:29:47.690 Psychology. That makes sense. Trying to understand 00:29:47.690 --> 00:29:50.349 what happened in his own head. Exactly. He wrote 00:29:50.349 --> 00:29:52.930 a second book, Back from the Brink, Coping with 00:29:52.930 --> 00:29:55.589 Stress. It included conversations with a psychologist. 00:29:55.849 --> 00:29:58.950 He was clearly trying to process the trauma and 00:29:58.950 --> 00:30:02.170 the behavior that led to it. He admits now that 00:30:02.170 --> 00:30:05.059 he lacked the emotional tools to just... ask 00:30:05.059 --> 00:30:07.319 for help. And he hits the speaking circuit. Yes, 00:30:07.380 --> 00:30:09.920 the after -dinner circuit. He advises companies 00:30:09.920 --> 00:30:12.640 on risk and corporate responsibility. He basically 00:30:12.640 --> 00:30:15.700 says, don't do what I did. Here is how you spot 00:30:15.700 --> 00:30:18.299 a me in your organization. There is a detail 00:30:18.299 --> 00:30:20.220 in the notes about a trading jacket. Oh, yes. 00:30:21.079 --> 00:30:24.059 In 2007, a trading jacket thought to be worn 00:30:24.059 --> 00:30:26.500 by Leeson on the Symex floor, those bright yellow 00:30:26.500 --> 00:30:29.720 jackets they wore, was sold on eBay. How much 00:30:29.720 --> 00:30:31.500 do you think it went for? I don't know, a few 00:30:31.500 --> 00:30:34.059 hundred quid. It went for 21 ,000 pounds. You're 00:30:34.059 --> 00:30:38.099 kidding me. 21 ,000 pounds. Wow. People love 00:30:38.099 --> 00:30:40.220 a piece of history, even if it's a history of 00:30:40.220 --> 00:30:43.059 disaster. But the most recent twist in his career 00:30:43.059 --> 00:30:45.759 is perhaps the most surprising of all. 2023. 00:30:46.160 --> 00:30:50.099 Yes. In March 2023, Leeson joined a corporate 00:30:50.099 --> 00:30:52.759 intelligence firm called the Red Mist Market 00:30:52.759 --> 00:30:55.079 Enforcement Unit. That sounds like a special 00:30:55.079 --> 00:30:57.859 ops team from a movie. It does. And his role. 00:30:58.059 --> 00:31:00.930 He is a private investigator. dealing with cases 00:31:00.930 --> 00:31:03.589 of financial misconduct. So the poacher has turned 00:31:03.589 --> 00:31:06.670 gamekeeper. Exactly. He is now hunting down people 00:31:06.670 --> 00:31:08.829 who are doing what he did. He's helping investors 00:31:08.829 --> 00:31:11.069 recover money from fraudsters. Which one to no 00:31:11.069 --> 00:31:12.930 one, I guess. That seems to be the logic. He 00:31:12.930 --> 00:31:14.690 knows where the bodies are buried because he 00:31:14.690 --> 00:31:17.089 used to dig the graves. So he's living in Galway. 00:31:17.230 --> 00:31:20.369 He's remarried to an Irish beautician named Leona 00:31:20.369 --> 00:31:23.049 Torme, and he's investigating financial crimes. 00:31:23.660 --> 00:31:26.799 It is a long, long way from the council estate 00:31:26.799 --> 00:31:29.380 in Watford and a long way from Changi Prison. 00:31:29.640 --> 00:31:32.900 It is a remarkable trajectory from clerk to genius 00:31:32.900 --> 00:31:36.140 to convict to CEO to investigator. So let's bring 00:31:36.140 --> 00:31:38.380 this home. We've unpacked the timeline. We've 00:31:38.380 --> 00:31:40.400 looked at the earthquake, the error count, the 00:31:40.400 --> 00:31:42.880 doubling down. What does this all mean? Why does 00:31:42.880 --> 00:31:46.059 this story still resonate 30 years later? Why 00:31:46.059 --> 00:31:48.599 are we still talking about Nick Leeson? I think 00:31:48.599 --> 00:31:50.940 it resonates because it exposes the fragility 00:31:50.940 --> 00:31:53.799 of the systems we trust. We think of banks as 00:31:53.799 --> 00:31:56.920 these monoliths of stability built of stone and 00:31:56.920 --> 00:32:00.000 logic. But Barings was destroyed because of a 00:32:00.000 --> 00:32:03.279 failure in what's called operational risk. Operational 00:32:03.279 --> 00:32:05.880 risk. Define that for us. It means the risk of 00:32:05.880 --> 00:32:09.140 loss resulting from inadequate or failed internal 00:32:09.140 --> 00:32:12.259 processes, people and systems. Right. Barings 00:32:12.259 --> 00:32:14.720 failed because they let profit blind them to 00:32:14.720 --> 00:32:17.480 protocol. They let the fox guard the hen house 00:32:17.480 --> 00:32:19.740 because the fox was bringing in golden eggs. 00:32:19.900 --> 00:32:22.079 They ignored the red flags because the green. 00:32:22.119 --> 00:32:24.200 ink on the balance sheet was so bright. It's 00:32:24.200 --> 00:32:25.960 the star culture, isn't it? If someone is making 00:32:25.960 --> 00:32:28.880 money, nobody has questions. Precisely. And for 00:32:28.880 --> 00:32:31.559 the individual, it is the ultimate lesson in 00:32:31.559 --> 00:32:34.500 the sunk cost fallacy. Explain that for the listeners. 00:32:34.779 --> 00:32:37.460 It's the tendency to continue an endeavor once 00:32:37.460 --> 00:32:39.839 an investment in money, effort, or time has been 00:32:39.839 --> 00:32:42.799 made. Leeson lost money. Instead of accepting 00:32:42.799 --> 00:32:46.039 that loss, he felt he had to invest more to fix 00:32:46.039 --> 00:32:48.750 it. He threw good money after bad. He couldn't 00:32:48.750 --> 00:32:50.910 accept the initial hit. He couldn't, so he destroyed 00:32:50.910 --> 00:32:52.970 everything trying to avoid it. It's that moment 00:32:52.970 --> 00:32:55.329 where you have to decide, do I admit I messed 00:32:55.329 --> 00:32:58.670 up and take the pain now? Or do I hide it and 00:32:58.670 --> 00:33:01.150 hope it goes away? And the lesson of Nick Leeson 00:33:01.150 --> 00:33:04.309 is, it never goes away. It compounds. It snowballs. 00:33:04.509 --> 00:33:06.650 It's fascinating. It's a story about finance, 00:33:06.849 --> 00:33:10.019 sure. But it's really a story about pride. and 00:33:10.019 --> 00:33:12.740 fear and human fallibility. And the terrifying 00:33:12.740 --> 00:33:15.579 reality that a single person in the wrong place 00:33:15.579 --> 00:33:18.700 with the wrong permissions can bring down a giant. 00:33:19.079 --> 00:33:22.019 So here is a thought to leave you with. Nick 00:33:22.019 --> 00:33:23.960 Leeson is now out there investigating financial 00:33:23.960 --> 00:33:26.480 misconduct. He's the guy looking for the hidden 00:33:26.480 --> 00:33:29.539 accounts. Is that redemption? Or is it just the 00:33:29.539 --> 00:33:31.500 only job left for the guy who wrote the book 00:33:31.500 --> 00:33:34.000 on hiding losses? That's a question only he can 00:33:34.000 --> 00:33:36.220 answer. But it certainly suggests that you can't 00:33:36.220 --> 00:33:38.930 ever truly run away from your past. And for you, 00:33:39.049 --> 00:33:41.650 the listener, if you made a mistake at work tomorrow, 00:33:41.829 --> 00:33:44.170 a big one, one that might cost you your promotion 00:33:44.170 --> 00:33:46.890 or your reputation, would you own up to it immediately? 00:33:47.569 --> 00:33:49.589 Or would you open your own version of account 00:33:49.589 --> 00:33:52.849 88888 and try to fix it before anyone noticed? 00:33:53.089 --> 00:33:54.890 It's a harder question to answer than we'd like 00:33:54.890 --> 00:33:57.069 to admit. That's it for this deep dive. Thanks 00:33:57.069 --> 00:33:57.450 for listening.