WHAT BANKERS DO.......THAT BRINGS DOWN THE BANK!
Nick Leeson, who wrote the article below, only did what bankers have done for a few hundred years, gambling over and above their available credit. I knew a London trader in the early 1980's who did just that with silver. He bought and bought and bought, and suddenly the market collapsed and he was left high and dry with a loss of £20 million. The problem was that the firm was a small City trader (gambler) and £20 million represented their profit. They only just managed to hang on by the skin of their teeth. The 19 year old trader I knew who caused the loss, lost his job but nothing more. Why? Because he was the boss's son! So it is not surprising that Nick Leeson still smarts from being the scapegoat of Bearings' bankruptcy and he did six years in the cooler for his part in the risky investments that brought UK's oldest bank down. He emerges to tell us that banks all do what he did and thusly have lost our deposits. And Caveat Emptor.
As we stand at the lip of the big one, I'd find three friends, take all your cash out of banks and between you, buy a 4 unit bldg, the three of you, rent the fourth unit for disposable income. Turn the yard into a garden to feed you all. Probably too late to get cash out of mutuals, stocks and such so let that lie. LAND will weather the storm. Unless it's in Galveston.
Escape of the bankrupt
I was imprisoned for my role in Barings' collapse. Who will face justice for this recklessness today?
by Nick Leeson
Friday September 19 2008
The world's financial markets remain at the eye of a perfect economic storm. The architects of this almighty financial sell-off? The banks themselves. The markets are in complete disorder, yet they remain unable to solve the situation themselves, and so go looking for a public sector bailout. Risk management, the buzz word of the financial markets since the collapse of Barings Bank in 1995, is
clearly an oxymoron.
US institutions such as Bear Stearns, Fannie Mae and Freddie Mac, Merrill Lynch, Lehman Brothers
and now AIG and Morgan Stanley have run into severe financial difficulty. Two of those firms have hit
the wall, the remainder have had to look for bailouts. In Britain, Northern Rock's problems are well
documented, while increased speculation and uncertainty have led to a takeover of HBOS by Lloyds
Bank. And in the most glaring example of capitalism gone wrong, the Russian stock market was forced
to close its doors for the second consecutive day yesterday. For a system that is built and flourishes on
confidence, the future is extremely uncertain.
These are clearly worrying times, and there is no real end in sight. The banking system in the UK is
technically insolvent - the value of outstanding mortgages and loans stands at £256bn while the value of
deposits is only £160bn. A re-evaluation of the banks' property portfolios and likely bad debts would
paint a bleaker picture still. Banks are not lending to each other, and the daily operation of the system is
reliant on handouts by central banks. Yesterday saw a massive $180bn of liquidity pumped into world
The authors of this horror story - the banks themselves - are not just technically insolvent. They are
morally bankrupt. The onset of these problems dates back more than a decade, with the sub-prime crisis
exacerbating the problem 18 months ago. At both a micro and macro level, credit became far too easy
to acquire, leading to businesses and individuals increasing their exposure at a record pace to record
Who is responsible? Those same bankers that convinced you that another loan was not a bad thing.
Those same bankers that convinced every wannabe property developer that they should leverage their
portfolio and increase their volume of business. And unquestionably culpable were the investment
bankers who wrapped up the sub-prime debt in exotic parcels and visited your offices to sell you this
most fantastic investment vehicle. The property market has collapsed and probably still has further to
go, the tremors from the sub-prime crises are still being felt, and the combination of the two sees the
whole financial system in peril.
Quite simply, the banks have traded recklessly over the past 10 years and have put everybody's
well being at risk. Anybody and everybody could get whatever credit they wanted as recently as three
years ago. I returned from Singapore in 1999, responsible for £862m worth of losses that brought down
Britain's oldest investment bank, personally liable through an injunction for £100m, and yet within the
space of a week had been offered five different credit cards. Ridiculous! Any central bank will tell you
that the system exists on the premise of "responsible lending"; but the experiences of the past few years
clearly show this is utter rubbish.
Several more banks will fall by the wayside, and the ultimate cost will be borne by all of us. Tens of
thousands will lose their jobs, and that will create further pressure in an already exhausted marketplace.
For my role in the collapse of Barings I was pursued around the world, and ended up being sentenced to
six and half years in a Singaporean jail. Who is going to go after the reckless individuals responsible for
this financial catastrophe? Apparently no one. Who is going to bail out the businesses and individuals
who are struggling at the moment. The banks? Not a chance, self-preservation is the only thing on their
minds at the moment. The rest of us will be left to our own devices.
· Nick Leeson was the trader who brought down Barings Bank in 1995. He is now out of jail & is CEO general manager of Galway United FC.a sports club --so once a gambler always a gambler.
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