Chapter 354 How to Spend the Money? (Bug Fix): Woof once, call Grandma.
February 1995 was destined to be a significant moment in the history of world finance.
There is a saying that "beyond the Crouching Dragon, there must be the Young Phoenix."
Just moments before, the British Financial Times had lamented the “327” treasury bond incident that occurred on February 23, calling it the darkest day in the history of China’s mainland securities market.
Immediately afterwards, the financial sector of the United Kingdom of Great Britain and Northern Ireland was shaken. On the evening of February 26, the UK High Court declared Barings Bank bankrupt.
This investment bank, with a 233-year history, 4,000 employees worldwide, and awarded five medals by the British Royal Family, and the oldest in the UK, collapsed overnight.
Countless people have lost everything.
But human joys and sorrows are not shared; what is poison to one is honey to another.
The impact of this financial tragedy on Wang Xiao was that she sighed, then used it as a teaching case to educate Zhou Liang, whom she had entrusted with an important task, on what financial crisis public relations is all about.
"The deed is done, and if you want to reduce the negative impact, there are only a few ways. One is to turn the crisis into an opportunity, and take advantage of the public's attention to make it a stage for you to advertise."
This is Wang Xiao's specialty. Whether it was the Moscow feather jacket crisis in 1992 or the later controversy surrounding the opening of the Japanese brand "Enoyu," she always did it this way.
Free publicity is too good to pass up.
But she also knows that achieving this level requires a great deal of talent.
Wang Xiao took a sip of fruit tea and said truthfully, "Of course, this is quite difficult. It requires the right timing, location, and people, and sometimes luck is also needed. So, most of the time, everyone uses a public relations tactic that is neither new nor effective: to use another big news story to suppress the scandal."
She sighed, "The financial regulators are really lucky. As soon as Barings Bank collapsed, all they had to do was publicize it, and everyone's attention was diverted."
Why? Because Barings Bank is too dazzling.
At its peak, the Bahrain family was known as the sixth most powerful family in Europe.
The great poet Byron once wrote a poem: Who has kept joy and sorrow hidden in this old and new world? Who has kept the politics of the world running smoothly? Is it Napoleon’s lofty courage and his lingering influence? No, it is the Jew Rothschild and his comrade Baling.
The prestigious Barings Bank boasts a history of over two hundred years. In comparison, both the Shanghai Stock Exchange and Wanguo Securities are mere junior partners.
Besides, Barings Bank is one of Britain's top banks. And for ordinary Chinese people, Britain, this old empire, is practically synonymous with capitalism.
If even a grandmaster like it can mess things up in finance, then it's perfectly normal for socialist countries to make mistakes.
And most importantly, the direct cause of Bahrain's collapse was simply outrageous.
In short, this incident involved a 28-year-old trader at Barings Bank's Singapore branch who simultaneously controlled both trading and settlement. He fabricated accounts and personally orchestrated a massive loss of $1.3 billion, far exceeding the bank's total assets.
What's even more astonishing is that the London headquarters treated his fabricated huge "profits" as a performance celebration and accepted all his outrageous cash demands.
Throughout the entire process, the bank's entire oversight system was completely ineffective. None of his operations were subject to any effective supervision.
Their actions have fully demonstrated that the world is a giant makeshift operation.
If it were made into a movie, viewers would doubt that the other people in the bank, especially the regulators and his superiors, are completely NPCs, purely flat paper figures.
What a great news story about hedging! Wang Xiao was even envious of the financial regulators' good luck.
When she encounters a crisis, she always racks her brains to solve it herself; there are never any ready-made public relations materials delivered to her door.
Zhou Liang, listening from the side, felt extremely uncomfortable.
Barings Bank is extremely famous and has an excellent reputation. Queen Elizabeth II was a long-time client of its.
It's fair to say that in Zhou Liang's mind, it would at least rank in the top 5 of ideal banks.
As a result, this bank ended its more than two hundred years of glorious history in such an absurd way.
It's utterly ridiculous.
Tang Yicheng coughed lightly, reminding the students in class: "Listen carefully! I'm not exaggerating when I say that even if you spend a lot of money going abroad, you still won't learn our boss's public relations skills."
Honestly, he felt that even without engaging in trade, Wang Xiao could become a top figure in the industry based solely on his public relations skills.
Zhou Liang nodded haphazardly, indicating that he had heard.
But he still had a question: "Is it really a good thing to suppress the '327' incident? Since it has already happened, it should be used as a warning case to remind all practitioners and investors."
If you always suppress mistakes and prevent them from escalating, the same problems will only increase. Eventually, they will escalate to the point of being completely unmanageable.
Wang Xiao smiled and said, "That's not something we can decide. PR only provides solutions; it's up to them to choose. Besides—"
She paused, gently tapping the glass with her fingers.
The bright red juice made her hands appear dazzlingly white.
"If your purpose is to take this opportunity to educate the public about financial knowledge, then wouldn't the collapse of Bahrain be a more suitable case? Any detail of it could be used to create a financial literacy article. After all, it's rare to find a case that has made every possible mistake in financial risk control and management."
Seriously, the reason why the collapse of Barings Bank is so famous, even to someone like her who's a complete novice in finance, is because such a typical case is extremely rare.
This is a perfect collection of incorrect answers, which can be used to encourage those who come after you at any time.
Look at this, how could such a basic mistake happen!
So now Wang Xiao enthusiastically suggests to Zhou Liang, "If you can spare some time, you could write articles on this topic for the newspaper. I'm sure newspapers welcome that now. It could also enhance your and the company's influence."
Tang Yicheng saw that Zhou Liang was still hesitating, and he only regretted that he was not one of his soldiers, otherwise he would definitely have slapped him.
What's wrong with your head?! How did you even get into university and then get a master's degree?
The boss has already been teaching him how to build connections step by step, but he's still clueless and can't seem to grasp it.
"Write it! Write it quickly! If you write this down and quell the heat of the '327' incident, the leaders of the financial sector will thank you!"
Who's under the most pressure right now? It's the financial regulators. So many people are watching how things develop; if they don't handle it well, the consequences will be unmanageable.
Tang Yicheng, exasperated, lectured him: "This kind of opportunity is rare. If you seize it, you'll be able to establish yourself. You're just lucky that the boss is willing to teach you step by step."
Zhou Liang was shocked. What did this have to do with connections?
Tang Yicheng sighed, "What do you think it means to have connections? Like your mentor introducing you to some leader, saying, 'Hey, this is my student, please take care of me in the future.' That's what you call having connections, but that's all you'll ever get. You'll be stuck in that kind of framework."
He patiently advised, "If you want to break out of this box and build connections in more directions, you have to use the platform you're on now, whether it's your former school or your current company, to find a way to reach out and build connections."
He began to highlight the key points: "Everyone understands this principle, but the crucial point is how to reach out. Your boss is asking you to write this article, which is reaching out!"
Zhou Liang suddenly realized, "There's actually a way to do it like this?"
This time, Wang Xiao took on the role of the "good cop." She smiled and said, "I can't be on call 24/7 to clean up your messes. What if something happens and I'm on a plane and you can't reach me? I have to hold on at least for now. So, you have to learn it yourself."
She raised her hand, glanced at her watch, and stood up. "Alright, we should go."
Although the "327" treasury bond turmoil has not yet subsided, Wang Xiao cannot stay in Shanghai to keep an eye on things forever.
Putting everything else aside, the Jiangdong Provincial Political Consultative Conference is about to convene tomorrow. As a member of the Political Consultative Conference, she can't just casually skip it.
When a meeting is scheduled, you still have to attend it.
Tang Yicheng stood up and said, "I'll go to the airport too."
His flight to Hong Kong was about forty minutes later than his flight to Jinning.
Now he believed that Wang Xiao wouldn't go crazy anymore; she had simply seen too much money, and 300 million couldn't move her. So he could go to Hong Kong with peace of mind.
Sigh, I hope one day he can become that successful, with three or five hundred million in front of him, and he won't budge an inch.
Ivanov also returned to Jinning with Wang Xiao.
Although he was initially called in from Moscow by Tang Yicheng as a firefighter, there was not much fire to put out when he arrived.
But we can't just pack him up and send him back to Moscow just because he wasn't useful, can we?
He's too cold-hearted; he won't leave.
Before he flew over from Moscow on February 23, he had dinner with the president, who was concerned about his love life and worried that he had been dumped.
This time, he will stay in China for a longer period of time no matter what.
Spring is still a long way off in Moscow.
Ivanov now had only one question: "Your Majesty, when did you adjust to this situation?"
He was certain that Wang left Moscow in a rage.
Punonin's scheming attempts to trap her in Moscow have angered her.
Even if she retaliated and forced Punoning to let her leave, her anger would not dissipate.
Why should she be angry? Punonin simply didn't manage to outmaneuver her.
She always needs a way to vent her anger.
Ivanov speculated: "I think that approach is no longer about investing in government bonds."
Xiao Gao and Xiao Zhao were completely dumbfounded.
Well, no, they were the boss's bodyguards after all. Although they weren't exactly providing 24-hour close protection, they still considered themselves to be very attentive to the boss.
After all, this is what they make a living from.
But they didn't realize that the boss's emotions had been fluctuating since he left Moscow.
On the contrary, it was precisely because she showed no emotional reaction to the gain or loss of hundreds of millions of dollars that she terrified them.
Lyuba sighed from the side, "It's true that not everyone can live off a woman."
Mr. Ivanov was able to hold onto his job because he was truly capable.
At the very least, to be able to so keenly perceive Miss Wang's emotional changes and even deduce that something happened during the days they were apart that affected her emotions is something no ordinary person could do.
How can this not be considered a talent?
Wang Xiao was also surprised: "You could tell that?"
Ivanov looked at her tenderly: "You know, my soul breathes for you, and everything about you is all I care about."
Lyuba turned her head away, not really wanting to listen anymore.
What good lines can you find in these kinds of impromptu performances?
When Wang Xiao first heard about the concept of "soul breathing," he could only cover his face with his hands to prevent himself from bursting out laughing.
She composed herself, made an appropriate expression, and then dared to put her hand down and look out the window: "It's nothing, I just saw a news report when I went home for the Chinese New Year."
Even now, a large amount of expropriated land in the Pudong Development Zone is still used for farming.
People who are timid plant rapeseed. That way, if they can't wait until the Dragon Boat Festival for a good harvest before the fields are cleared, the rapeseed can still be eaten as a vegetable.
Those with more courage planted wheat, because wheat was easier and less troublesome to manage than other crops.
But whichever option you choose, the roadside is lush and green, full of vitality.
This is what people living on this land are like; they always find ways to sow hope for themselves and make their lives better.
Wang Xiao recounted the news report from Jiangdong Province about how the villagers had independently raised funds to build a road leading to their farmland.
"When I saw the footage of them organizing themselves to repair the road on the afternoon of the first day of the Lunar New Year, I suddenly felt relieved. All my unhappiness disappeared."
She couldn't explain why, but she had always really enjoyed watching scenes of labor.
She is always moved by those who strive to make their lives better, who make her feel good and forget her unpleasantness.
In the face of such beauty, what do those sordid, petty, and despicable things matter? They're not worth her wasting her emotions on.
"Also, on the fifth day of the Lunar New Year, I attended the provincial commendation meeting for poverty alleviation work."
Wang Xiao still marvels when she talks about it now, "I only found out that Jiangdong Province had started providing assistance within the province as early as the spring of 1992. I originally thought that it was only providing assistance to Tibet and Xinjiang under the arrangement of the state. But in fact, they did far more than I imagined."
This unexpected surprise greatly delighted her.
That's why she was so proactive in participating in the seminar that day.
Who can resist the allure of a great cause?
Wang Xiao became excited as she spoke: "Let me tell you, they are really smart. In such a difficult environment and in such a short time, they have achieved results and really increased the income of the local area."
She recounted several examples at length, and only when her mouth felt dry did she suddenly realize that Ivanov seemed strangely quiet.
She turned her head and saw that, sure enough, Ivanov was already in an emo state.
No wonder.
Look, these farmers can organize themselves to build roads to their fields, all to achieve modern agricultural production, and they're doing it very well.
Moreover, their provincial government has a strategic vision and is achieving its goals step by step in an orderly manner.
Comparing this to their own country, the federal government still seems clueless about their next step. Even after seemingly setting a goal, the subsequent implementation by those in charge is a complete mess.
Comparing yourself to others will only make you miserable.
Wang Xiao patted his arm reassuringly: "Alright, alright, let's not talk about this. Don't forget, three hundred million, we've made three hundred million now. Smile, cheer up."
She grabbed Ivanov's hands, spread her fingers, and tapped his cheeks, saying, "Look at you, how beautiful you are when you smile."
Ivanov was genuinely amused, and not in a forced way.
After all, he had long seen how incompetent the Russian government really was. If he had to suffer from depression every time because of this, he would have died of frustration long ago.
Taking the opportunity, Wang Xiao coaxed him, "So, let's think about it, Ivan. Should we improve the conditions on the farm? Build more housing for the farm workers, or do some water conservancy projects? How about a budget of ten million US dollars?"
She explained, “My proposal is for universities in the economically developed areas of Jiangdong to set up branch campuses in the north, and I will donate the remaining money to them to build libraries.”
The bodyguards in the car all looked surprised.
They always knew that the boss was a very generous person who often donated money and goods.
But this time it's different. It's like earning 300 million and donating it all, without keeping a single penny for himself.
So what was she trying to achieve by spending so much time in Shanghai, immersed in the smoky and fiery atmosphere of the Shanghai Stock Exchange trading securities?
Even Ivanov hesitated, a rare occurrence: "Donate it all?"
“Yes.” Wang Xiao nodded firmly.
She will not keep a single penny of the proceeds from the "327" treasury bonds.
The infamous "327" curse is incredibly powerful.
Those who made a fortune this time all subsequently met with misfortune.
Some went to jail, some were executed, and some jumped off buildings. It was as if the profits from this investment had already used up all the good fortune in their lives.
Wang Xiao is a man who develops offshore oil and gas fields, and even the goddess Mazu worships him.
How could she not be afraid of the magic of the curse?
But now that it's happened and the money has been made, what can she do?
We absolutely have to donate all the money.
Why did she still get involved in the "327" government bonds when she knew about this so-called curse?
Nonsense! Bungee jumping can be life-threatening, so does that mean we shouldn't do it?
The stimulation of potential danger can itself cause an adrenaline rush, making it an exhilarating experience.
Besides, male and female leaders are different.
Even if a male leader's personal abilities are mediocre, if he is as loyal as Liu Bei, he can keep his team closely around him and make them devoted to him.
However, this approach is ineffective for female leaders, especially young and beautiful ones, when dealing with male subordinates.
They don't buy into that at all. What man would be loyal to a woman?
So how can she win over her subordinates? The simplest and most effective way is to demonstrate her strength and use people's admiration for the strong to make them submit willingly.
Now that Wang Xiao has decided to pursue financial investment, she will definitely need a new team.
However, people with strong technical skills are generally quite proud at heart and are not easily convinced by others.
Unless you can demonstrate your true skills and completely intimidate your opponent.
Unfortunately, Wang Xiao wasn't very interested in financial investment, so he had very little historical knowledge in that area.
There are very few things she can use to make a fuss. The "327" treasury bond incident happens to be the one she can use right now.
Why not use it?
Does fear of so-called curses mean we shouldn't use it?
How could that be!
If you miss this great opportunity, who knows where the next one will come from?
If God truly considers multiple gains to be unjust enrichment, then she should just donate the money and be done with it.
If God causes trouble again, it's God's fault, and she has no qualms about it.
Ivanov had only asked one question, and seeing that she nodded in agreement, he had no further objections: "Then let's build an irrigation canal worth ten million US dollars."
The Soviet Union failed to develop proper irrigation systems, leaving vast tracts of fertile black soil reliant on rainfall, resulting in complete crop failure in the event of droughts or floods.
The current Russian government is struggling to function, let alone fund irrigation projects for agriculture.
Forget it, instead of waiting for a government plan that's nowhere in sight, they might as well do it themselves.
Ivanov jokingly whispered to Wang Xiao, "I'm sure the president will be very pleased with my pursuit of his wife."
See, that's what effective pursuit means. He's a perfect example; he even got the money.
In this world, if even money can't represent true love, then what can?
What could Wang Xiao's reaction be? He could only laugh it off.
When the car arrived at the airport, Zhou Liang, who had gotten out of another car, took his boss through security. He couldn't help but ask, "What will happen to the 327 incident later?"
On the 23rd, the Shanghai Stock Exchange initially announced a half-day trading halt on the 24th. However, this half-day was just the beginning, and the suspension was later extended to a full week.
For the next week, free bidding in all treasury bond futures markets will be suspended.
He was always worried that a storm was brewing.
Wang Xiao shook his head: "I don't know. All I can say is that this is just the beginning."
She reminded Zhou Liang, who had an academic background, "Don't forget how big the Shanghai government bond market is."
Since the establishment of the futures market in October 1993, the Shanghai Treasury bond market has established itself as the leading market in the country, accounting for 60% of the national trading volume and 62.5% of the national total open interest.
Wang Xiao sighed again, marveling at the good luck of the financial regulators: "The timing of Barings Bank's collapse was perfect, giving them a ready-made reason to clean up the financial market."
So, who should be the starting point for regulation? Is there a better option than the Shanghai Stock Exchange, a major financial hub?
Your market alone accounts for more than half of the national volume.
Zhou Liang felt wronged for Shanghai and joked to himself, "So, according to that logic, the more you do, the more mistakes you make, and the better if you do nothing."
The fact that Shanghai's financial and securities sector is doing so well has ironically become its fault.
If the central and local governments are to engage in a power struggle, they will first target this region.
He gave a wry smile: "At this rate, when will the financial market ever become truly free?"
Wang Xiao raised an eyebrow, directly dispelling his illusions: "There will never be absolute freedom, no matter the country. If there really is such a thing as absolute freedom, then we're doomed, and retail investors will all be destined to be fleeced."
She made a gesture and warned, "Don't overestimate the integrity of big players. When faced with profits, they will collude to go long or short and manipulate market prices, just like the 327 Treasury bond incident."
Seeing Zhou Liang open his mouth as if he wanted to say something, she shook her head directly, "What you said is only to guard against honest people, not scoundrels. You should know better than me how greedy financial tycoons are."
She sighed, "Absolute freedom leads to absolute chaos, and regulation is necessary when needed. This is the significance of government regulation."
Otherwise, if ginger and garlic are driven to exorbitant prices, how will ordinary people survive?
Wang Xiao waved and left.
She brought Ivanov back to Kinning, which, unsurprisingly, shocked her parents.
Ms. Chen Yanqiu walked up and down the stairs three times before finally making up her mind. She pulled her daughter aside and said, "Why don't you just have a child with Ivan?"
She wouldn't even consider Ivan as her son-in-law.
Although this Russian guy has a good temper and is very obedient to Xiaoxiao, he's a womanizer and could never be a good man.
Fortunately, Ivanov was born with a handsome face, which perfectly matched Ms. Chen's aesthetic preferences.
Look at this guy, playing chess with his wife by the window. The sunlight streams through the window and falls on him like water; it's a picture that could be made into a poster.
I was probably furious, but looking at that face, I couldn't vent it.
Ms. Chen firmly believes that if Xiaoxiao has a child with him, they will definitely give birth to a beautiful baby.
Oh my, just thinking about those pink and tender little babies, as pretty as those in New Year's paintings, makes her heart flutter like the Qiantang River tide.
"Have one!" she urged her daughter desperately. "Just think how beautiful and adorable that child would be. I guarantee you'd love her to bits."
Looking at her elderly mother, whose eyes were wide open, Wang Xiao couldn't understand why her mother, at her age, still had such a strong maternal instinct and such a great interest in raising children.
Well, emphasizing to her again that I'm not interested doesn't seem to have much effect.
Wang Xiao thought for a moment and then tried a different approach: "Don't even think about it, Mom. Be realistic. If I really had a child with him, do you think Ivanov's family would let you raise the child? They wouldn't just take the child away. Don't forget, he doesn't have any children yet."
Chen Yanqiu's beaming smile vanished instantly: "That won't do. The child has to be raised right in front of me. Who knows what kind of children those Russians raise?"
This is her precious granddaughter; she absolutely wouldn't trust anyone else to take care of her.
But she couldn't bear to give it up.
So Ms. Chen gritted her teeth, stamped her foot, and made up her mind: "It's okay, at worst I'll go to Moscow to take care of your child. I'm not an unreasonable person, and I won't forbid their family members from coming to see the child."
Well, this mentality has escalated to the point of raising a child for a divorced daughter.
If this person weren't her mother, Wang Xiao would definitely applaud and praise her for her refined taste.
But Ms. Chen is her mother, so she could only lament: "Comrade Chen Yanqiu, I am truly disappointed. I feel heartbroken for the workers of Jinning Steel Plant. As the chairman of the trade union and a factory leader, you are in your prime, yet you don't do your job properly and actually want to give up your job and devote yourself to your family."
She went on to say, "Your behavior is smearing professional women and reinforcing the social stereotype that women always value their own little family the most. If this continues, which workplace will want female employees? Anyway, your heart isn't in the workplace, it's all in your own family."
Chen Yanqiu's eyes widened instantly, and she slapped her on the back: "You brat! Is wanting a granddaughter such a heinous crime? Don't try to pin this on your mother."
Wang Xiao quickly hid to the side and called to Ivanov, who had just lost a game of chess: "Come on, let's go out for a walk."
Chen Yanqiu was about to argue with her daughter when Wang Tiejun pulled her back, saying, "Alright, alright, let the children go out and play more on their own."
After everyone had left, he emphasized, "Wouldn't it be better if your son-in-law and granddaughter came in together?"
Chen Yanqiu started complaining again: "Ivan is alright as my godson, but he's not good enough as a son-in-law."
As a result, when Wang Xiao returned after wandering around outside, Chairman Chen completely changed his mind.
She'd rather the Russian man be her son-in-law; after all, with his handsome face, she, as his mother-in-law, could grit her teeth and accept him.
At the very least, it's better than making her be a grandma for a dog.
Wang Xiao went out to the village and bought a Chinese rural dog puppy for her mother, saying confidently, "Mom, didn't you want to raise a baby? Look how cute this baby is. Come on, bark once and call me Grandma."
With that, she threw the dog aside and dragged Ivanov upstairs.
Chen Yanqiu was so angry that she searched everywhere for a feather duster.
What kind of kids are these? She's 26 years old, and she never has a moment's peace!
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I forgot to post the information last night about the collapse of Barings Bank; the information came from the internet.
Barings Bank collapse
In 1763, Sir Francis Baring founded Barings Bank in London. It was the world's first "commercial bank," providing clients with funds and advice while also engaging in trading itself. Naturally, like other merchants, it also bore the risks of buying and selling stocks, land, or coffee. Due to its flexible, innovative, and adaptable operations, Barings Bank quickly achieved great success in the international financial arena. Its business scope was quite extensive, providing loans for everything from copper smelting in the Congo and wool trading in Australia to the construction of the Panama Canal. However, Barings Bank differed from ordinary commercial banks; it did not develop ordinary customer deposit business, thus its funding sources were relatively limited, and it had to rely on its own strength for survival and development.
In 1803, when the newly formed United States purchased Louisiana from France, all the funds came from Barings Bank. Although Barings had a strong competitor at the time—the Jewish-owned Rothschild Bank—it remained the bank of choice for governments, corporations, and many clients. In 1886, Barings issued "Genius" securities. Buyers flooded the bank with application forms, requiring police intervention to maintain order. Many queued for hours, buying small amounts of stock to sell later. By the time they sold the next day, the stock price had doubled.
At the beginning of the 20th century, Barings Bank had the honor of gaining a special client: the British Royal Family. Due to Barings Bank's outstanding contributions, the Baring family successively received five hereditary titles. This is a world record, thus laying the foundation for Barings Bank's illustrious position.
Leeson officially joined Barings Bank on July 10, 1989. Prior to that, he was a staff member in the clearing department of Morgan Stanley Bank. After joining Barings, he quickly secured an opportunity to work in the Indonesian branch. His patience, perseverance, and strong logical reasoning skills enabled him to quickly resolve many previously unsolvable problems, improving the overall work. Therefore, he was regarded as an expert in futures and options settlement. The London headquarters was quite satisfied with Leeson's work in Indonesia and allowed them to arrange a suitable position for him overseas. In 1992, Barings headquarters decided to send him to the Singapore branch to establish a futures and options trading department, appointing him as general manager.
Mistakes are inevitable in any type of trading, but the key is how you handle them. This is especially true in futures trading. For example, someone might mistake a "buy" signal for a "sell" signal, someone might buy a contract at the wrong price, someone might be careless enough, and someone might buy March futures when they should have bought June futures, and so on. Once a mistake occurs, it will cause losses for the bank. After such an error occurs, the bank must handle it quickly and properly. If the error is irreversible, the only feasible solution is to transfer the error to an account in the computer system called an "error account" and then report it to the bank's headquarters.
When Leeson was working as a futures trader in Singapore in 1992, Barings Bank had an "error account" with the number "99905" specifically for handling errors caused by negligence during trading. This was a normal error account in the operation of the financial system. In the summer of 1992, Gordon Bouser, who was in charge of clearing at the London headquarters, called Leeson and asked him to set up another "error account" to record minor errors and handle them himself in Singapore to avoid troubling the London office. Leeson immediately contacted Lisell, who was in charge of office clearing, to consult whether a separate file could be created. Lisell quickly typed some commands into the computer and asked him what account number he needed. In Chinese culture, "8" is a very auspicious number, so Leeson used it as his lucky number. Since account numbers had to be five digits, the "error account" with the number "88888" was thus created.
A few weeks later, the London headquarters called again, announcing the provision of new computers and instructing the Singapore branch to continue operating under the old system: all error records would still be reported directly to London through account "99905". The newly created error account "88888" was immediately abandoned, yet it remained a genuine "error account" in the computer system. Moreover, headquarters had by this time noticed numerous errors at the Singapore branch, but Leeson had cleverly evaded them. This overlooked account, "88888," provided Leeson with the opportunity to fabricate accounts later; had this account been cancelled at the time, Bahrain's history might have been rewritten.
On July 17, 1992, Kim Wong, a trader who had only been with Barings Bank for a week, made a mistake: when a client (Fuji Bank) requested to buy 20 Nikkei index futures contracts, the trader mistakenly sold 20. This error was discovered by Leeson during the evening's clearing process. To correct the error, 40 contracts needed to be bought back, resulting in a loss of £20,000 based on the day's closing price, and the error should have been reported to the London headquarters. However, after considering various factors, Leeson decided to use the incorrect account "88888" to take on 40 short Nikkei index futures contracts to cover up the mistake. However, this made Leeson's trade a "owner trade," exposing Barings Bank to a risky position under this account. Several days later, due to a 200-point rise in the Nikkei index, the loss from this short position increased from £20,000 to £60,000 (note: Leeson's annual salary at the time was less than £50,000). At this point, Leeson dared not report the error to his superiors.
Another similar mistake was made by Leeson's friend and executor, George. George was divorced and wallowing in despair, becoming increasingly self-destructive. Leeson liked him because George was his best friend and one of the best traders. But soon George began to make mistakes. He bought all 100 September futures contracts that Leeson had instructed him to sell, worth a staggering £8 million, and several of the transaction receipts were completely blank.
If George's mistakes were to become public, Leeson would have to give up his comfortable life. Recording George's errors in the "88888" account was a simple task for Leeson, but at least three problems plagued him: first, how to rectify these errors; second, how to evade the end-of-month internal audit at the London headquarters after recording the errors in the "88888" account; and third, SIMEX required them to add margin daily, calculating how much the Singapore branch lost each day, and the "88888" account could be displayed on SIMEX's large screen. To cover his employee's mistakes, Leeson transferred his own commissions into the account, provided, of course, that the errors weren't too significant and the resulting losses weren't too large. But George's mistakes were indeed too significant.
To recoup his losses, Leeson took on increasingly greater risks. He engaged in numerous straddle positions, profiting from the option premiums earned by trading the stable Nikkei index. However, if the Nikkei fluctuated wildly, these trades could cause significant losses for Barings Bank. For a time, Leeson was extremely successful. By July 1993, he had turned the £6 million loss in account "88888" into a slight profit, with an annual salary of £50,000 and a year-end bonus of nearly £100,000. Had Leeson stopped there, Barings Bank's history would have been different.
Besides covering up traders' mistakes, another serious blunder was his attempt to win over Bonnie Foy, Nikkei's largest client. In late 1993, for several consecutive days, market prices soared by more than 1,000 points daily, breaking records. The computer screens used for clearing records malfunctioned frequently, causing a backlog of transaction processing. Because the system was not functioning properly, transaction recording was done manually. By the time the various errors were discovered, Leeson had already lost nearly $1.7 million in a single day. With no other options, Leeson decided to continue concealing these mistakes.
By 1994, Leeson had become numb to the amount of his losses. The losses in his "88888" account had ballooned from £20 million to £30 million, reaching £50 million by July. In fact, many of Leeson's trades at the time were driven by market movements rather than his own market expectations; he had become a puppet controlled by his risky positions. All he could think about was which market movement would allow him to turn the tide and recoup the losses in his "88888" account, and he tried to influence the market to move in that direction.
In his autobiography, Leeson described, "I am ashamed of myself for becoming such a fraud—it started as a small mistake, but now it has surrounded me like cancer. My mother was definitely not going to raise me like this."
From an institutional perspective, Barings' most fundamental problem lies in the blurring of roles between trading and clearing. After moving to Singapore in 1992, Leeson served as the manager of Barings' Singapore futures trading and clearing department. As a trader, Leeson's original job was to buy and sell derivatives on behalf of Barings' clients and to engage in arbitrage for Barings—two tasks with minimal risk. Because he was acting as an agent for clients, the risk was borne by the clients, and the trader only earned commissions. Arbitrage simply profited from the price differences between markets. For example, Leeson profited for Barings by exploiting the very short-term price discrepancies between Singapore and other markets. Generally, banks allow their traders to hold a certain amount of risky positions. However, to prevent traders from being exposed to excessive risk within their banks, this permitted limit is usually quite limited. Through the daily settlement work of the clearing department, banks can effectively understand and monitor the situation of their traders and risky positions. Unfortunately, Leeson held both the trading and clearing roles.
In fact, a week before Leeson arrived in Singapore, an internal Bahrain communications raised concerns about the potential catastrophe this issue could cause. However, these concerns were ignored, leading to Leeson taking on both trading and clearing duties upon arrival. If Leeson had only been in charge of clearing, he wouldn't have had the need or opportunity to cover up the mistakes of other traders, thus preventing the ultimately unmanageable situation.
When the losses reached £50 million, Barings Bank sent people to investigate Leeson's accounts. In fact, there was a daily balance sheet, with clear daily records that revealed Leeson's problems. Even at the end of the month, the falsified accounts Leeson created to cover up the issues would have been easily detected—if Barings truly had a strict auditing system. Leeson fabricated a £50 million deposit at Citibank, but this £50 million had already been misappropriated to cover losses in the "88888" account. A month's worth of auditing went unchecked, and no one investigated Citibank's accounts, so no one discovered that the £50 million deposit in the Citibank account was not actually there.
Regarding balance sheets, Barings Bank Chairman Peter Baring once commented in March 1994 that balance sheets were useless because their composition could change significantly in a short period of time. Therefore, Peter Baring said, "It is naive to think that revealing more balance sheet data will increase understanding of a group." The price paid for Barings Chairman's disregard for balance sheets is truly unimaginable!
Furthermore, on January 11, 1995, the Audit and Tax Department of the Singapore Futures Exchange sent a letter to Barings expressing concerns about the funds needed to maintain the "88888" account. At this time, Leeson was already requiring £10 million to be remitted daily from London to cover margin calls. In fact, from 1993 to 1994, Barings Bank had invested over £110 million in the SIMEX and Japanese markets, exceeding the Bank of England's limit of 25% for total overseas funds held by British banks. Barings Bank held several meetings with the Bank of England regarding this matter. In May 1994, Barings Bank received tacit approval from a senior official at the Bank of England responsible for commercial banking oversight, but this approval was not documented and violated Bank of England internal regulations as it was done without consulting the highest-ranking official in the relevant department.
Most incredibly, Barings Bank failed to recognize the laxity and negligence in its internal controls even after discovering a £50 million discrepancy on its balance sheet at the end of 1994. In the two months between the discovery of the problem and Barings' subsequent collapse, numerous senior and experienced personnel at Barings raised concerns, and the bank's headquarters audit department formally launched an investigation. However, Leeson easily evaded these investigations. Leeson described this period as follows: "I find it unbelievable that no one stopped me. People in London should have known my figures were fabricated; they should have known that the cash I was requesting from London headquarters every day was incorrect, yet they still paid it."
From a financial ethics perspective, all the financial professionals involved in the "Bahrain crisis" should be rated as failing. Many of Bahrain's senior managers, in particular, failed to investigate potential problems and blindly trusted Leeson, expecting him to profit from arbitrage for Bahrain. Ironically, just two months before Bahrain's collapse, at a Bahrain financial achievements conference in New York in December 1994, 250 Bahrain Bank employees from around the world treated Leeson as a hero, applauding him for a long and enthusiastic time.
On January 18, 1995, the Great East Japan Earthquake struck Kobe. In the following days, the Nikkei index in Tokyo plummeted. Leeson suffered even greater losses and simultaneously purchased a massive number of Nikkei futures contracts, hoping the index would rise to his desired price range. By January 30, Leeson was receiving funds from London at a rate of £10 million per day, having already purchased 30,000 Nikkei futures contracts and shorted Japanese government bonds. By February 10, Leeson held a record number of Nikkei futures contracts and 20,000 Japanese government bond contracts on the Singapore Exchange. The larger the trading volume, the greater the losses.
All these transactions went into account "88888". While the transactions in this account could be concealed due to his investigative authority, the additional margin calls could not be hidden. Leeson continued to transfer funds under various pretexts. The level of laxity was truly unbelievable. In mid-February, Barings Bank's total share capital amounted to only £470 million.
On February 23, 1995, the final day of Barings futures trading, Leeson's efforts to influence the market had utterly failed. The Nikkei share price closed at 17,885 points, while Leeson's long positions in Nikkei futures had reached over 60,000 contracts; his short positions in Japanese government bonds had also reached 26,000 contracts as prices soared. The losses Leeson inflicted on Barings finally reached a peak of £860 million, while Barings' senior executives were still dreaming of the next day's bonuses, leading to the demise of Barings Bank, one of the world's oldest banks.
The report on Barings Bank's collapse released by Singapore on October 17, 1995, and a reflection from Leeson's autobiography, perhaps best express our regret over the Barings incident. A passage in the report's conclusion states: "If the Barings Group had acted in time before February 1995, they might have been able to avoid collapse. Even with significant losses incurred by the end of January 1995, these losses were only a quarter of the final losses. If Barings' management was completely unaware of the '88888' account until the time of bankruptcy, we can only say they were constantly evading the truth."
Leeson said, "There was a group of people who could have exposed and stopped my trick, but they didn't. I don't know where the line is between their negligence and criminal negligence, or whether they bear any responsibility towards me. But in any other bank, I wouldn't have had the opportunity to start this crime."
The reasons for Barings Bank's collapse
On February 26, 1995, Nick Leeson, a futures manager at Barings Bank in Singapore, suffered a major loss in his investment in Nikkei 225 stock index futures, resulting in massive losses for Barings Bank totaling US$1.4 billion. Ultimately, the bank was unable to continue operating and declared bankruptcy. Thus, this long-established commercial bank with a 233-year history and a strong track record disappeared from the City of London and the global financial world. It was subsequently taken over by ING Bank Group.
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