You remember Nick Leeson, the trader who bankrupted
Britain’s oldest merchant bank in 1995? He would walk onto the Singapore
futures exchange and trade with absolute confidence, despite the huge abyss in
the company’s finances he was chucking money into, and which only he knew
about. Every day, appearing on the trading floor, he was treated as the
bellwether of the entire market, which is why he was able to keep going. People
believed in his belief: it suited them to.
Then the Kobe earthquake struck: a great chunk of what was
then the Far East’s leading economy, Japan, was knocked out overnight. Its
second biggest city was a ruin. The following morning, knowing he had no
choice, Leeson appeared on the trading floor at Singapore as though nothing had
happened, selling futures in the Japanese stock market. Everyone blinked in
astonishment. They decided he, the genius, must know something they didn’t, and
bought his trades as before. That lasted a couple of days: Leeson’s
self-confidence alone kept the Singapore futures market, and half the stock
exchanges of eastern Asia, aloft in complete defiance of economic reality. But
even the other traders finally realised that no, he didn’t know anything. He
had no secret knowledge. Apart from the knowledge that he was a fraud, and
suddenly everyone knew that.
Optimism is a very great thing, but it doesn’t change any facts.
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