In 1762, John and Frank Baring, started what became Baring’s Bank. It grew gradually over the years, and had a few difficult times, but there was always a Baring somewhere in the bank’s administration, until its demise in 1995.
In the 1820’s, business was bad, and Barings lost its London dominance to The Rothchilds, but under the direction of Sir Thomas Baring, and his son Thomas Baring, the bank began to diversify overseas, and especially into The United States, South America, and in some parts of the Orient. In the 1850’s and 1860’s, various Barings, all descended from the original brothers, began dealing in international securities in Canada, the United States, and Argentina.
Barings financed the Napoleonic Wars, Louisiana Purchase, and the Erie Canal. The Queen of England used Barings Bank! In 1987, Barings opened a branch in Singapore, called Baring Securities, which was initially focused on stocks, but soon became involved in futures trading. All was seemingly fine and profitable, at least till 1995, when one trader, destroyed the bank.
Nick Leeson had grown up in a London suburb. He went to University, and began his career working for Morgan Stanley. He eventually switched to Barings, and applied for a transfer to the Far East. In Jakarta, Leeson saw to it that 100 million pounds worth of stocks were delivered to clients, which attracted the attention of Barings management. He was accepted and made general manager with authority to hire traders and back office staff. He took the exam, and began trading Japanese futures. Here was this basically wet behind the ears man, being made in charge of back office, traders, hiring, firing, and running the Singapore office. Too much, too soon.
He took unauthorized positions in the Nikkei 225, Japanese government bonds, and options on the Nikkei, under Barings account number 8888. He was a new, inexperienced trader, and made mostly all the wrong bets. Within a few months, the account was under water, and by 1995, his red ink was 827 million British Pounds, which bankrupted Barings. One young man, took Britain’s’ oldest, most respected bank, down the tubes, and like Humpty Dumpty, it could never be put back together again. His superiors should have kept track of his terrible trades, but they went unnoticed till it was all over, and thousands lost their jobs. Billions of pounds, dollars, and who knows what other currency were erased from existence. Depositors lost their life savings in tens of thousands of cases.
Sounds like a recent bankruptcy called MF Global, doesn’t it? Thousands lost their life’s savings in John Corzine’s outfit, or the Savings and Loan scandal, which cost depositors hundreds of millions of dollars, which will never be recovered. The point of it all is simply that, (1) Do not invest your dollars in things that can be taken to zero by miss-management, bad trading, or dishonesty. and (2) Place your investments in tangible things, which can never go to zero. Preferably tangible things, which by their very existence, have value, and are not dependent on grading or opinions of others. Antiques are dependent on condition, opinion, and may take a lot of space, unless, like me, you use them in an old house. My house was built in 1887, and is full of antiques which give much pleasure, but if I tried to sell them, it would be a difficult sell, I admit. No tangible thing can go to zero, like paper stocks, bonds, savings, or similar investments.
Then there was Bernie Madoff, who stole literally $50 million from trusted clients who were scammed, and many lost their life’s savings. The original Ponzi scheme, netted Charles Ponzi big bucks in just 45 days, and the scam is named for him. There are dozens of scams or huge mistakes made yearly, which cost investors hundreds of millions. The January first Financial Times reports that in the year 2011, “$6.3 trillion was wiped off the markets,” by bad trading, market dips, and the like. Many were not frauds, but honest mistakes. My point, is simply that while pieces of paper with ink on them can indeed go to absolute zero, tangible things cannot. A pile of lumber cannot go to zero, and neither can a wrecked car or anything tangible. Gold and silver simply cannot go to zero, even with manipulation, which is not unknown.
When gold and silver go down in price, it is always because of millions of paper ounces being sold on the futures markets, and not physical gold and silver being sold. When a paper futures contract for non-extant, paper silver is sold, it’s the same as selling thousands or millions of ounces of real silver, and it drives prices down. The same when millions of ounces of paper silver and gold are bought in the futures markets. Physical prices go up also. But physical gold and silver can never go to zero, and as worldwide inflation proceeds, no amount of futures selling or manipulation, can do any more than cause a brief correction in tangible metals. They are limited in supply and cost lots to get out of the ground, mill, smelt, and go through expensive manufacturing and distribution costs. We recently had a 19% correction, and it’s going back up again. Never fear.
It makes the utmost sense, when you have surplus dollars, to place them in something tangible, because tangible things cannot go to zero, like many investments can and do, many times a day in some part or other in the world. You bought gold higher and silver also? Don’t worry, they’ll go back and go ever higher. Unless that is, if Congress will balance the national budget and stop the government from printing billions of dollars to pay its bills and handouts, which causes inflation, and raises prices of all tangible things.
Barings Bank failed, and shook the entire economic system, because it was so old and trustworthy. One man did it, and it can happen again. Don’t be trusting your savings to the foibles of traders, legislators or government.