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Gambling with Big Money

On February 26, 1995, Barings, the oldest bank in Britain, announced it was seeking bankruptcy protection after losing nearly one billion dollars in a stock gamble, according to Time magazine.

In late 1994, the chief trader at Barings's Singapore office began betting big on Japan's Nikkei market. Then disaster struck. An earthquake hit Kobe, Japan, and on January 23, 1995, the Nikkei plunged more than one thousand points.

Barings Bank lost big money. But instead of cutting his losses, Barings's Singapore trader doubled his investment, apparently hoping that the Nikkei would rebound. It didn't. Barings's London office put up nearly $900 million to support its falling position on the Singapore investments. Finally, Barings ran out of capital and declared bankruptcy.

How could one 28-year-old trader in Singapore lose nearly a billion dollars and ruin a 233-year-old British bank? According to Time, the problem was lack of supervision.

"London allowed [the Singapore trader] to take control of both the trading desk and the backroom settlement operation in Singapore. It is a mix that can be--and in this case was--toxic. ... A trader keeping his own books is like a schoolboy grading his own tests; the temptation to cheat can be overwhelming, particularly if the stakes are high enough."

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