We’ve already told you about the worst trades of the financial crisis and we did a series on the best trades of all time. So what about the WORST trades of all time? You’ll see those below, courtesy of Business Insider. Let’s hope these guys learned from their mistakes. They obviously didn’t follow our number one rule of cutting losses quickly.
With every winning trade comes a loss to another party, and today we focus on… the losers.
Here are the individuals and institutions that lost hundreds of millions, to billions, of dollars. All by letting one group or individual gamble with their money.
Be it excessive leverage, poor decision-making, or outright illegal activity, this is a story of epic failure.
Robert Citron: The man who brought California to its knees with 292% leverage.
This guy almost killed a state, that’s crazy. In 1994, Robert Citron was Treasurer-Tax Collector and the only Democrat to hold office in Orange County, California. Through a series of highly-levered deals that included repo agreements and floating rate notes, Citron was able to at one point achieve leverage of 292%. The funds he managed were worth around $8 billion and if interest rates went up, he stood to lose big time due to his collateral which consisted almost primarily of US Treasury bonds.
Well guess what? Interest rates rose and as a result, Citron lost Orange County lost a boatload of money. From Wikipedia:
“The county’s finances were not suspect until February 1994. The Federal Reserve Bank began to raise US interest rates, causing many securities in Orange County’s investment pools to fall in value. As a result, dealers were requesting extra margin payments from Orange County. These extra margin payments were funded in part by another bond issue made by Orange County; the size of that bond issue was $600 million. However, this fix proved to be only temporary. In December 1994, Credit Suisse First Boston (CSFB) realized what was going on and blocked the “rolling over” of $1.25 billion in repos (“rollover” essentially means issuing of another repo when the previous one ends, but, at the new prevailing interest rate). At that point Orange County was left with no recourse other than to file for bankruptcy.”
Jerome Kerviel: Derivatives arbitrage totaling over $60 billion
Kerviel made headlines last year as the trader at “a french bank,” which ended up being Societe Generale, He lost approximately $6.5 billion just like Leeson and others in this list through arbitrage of equity derivatives. Unauthorized trades totaled as high as $66.7 billion. Kerviel was ultimately charged with creating fraudulent documents and making attacks on an automated system.
Nick Leeson: Wiped out the world’s oldest bank, Barings
Leeson is most likely the most popular guy on the list. He started his career trading derivatives at Barings Bank and was eventually moved to Singapore where he enjoyed a lavish lifestyle and made plenty of money. That is, because he hid mounting losses in a special account known as the “five eights” account. He was eventually caught and sentenced to five years in a Singaporean prison where he acquired cancer and his wife left him.
Tim Geithner: Plowed $6.6 billion into a dead, unpopular automaker
Consider this: when was the last time Chrysler made a car you would actually buy? I’m dead serious. Who buys a new Chrysler, excluding the Jeep brand? Treasury Secretary Tim Geithner must not have thought of this when he wrote Chrysler a check for $6.6 billion to keep the company afloat via a new company.
This isn’t the first time Chrysler has needed help. In 1979, then-President Jimmy Carter approved a $1.5 billion loan package for the automaker called the Chrysler Corporation Loan Guarantee.
Since 2009, Chrysler has yet to fully recover and continues to be a money-losing business. Sure, GM has stolen the headlines recently with so many recalls on their vehicles, but that doesn’t mean Chrysler is out of the woods. Kyle Bass once said that this country needs to consolidate its auto industry. There is no longer room for three major players and perhaps, not even two. Ford will stick around, but it remains to be seen if Chrysler and GM can survive despite their divine intervention.