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From Wondery, I'm Matt Ford. And I'm Alice Levine. And this is British Scandal. MUSIC
Over the last few weeks, we've been telling the tense, nail-biting, absurd story of Nick Leeson. How he ran up losses of more than £800 million while he was working as a trader for Barings Bank, and how he went on the run and developed a frankly quite disturbing taste for fruit pastels. Yeah, and he was still only 28 at the time, although all the sweets and Kinder Eggs do make him sound like he was probably only 12. Is that the main thing you've taken from this story, Alice? No.
Not the main one. I've actually taken a lot from the story. There are cream cake fights on trading floors. You never usually see that in the films. If you're ever short of cash, call Brenda. That's Brenda in London. She seems pretty chill. She'll give it to you. And if for some reason you become a fugitive, then make sure they misspell your name on the plane ticket and you're home dry. I love how you've taken away all the tips that would help you get away. Oh, yeah. Wait a sec.
Do I want to be a rogue trader? Well, be warned, because Leeson ended up being sent to prison in Singapore for six and a half years. OK, no, I don't. Yeah, and as for bearings, after centuries of history, Britain's oldest bank collapsed, and it was later bought for £1, which, incidentally, is the price of a kinder egg. There's something very full circle about that, which is probably what they spent it on, in fairness. So how could such a distinguished institution be destroyed, apparently almost overnight, by the reckless gambles of a single trader?
And could it happen again? One man who covered this story at the time is John Gapper. He's business columnist at the Financial Times and co-wrote the best book about the Leeson affair, All That Glitters, The Fall of Bearings. If you want to know more, it's definitely worth a read. John is also an expert on traders who've gone bad and wrote about them in his latest book, How to Be a Rogue Trader. We'll be talking to him next.
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He was very hardworking, very driven character, a bit of a control freak, really. You know, he'd come from this kind of humble background. His mother had instilled into him that, you know, he should work hard. And I think he was kind of a bit of a perfectionist, and he was...
trying really to make a success of himself. And I think it's something he had in common with other road traders, actually. They often come from quite humble backgrounds and they're kind of trying to go up the social scale, get greater status. But they're smart, they're intelligent. People think a lot of them. So they get promoted into positions of power and then they find they're kind of out of control.
And do you feel like he sees himself in that light now? Yeah, it's interesting the way he sees himself because I think he admits, obviously, that he did a lot of things wrong. But he still, it seems to me, even after all these years, kind of...
tells a story that he kind of got into it because other people made mistakes and it wasn't really his fault and he had to kind of trade his way out of it. And I'm not sure that that's really the whole truth. So it's an interesting question to me. In many ways, he's very honest. He served his time in prison. He clearly, you know, treads a straight path now. But I still wonder whether or not he's fully admitted everything to himself.
As I understand it, he blames a lot of what happened on his junior colleagues, which feels like a punch down, perhaps. Yeah, I mean, I've always thought that there's fundamentally, there's something a bit wrong about that explanation. It's not, I think, that those junior colleagues didn't make mistakes and he didn't hide some of those mistakes in his 5-8 error account. I'm sure that's true. But that wasn't 99% of what was going on.
Most of what was going on was Leeson himself trying to prove himself as a trader, hiding the losses that he made in that account.
and then showing the things where he did really well, and then getting himself into a complete mess and trying to trade and take these huge risks to get out of it. So I think that fundamentally the story about the junior traders doing things wrong and him trying to rescue them is kind of a very partial truth, I think. Could this have happened to anyone? I mean, what do you think the proportion of traders in that world in Leeson's position would have done?
Well, I think, you know, if you think about the life that traders live, they are under a huge amount of pressure. They're under a huge amount of pressure to get results. And they're under a lot of pressure from the clients, the hedge funds and so forth that they trade with and from their bosses.
And I think, you know, things can go wrong very easily. You can make a trade that goes wrong super easily. And it's quite easy to be tempted into kind of hiding it or distorting your positions for a little bit and trying to trade out of it. So I think that aspect of it, I think, is very, very common.
The thing that's kind of really weird and unusual about Leeson and other road traders, it's not that they don't start doing this stuff and then come back.
kind of tried to slightly cook the books and get their way out of it before anybody notices it's that they go on and on and on and on way past the pain barrier that most of us would go you know after a week of it of hiding stuff or after two weeks of hiding stuff most of us would be under such psychological pressure we just kind of throw up our hands and and confess but
But these guys, there's something in them that is so driven and so compulsive that they just carry on until they make a billion dollar loss. Which is sort of what makes this story so amazing because there's this...
superhuman capacity for stress and pressure but then to be glib for a second you know humans do make mistakes and there were moments where Matt and I were unexpectedly feeling really sorry for him do you think Nick Gleeson's punishment was appropriate?
Yes, I mean, I think it was. I mean, I think he went to jail and he served his time. And let's face it, in some ways he was punished a lot. He went to a Singaporean jail, which is a pretty harsh environment. And while he was there, he got cancer. And so I don't think anybody could say that he didn't suffer for his crime. Other drug traders have gone to jail too. I think that is appropriate. They are fraudsters.
But of course, you know, they're not evil geniuses. Usually they're not sort of mastermind crooks. And you often, I think, feel a bit sorry for them. They get stuck in something that's way over their heads and they never push the stop button.
And it's a kind of very human failing. It raises questions about how long he was able to hide these losses from his bosses and from the authorities. Do you think there are questions to answer from the industry itself as to why Leeson was able to get away with this for so long? Yes, absolutely. I mean, if you take the Barings case, I think there was a lot of, at the time, I remember, you know, there was a lot of people said, and it was very understandable, well, they must have known.
They must have known that he was hiding these losses. They must maybe have been in league with him because it strains credulity that you could hide this stuff for so long. The truth, as it turned out, was no, they didn't know. They should have known. And a lot of Bering's bosses got struck off as company directors. They got banned from working in the city. They were very incompetent. And I think they'd admit that they were incompetent. They should have known.
And more broadly in the industry, I think you get these really repeated cases of this happening. Every time people say, oh, it'll be different this time, we'll tighten up our controls. But it keeps on happening. So there's something wrong. John, how did the financial world's view of Leeson shift? Well, I think in the financial world generally, nobody had heard of him. Within bearings itself, I think he had a very good reputation. He was the guy they sent to Indonesia to clear up a mess when nobody else could clear it up.
You know, he proved himself. He was like, you know, there's always somebody in the office who you think, well, God, there's a real mess. Nobody else is going to sort it out. But Joe's the sort of person who's going to be able to sort it out, get to the bottom of it. And and it will be it will be all right if we stick him in charge of it. And Leeson had very much that reputation. He was kind of the guy you turn to and he got results.
So his reputation was very high. And then what happened as he became a trader was, I think, within the bank, they suddenly thought, oh, blimey, he can trade as well. You know, he seems to be making all these profits. So, you know, it's worked. And what happens in any of these banks is your reputation depends on your results. So the more money you make...
not only the bigger bonuses you get, but the more people admire you. You know, you're the great rock star. And so from the status point of view, his status went up. Everybody thought he was great. The chief executive started to talk to him. It was all fantastic, right until the moment when they discovered he was a fraudster. Leeson said that if he was able to employ better traders at the start, that this wouldn't have happened. Is that fair?
No, I don't think it is fair. I mean, I'm sure I absolutely believe his story that he was under a lot of pressure and that some of the order fillers on the exchange made mistakes. I think that's certainly true. But I think that fundamentally what happened here is that Leeson was trading in order to make a name for himself.
and that he was trading with people. I mean, look, Matt, you could be a star trader. Oh, John, don't, please. If you had a coin... Could I? I'm going to tell you how to do it. Right, OK. So, have you got a coin? Um...
You know what? No, I haven't. Well, now you can't be. You're going to fail. Okay, you're not a star trader. Sorry, you missed your chance. Okay, but if you can get hold of a coin, okay, you've got your coin, right? Yeah. You go out in the markets, you toss the coin. Yeah. If it comes up heads, you buy. Okay.
Yeah. And if it comes up tails, you sell. Okay. And when you win, you put that in your books and people say, oh, Matt made some profit. And when you lose, you stick it in your hidden secret account. So you don't appear to be making any losses. You
You keep tossing a coin. You keep making an equal amount of losses and gains, but you stick the losses in the hidden account and you display the gains. After a month, people think you're an absolute rock star because not only are you making money, but you're making money much more consistently than the other traders whose results are going up and down. And they think Matt is a genius.
The only problem you've got then is you've got the losses in the year in the can. My only concern, and I think that makes a lot of sense, is that Matt sat next to me miming flipping an imaginary coin. And so I think his colleague, I think it would arouse suspicions is my only thing. I'm taking that on trust. Okay, but if Matt is a good enough trader not literally to flip the coin on the floor but to do it in his head, then he's a star trader. I'm now miming doing it in my head. I'm so easy to rumble.
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John, what I think really amazes people is that you can hide this stuff. Because how doesn't the technology exist or didn't at the time to go, oh, you know, if you have a hidden account that somehow that shows up. It beggars belief that you could just hide losses somewhere without it showing on a bottom line somewhere. Well, that's...
I think there's two answers to that question. One is a simple one. And one is the more modern and slightly more complicated one. But let's start with the simple one. The simple one is in the days when Leeson was a trader, what he was fundamentally doing, although people talk about futures and derivatives and how complicated it was, the stuff he was trading was not complicated.
It was just futures on an exchange and everybody knew what the value was. The big advantage Leeson had was that they're supposed to be the traders and they're supposed to be people in the back office and the people in the back office or now sometimes also what they now call the middle office, but don't worry about that.
They value your trades and they make sure that everything's gone through correctly, all the cash flows reconcile and you do the trading and they do the reconciliation. Now, in Leeson's case, he was doing both. So it's not surprising that he could hide it because he could set up secret accounts, he could...
He was the person checking on himself. Well, that's a bit of a blunder as far as the bank is concerned. That should never happen. Yeah, that seems 101. That is 101. And they broke rule number 101. And that, the traditional rogue trader...
somebody like Leeson who's trading in fairly simple financial instruments, what tends to have happened is either they're somehow in control of the back office or they've got a mate in the back office and therefore they're basically hiding stuff in hidden accounts. Now, the slightly more complicated thing is the more modern road trader.
And the more modern road trader who, and I'm thinking about people like Jerome Cavill at Societe Generale, Kwaku Adeboli at UBS, and the people today, they are trading in genuinely complex financial instruments. And the thing about genuinely complex derivatives, today's options, is they're not traded on exchanges. And you have to
their value is made up according to a computer model and you put various inputs into the computer model and it tells you what your position is worth. Now, for those guys, you don't necessarily need a hidden account. What you can do is you can tweak your model so it makes it look as if you're making a profit when really you're making a loss. And that's kind of rocket science and it's very complicated.
But that's what tends to happen these days. People completely misvalue their positions. And then after about a year, somebody walks along and says, let's have a real look at these positions. And they discover there's an embedded loss of £100 million in them. And suddenly somebody's going to jail and the banks and the chief execs have been fired. Well, that's what's incredible about all this. The idea that you could just be £100 million down and until someone basically comes in and checks...
No one would know. Now, obviously, the cheque would come at some point. But if you think about your own banking, if you were that far behind, Halifax or Lloyds would be on the phone saying... £100 into the red. Exactly. It just feels incredible that no one really knows.
Yeah, well, it is totally incredible. But just think of another example, which is not a rogue trading example. It's the entire financial system in 2007 and 2008. Now, the entire financial system, almost every investment bank thought it was making a profit because the models for their very complicated credit derivatives said, the inputs said,
There's a thing called volatility, and you can change the assumptions for volatility. And all of those models were taking for granted that the entire US housing market couldn't simultaneously fall in all states because it never had done. And therefore, they all had a thing called value at risk. And their value at risk said the maximum risk you are taking is X. And it turned out to be a
100 times X because the US housing market fell in that way and every single bank on Wall Street woke up one morning and discovered that its trading book, instead of making profit, was making billions of dollars of losses.
You had an incredible situation with the financial crash where financial institutions didn't even understand some of their own products or what some of the words meant. It's really easy to look back at Leeson and think, well, actually, in the wake of the collapse of bearings, had the financial world learned from the mistakes that Leeson made, could you have prevented the global financial crash?
I think that's a stretch because, as I say, the things that Leeson was doing were relatively simple. He was operating on a futures exchange, trading these futures in Symax. Well, you know, his job got replaced by a computer in about 2005. There are no longer floor traders on Symax in Singapore. And the entire financial system changed.
from the point when Leeson was trading got much, much, much more complex and much more computer driven and much more opaque. And arguably, Leeson's errors were really simple. If they'd just known that there was a hidden account and looked into it, they'd have known what was going on. The problem is that the entire financial system is driven by risk. Unless you take risks, you're not going to make a profit. And
There is a lot of very highly educated, sophisticated traders trading on computer models. And it's very, very hard if you have all those guys and you're putting them under enormous pressure to make profits and to take calculated risks. Some of them are going to start doing something dodgy.
You mentioned risk, which is obviously part of the combustion engine of the city in trading. Do you think that the bonus system is the main driver of that risk? I think the bonus system is the main driver of the risk, but not always in the way that people think of it. I think when a case like Leeson comes up, they think, well, he did it because of his bonus, so he did it to make money. And that's obviously true.
But I think that there's another aspect which is more important in a way, which is in these banks, the only way of measuring your status is by the amount of money you make. I mean, they're very simple, almost crude institutions in that way.
Matt and Alice, you guys, you're driven by lots of things. You want to earn some money, but you're driven by status and, you know, making good podcasts and people coming up to your parties and saying, oh, I listened to what you did and it was great. I feel seen, John. But your status isn't all derived from money. I'm guessing that you're not making a million pounds for this podcast. I might be wrong. I might be wrong. If we were driven by bonuses, John, we wouldn't be here right now. I might be wrong, but I'm guessing you're not making a million pounds. But.
But so you're doing it. You're, you know, you're a cheap date. You are doing it because you are easily flattered. Thank you. And most of us are easily flattered. And they and so your employer says, OK, we'll pay you a certain amount, but we'll make you a star.
And the investment bank's not like that. In the investment bank, everything is measured by money. So I think the bonus system is the thing that really matters, but it matters because it's your measure of status. And I think that in Leeson's case, but in all these other cases...
what was happening was they wanted to make money because it made them look like a star. It's a really interesting idea that you don't work your way up through these institutions. You could have an overnight star. You could be a star very rapidly. I mean, one of the sort of, I don't know if it's a guilty secret, but one of the secrets of these institutions is that actually, if you look into the books very closely, only a few people are making a lot of money at any one point.
So they'll have lots and lots and lots of trading desks. And most of those trading desks are not making a huge amount of money. But then somebody will hit a streak. And it's quite common for 80% of the money of an investment bank in any one year being made by one or two trading desks. So when somebody hits a streak, either because they found a particular little bit of the financial market that hasn't been exploited or they're doing incredibly well,
People aren't really surprised. They just think, well, that's the way it works. And for a time, you can be remarkably successful. And that's what it looked like Leeson was doing. So it looked like he discovered this special little mark in the gap between the futures markets and in Japan. And he was doing this switching activity. And everybody said, oh, Leeson's discovered this little thing.
Other banks will come along and they will provide competition and his profits will go down. But at the moment, he's making a huge amount of money. And that's not an unusual phenomenon in an investment bank. What about the profile of rogue traders? Are there character traits they have in common? Are there trends in their behaviour? Yeah, I mean, the traditional rogue trader, there are really quite a lot of things they have in common. They often come from a relatively low level.
humble background I mean Jerome Cavill the trade work society general his father was a blacksmith you know Leeson came from Watford they're not the sort of smart rocket scientist guys so they start with this sort of sense that they've got to kind of change their status they've got to kind of be respected alongside the high status people and they often come up through the back office and
then they kind of get their break and when they get their break they really really really want to make a lot of money quite fast in order to show that they deserve it so they're very they tend to be very driven characters they tend to be pretty you know efficient quite charming people somebody that's other people trust and
So there's lots of aspects of them that are really quite similar. Is there a necessity for some level of delusion? Because Matt and I just kept screaming at each other as the story progressed. Surely he can't dig himself out. Surely he can't believe that at this point he can dig himself out. You know, was Leeson thinking straight? Was there a chance even at the end that it could all come good?
I think there's always a chance. There's an interesting, you know, there's quite a lot of academic work on this stuff. And somebody wrote a very interesting paper about what they called informationless trading, which is basically tossing a coin.
And what happens if you run a hedge fund on the basis of tossing a coin? And when you get into loss, you do what Leeson was essentially doing, which is, you know, when you're 10 million down, you bet another 10 million. And if you win, you're out of it. And if you lose, you're 20 million down. And it just doubles up. And they looked at what the trading record of a hedge fund that did that was.
would be like. And the conclusion was this hedge fund would appear to be very successful for really quite a long time because you keep doubling and doubling and doubling and doubling. And then suddenly there'd be an explosion and the thing would just blow up. You know, you or I would think, well, just doubling up is going to go wrong eventually. But of course, if you've got enough capital...
and you can hide it sufficiently, you can keep going for really quite a long time. And of course, that's what Leeson did, because he ended up with a billion dollars and a billion pounds in losses.
But it is like red or black in the casino, isn't it? It's 50-50. Yeah, it's 50-50. And it's just about holding your nerve. Yeah. Well, it's two things. It's two things. It's holding your nerve and it's having the capital to do it. So you also, either you're very deep pocketed, you're a hedge fund that's got an awful lot of capital, so you've just got it, or you have to do what Leeson was doing, which was kind of fraudulently getting cash from London to keep paying the bill. Yeah.
And is there a third thing which is making it seem like you're not just betting on red or black? Yeah, no, absolutely. But there's a really interesting point there, which is that the holy grail in markets is not just making profits, but it's making profits consistently. And if you can do that, then people will come flocking to you because it looks like you've solved the great volatility problem. And actually,
actually, then rogue traders appear to be extraordinarily successful traders, not just because they're making money, because they're doing it very, very, very consistently. And if you look at the case of Bernie Madoff, who was the financial advisor and fraudster who ran a Ponzi scheme in the States, he was incredibly successful and he was recommended as an investment manager to lots of very rich people in the States who
by consultancies because he was making money very, very consistently. And they thought that was because he was just an incredibly good low volatility trader. But actually, it's because he was a fraudster. And the point is, those two things can look very alike.
Well, it's like getting all of the answers right on the test. You know, is it too good to be true or are you just really smart? Right. And then with hindsight, everybody says, well, how could you possibly have thought that anybody could be consistently that good? And one of the red flags now that consultants and compliance people in banks will look at is you're too consistent.
Like with Madoff, though, Leeson had to have the trappings of somebody successful. He had to present as somebody who wasn't on a losing streak, who was on a winning streak. I mean, Madoff and other Ponzi scheme sort of creators, they present a legitimate business and have outgoings because of that. Matt and I were sat...
talking through the story and thinking, just conserve, just save a bit of money, just stop spending as well as losing through investment. Yeah, and the big, I mean, Leeson's big tell was that he was demanding huge amounts of cash from London and was having to spin a story about why he needed so much cash. Yeah.
But, you know, but a lot of it you can a lot of it you can just hide. But but I think there's a you know, your reaction to it is I mean, I think everybody's reaction is it's like a nightmare. You're stuck in something that you can't get out of. And the only way that you can get out of is taking bigger and bigger risks and making greater and greater losses. And.
You know, Leeson was obviously exhibiting a lot of psychological strain. He was overeating. He was, you know, he describes himself, how he was kind of waking up in the middle of the night, all the rest of it. But it's really weird because most of us, you wake up from the nightmare and it's over. But he never handed himself in. And even when halfway through, he'd trade himself out of it.
He couldn't go straight, it seems to me, because the problem is with going straight is if you traded your way out and on a Monday you turn up there and you start trading,
trading honestly you're no longer a star trader because you're making all the same losses everybody else is making all losses and gains you just look ordinary of course and do you think with people like lease and made off that they in the back of their mind know that at some point they're going to run out of road but they're just trying to stay on the road for as long as possible or do they think i can genuinely turn this around and no one will ever find out
I think it's a combination of those things. I think with Leeson, I think he thought, you know, he thought if he kind of physically just held the market in place by trading more and more and more, somehow he could hold the thing. And if things went right, he'd find his way out. And, I mean, Madoff was a sort of weird case because he didn't just go on for two or three years. He went on for, you know, more than a decade and
And there was no way that he was ever going to get out of it. So what was going on in his mind, I think, is, you know, it's almost psychotic. This season, Instacart has your back to school. As in, they've got your back to school lunch favorites, like snack packs and fresh fruit. And they've got your back to school supplies, like backpacks, binders and pencils. And they've got your back when your kid casually tells you they have a huge school project due tomorrow.
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Well, I think that, you know, I think a lot of the controls are much better than they used to be. They're much more sophisticated than they used to be and so forth. And so I think a relative, I think it would be hard to get away with the sort of road trading fraud that Leeson got away with because it was so crude at some level and some really basic controls would have taken care of it. Like having somebody else in the back office who wasn't
it wasn't Leeson. Sounds good. That would have taken care of it. But you've got a problem here, which is these institutions are fundamentally risk-taking institutions that press the accelerator to the floor as hard as possible. And...
You know, that's how they make their money. And at the same time, they've got a whole set of controls, which is like having the brake on to make sure that they don't speed too fast. But the problem is they are risk-taking institutions. And so I think there's always going to be the possibility of positions being misvalued, of things going wrong. And so...
You know, Jamie Dimon, who's in charge of JP Morgan, the biggest bank in the world, he has what he calls a fortress balance sheet. And he's basically they have a huge amount of capital. And he says, if anything goes wrong in any part of my bank, my balance sheet, my capital will be enough to absorb the blow because he knows that, you know, something can go wrong.
And what about the banks themselves that rogue traders end up working for? Are they a bit roguish themselves? Do particular brands and institutions attract a certain type of individual? Yeah, there's an interesting parallel, I think, between some of the institutions that get caught in this way...
and the road traders themselves. It's not that institutions are criminal or fraudulent. They're not, not generally anyway. But, you know, banks like Societe Generale, banks like UBS, they're often, you know, relatively low status banks within the areas that they're trying to get into. And they're trying to make money in a hurry or sort of raise their status and go up the league table.
And so there's a kind of interesting parallel there where they're driven to take financial risks that others are not. And the Swiss banks, for example, they have a fantastic world beating wealth management advising rich clients business. But over the years, banks like Credit Suisse and UPS have gone into crisis.
investment banking and taken too much risk on the trading side because they're trying to prove themselves. That's what's so interesting is there seems to be a real contrast and juxtaposition between someone like Peter Barings and the history of that bank, family owned in the finance for a long time, probably relatively low growth. You imagine them almost like the bankers from Mary Poppins and then this swashbuckling leasing outfit where
And they're all part of the same thing. I mean, do you think that was a period of transition for the financial sector where Peter Baring's actually was from a completely different financial world to Leeson? Or is Baring's one of those people that presents as a stiff-stayed head of a bank but is fully aware of the sorts of activities that are happening?
No, I think Barings was a special case. I think, you know, the traditional side of the bank, which was what they call the merchant bank, which was a relatively low risk activity. They were advising companies on flotations and mergers and that sort of thing. They weren't taking a lot of capital risks themselves. And they were the sort of posh people. And they didn't have much idea about financial trading, which is very much the kind of new area of
And they got themselves into something they really didn't understand. You know, there was another site. They bought a little securities trading outfit run by a guy called Christopher Heath. That side took a lot of risks. And the two sides of the bank really were kind of really quite different sorts of people. I don't think there's the equivalent of the Barons these days because what happened was the old City of London was,
kind of got swallowed up and taken over by other banks and partly in the wake of the Barings Crisis. And American banks aren't run in the same way. But banks are still run in...
in that they have lots of different departments that operate on different risk levels and do different sorts of things. And often if you took a person from one side of a bank, even a Goldman Sachs, and sort of stuck them on the trading floor when they're really an M&A advisor, they wouldn't know how to do it. They wouldn't hopefully pretend to know how to do it. Hopefully. You've already said, John, that Nick Leeson's relationship
role or job in that form has probably disappeared now due to technology and things being entirely computer run. But would you imagine that it would be possible for an individual to have such a catastrophic impact now? Yeah, I think it would be possible. I mean, we've seen much more recently than Leeson, you know, Leeson was 95 and then Quaker Adeboli lost, you know,
you know, billions, I forgot the exact figure, but at UBS. So it's possible these days. And you just have to do it in a more sophisticated way. And you have to kind of misvalue financial instruments. But you can certainly do it. It's certainly possible. And I think any bank chief executive that didn't think that it was possible would be an idiot. Do you think there are enough measures in place now to stop rogue traders?
Well, I think there will never be enough measures to stop them because you and I could stop rogue traders tomorrow. Banks could stop rogue traders tomorrow. You just abolish the bonus system and you abolish financial trading in its current form and you say nobody can take individual risks on their trading book. That would get rid of rogue traders. You just wouldn't make any money. OK, because it sounds like you go, well, why not do that? But would that have a negative economic impact on the wider economy?
Well, that's a very interesting question. So you do that, you stop all risk-taking, and then banks make no money. So you have to have some form of risk-taking. I mean, you or I are taking risk if we put our money in a stock and share account, in an ISA. We're taking zero risk if we...
We assume zero risk if we just put it in a savings account. But everybody takes financial risk in order to get a return. Can I recommend a premium bond to you, John? Yeah, and actually, premium bonds are actually a very good recommendation. You should be my financial advisor. You're welcome. Yeah, thank you. The first one's free. That's a very good recommendation because unless the UK government goes bust, you're right.
And if the UK government goes bust, well, you've got much bigger problems than the UK. The total collapse of all society. Exactly. So therefore, investing in government bonds. The problem is you don't really make very much money from investing in either premium bonds or gilts. I've got simple taste, John. I don't need the big bucks. But there's an interesting point here, which is...
all of this financial innovation, there is a huge question about whether or not it's all entirely pointless and it's all just to do with banks and the financial aspect of the economy making more and more money or whether it's what the banks would say, which is all of this financial innovation
creates capital, means we can lend to people, means that businesses get started, means that, you know, Alice and Mac can go out and form their own podcast company and borrow some money from a bank and make huge amounts of money. So it's whether or not all of this trading and risk-taking in the financial sector goes into the real economy. And I think the answer to that is it probably does help.
And some of this financial innovation does help your eye. We can now invest in a much more sophisticated way than we used to be because a lot of this derivatives. But quite a lot of it, frankly, is so people can make rather large bonuses. And if you look at the financial sector, it's expanded, massively expanded over the years compared to the real economy. So there must be something going on that's not just them being nice to us.
So could you say, maybe for a limited time, that rogue traders on occasion can actually do a bit of good for the wider economy? Matt, that is a trick question. And I'm not going to fall into that trap.
I think what you could say, if I rephrase your question, Matt, is that banks risk-taking could be good for the wider economy. I don't actually think road traders are good for the wider economy particularly. I think you could argue that traders are good for the wider economy because they create liquidity. But I think...
there's an awful lot of trading that goes on which is not really creating much good for the wider economy but it's just creating a lot of bonuses. Beautifully sidestepped. I haven't been a journalist for 30 years but I recognise such an obvious trick question. Coming on British Scandal is a risk in itself. Gappa says that leasing is good for society. John, that was fascinating and fantastic. Thank you so much. You're very welcome. Cheers, John.
Next week, we'll be starting a new series and we're doing the original uber-British scandal, the Profumo affair and the story of Christine Keeler. This is the fourth episode in our series Breaking Bearings. If you'd like to know more about this story, we especially recommend the books All That Glitters, The Fall of Bearings by John Gapper and Nicholas Denton, Going for Broke by Judith Warnsley and Rogue Trader by Nick Leeson. I'm Matt Ford. And I'm Alice Levine.
This episode was produced by Dee King. Our senior producer is Russell Finch. Our executive producers are Stephanie Jens and Marshall Louis for Wondery.
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