A while ago, we created a presentation on some of the greatest trades of all time. It featured men who had achieved billions of dollars through their financial aptitude, brilliant investment strategies, and some luck.

John Paulson’s subprime trade, for example, qualifies big time. His Sino Forest trade, on the other hand, not so much. But for all the negative press Paulson’s Sino Forest trade has gotten, he actually only lost $107 million.

That’s nothing compared to the losses these 12 traders saw. This is a story of epic failure.

Robert Citron: The man who brought California to its knees with 292% leverage.

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.

See the rest of the story at Business Insider

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Original source at: Money Game |

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