It's happening again. We know one long-standing firm that failed to come out of the whirlpool this summer. The elevator had to find a 'white knight' for an immediate takeover. It's critical to understand the problem our industry faces, and recognize what brought us to this point. Too many managers don't monitor their overall financial exposure, and have inadequate reserve financing for the positions they take.
Futures soar, and they find themselves unable to meet margin calls.
Too much stress and the business can collapse. Logic says businesses act in their economic best interest, but reality often flies in the face of logic. That's what Nick Leeson, Barings PLC, and the Treasurer of Orange County thought. There's a harsh lesson there for all businesses. The increasing use of sophisticated cash-market derivative contracts is pushing firms closer to the brink.