Ugly Americans
Encyclopedia
Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions is a book by Ben Mezrich
that recounts the exploits of an American called John Malcolm (a pseudonym
) arbitraging
index futures
in Japan
in the 1990s
. Trigger Street Productions
has the film rights to the book.
football players visited Japan
, to play an exhibition game against Japanese college kids. On this trip, Princeton University
's contribution to that all-star-Ivy team, John Malcolm, encountered a Princeton alum, Dean Carney (also a pseudonym). Carney was an executive in Kidder Peabody's Tokyo office, and he suggested Malcolm contact him about a job if a pro football
career did not pan out.
When it did not, Malcolm contacted Carney in 1993. Malcolm then became one of KP's two Osaka
-based traders. This lasted until April 1994, when KP discovered a $350 million "accounting glitch," and assigned responsibility for the glitch to one of its managing directors, Joseph Jett
. KP (and its corporate parent, General Electric
) made sweeping cutbacks in their trading operations as a result. Both Carney and Malcolm—neither of whom had anything to do with Jett's accounting trickery—were out of jobs, and they went their separate ways.
Malcolm took a position with a venerable English
bank
, Barings. He was again to work out of Osaka, but this time his orders were coming from Singapore
, where Barings' star trader, Nick Leeson
, held court. Leeson, though, was making huge unauthorized trades during this period, and he was losing ... big. In January 1995 he made an enormous bet on a rise in the key Japanese stock exchange index, known as the Nikkei
... large enough so that if he won, he would recover all his losses. However, the huge bet went against him, due to the Kobe earthquake (January 17) and its devastating effects on Japan's economy.
After a brief period as a fugitive, Leeson was captured and did prison time. That didn't save Barings, which went into receivership. For the second time in eight months, a superior's malfeasance had cost Malcolm a job. He called Carney for help. Carney, meanwhile, had founded a hedge fund
, and Malcolm was soon trading for it. Mostly index arbitrage
.
In 1994, the Hong Kong
government created a tracker fund
for the Hang Seng (the Hong Kong equivalent of the Dow Jones or the Nikkei; see Tracker Fund of Hong Kong
). In 1995, after Malcolm was settled into his Tokyo job, a company named Pacific Century Cyberworks (PCC) merged with Hong Kong Telecom
, and under the terms of the tracker funds' charter, its managers had to buy $225 million worth of PCC stock. Everybody knew it was going to have to do this, so a lot of traders tried to get a risk-free profit by "front running
" this deal, i.e. buying PCC stock ahead of the fund's expected purchases.
Malcolm, though, discovered that the tracker fund wasn't going to buy the PCC stock through the exchanges at all. It made a private off-exchange deal with PCC's founder Richard Li
. This meant that, when the day of the expected fund purchases arrived and no purchases took place, there'd be a strong downward pressure on the stock price. Accordingly, on Malcolm's suggestion, Carney's hedge fund took a "short" position on $100 million of PCC stock. When the big day arrived, and the tracking fund didn't make the expected purchases, the price dropped dramatically, and Malcolm covered the short position, winning his firm more than twenty million dollars. This one deal made Malcolm a star, known to expat western traders throughout east Asia as their "hot young gunslinger."
The ending of the book turns on another, quite similar, but even larger deal involving the addition to the Nikkei index of several high-tech firms. This is the deal that justifies the book—Malcolm made Carney's firm five hundred million dollars in cash out of the restructuring of the Nikkei.
Then Malcolm leaves Carney's employ and heads for semi-retirement in Bermuda
, although we're told he still does some light trading.
Other elements which Mezrich "masterfully intertwines... into the narrative with the main characters" include the sex industry in Japan
and the role of the Yakuza
in Japanese society and finance.
Ben Mezrich
Ben Mezrich is an American author from Princeton, New Jersey. He graduated magna-cum-laude with a degree in Social Studies from Harvard University in 1991. Some of his books have been written under the pseudonym Holden Scott. Mezrich attended Princeton Day School, in Princeton, New Jersey...
that recounts the exploits of an American called John Malcolm (a pseudonym
Pseudonym
A pseudonym is a name that a person assumes for a particular purpose and that differs from his or her original orthonym...
) arbitraging
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
index futures
Stock market index future
In finance, a stock market index future is a cash-settled futures contract on the value of a particular stock market index.-Market:The turnover for the global market in exchange-traded equity index futures is notionally valued, for 2008, by the Bank for International Settlements at USD 130...
in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
in the 1990s
1990s
File:1990s decade montage.png|From left, clockwise: The Hubble Space Telescope floats in space after it was taken up in 1990; American F-16s and F-15s fly over burning oil fields and the USA Lexie in Operation Desert Storm, also known as the 1991 Gulf War; The signing of the Oslo Accords on...
. Trigger Street Productions
Trigger Street Productions
Trigger Street Productions is an entertainment production company formed by Kevin Spacey and his producing partner Dana Brunetti in 1997. The company's credits include The Social Network, 21, Shrink, Fanboys, Father Of Invention, the Emmy-nonimated Bernard and Doris, Emmy-nominated Recount, Mini's...
has the film rights to the book.
Plot Summary
In 1992 twenty Ivy LeagueIvy League
The Ivy League is an athletic conference comprising eight private institutions of higher education in the Northeastern United States. The conference name is also commonly used to refer to those eight schools as a group...
football players visited Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, to play an exhibition game against Japanese college kids. On this trip, Princeton University
Princeton University
Princeton University is a private research university located in Princeton, New Jersey, United States. The school is one of the eight universities of the Ivy League, and is one of the nine Colonial Colleges founded before the American Revolution....
's contribution to that all-star-Ivy team, John Malcolm, encountered a Princeton alum, Dean Carney (also a pseudonym). Carney was an executive in Kidder Peabody's Tokyo office, and he suggested Malcolm contact him about a job if a pro football
Professional football
In the United States and Canada, the term professional football includes the professional forms of American and Canadian gridiron football. In common usage, it refers to former and existing major football leagues in either country...
career did not pan out.
When it did not, Malcolm contacted Carney in 1993. Malcolm then became one of KP's two Osaka
Osaka
is a city in the Kansai region of Japan's main island of Honshu, a designated city under the Local Autonomy Law, the capital city of Osaka Prefecture and also the biggest part of Keihanshin area, which is represented by three major cities of Japan, Kyoto, Osaka and Kobe...
-based traders. This lasted until April 1994, when KP discovered a $350 million "accounting glitch," and assigned responsibility for the glitch to one of its managing directors, Joseph Jett
Joseph Jett
Joseph Jett is an American former securities trader, known for his role in the Kidder Peabody trading loss in 1994. At the time of the loss it was the largest trading fraud in history.-Jett's background:Joseph Jett grew up near Cleveland, Ohio...
. KP (and its corporate parent, General Electric
General Electric
General Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...
) made sweeping cutbacks in their trading operations as a result. Both Carney and Malcolm—neither of whom had anything to do with Jett's accounting trickery—were out of jobs, and they went their separate ways.
Malcolm took a position with a venerable English
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
, Barings. He was again to work out of Osaka, but this time his orders were coming from Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, where Barings' star trader, Nick Leeson
Nick Leeson
Nicholas "Nick" Leeson is a former derivatives broker whose fraudulent, unauthorized speculative trading caused the collapse of Barings Bank, the United Kingdom's oldest investment bank, for which he was sent to prison...
, held court. Leeson, though, was making huge unauthorized trades during this period, and he was losing ... big. In January 1995 he made an enormous bet on a rise in the key Japanese stock exchange index, known as the Nikkei
Nikkei 225
The , more commonly called the Nikkei, the Nikkei index, or the Nikkei Stock Average , is a stock market index for the Tokyo Stock Exchange . It has been calculated daily by the Nihon Keizai Shimbun newspaper since 1950. It is a price-weighted average , and the components are reviewed once a year...
... large enough so that if he won, he would recover all his losses. However, the huge bet went against him, due to the Kobe earthquake (January 17) and its devastating effects on Japan's economy.
After a brief period as a fugitive, Leeson was captured and did prison time. That didn't save Barings, which went into receivership. For the second time in eight months, a superior's malfeasance had cost Malcolm a job. He called Carney for help. Carney, meanwhile, had founded a hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
, and Malcolm was soon trading for it. Mostly index arbitrage
Index arbitrage
Index arbitrage is a subset of statistical arbitrage focusing on index components.The idea is that an index is made up of several components that influence the index price in a different manner.For instance, there are leaders...
.
In 1994, the Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
government created a tracker fund
Index fund
An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.-Tracking:Tracking can be achieved by trying to hold all of the...
for the Hang Seng (the Hong Kong equivalent of the Dow Jones or the Nikkei; see Tracker Fund of Hong Kong
Tracker Fund of Hong Kong
Tracker Fund of Hong Kong or TraHK is a unit trust which provides investment results that correspond to the performance of the Hang Seng Index in the Hong Kong stock market.- History :...
). In 1995, after Malcolm was settled into his Tokyo job, a company named Pacific Century Cyberworks (PCC) merged with Hong Kong Telecom
Hong Kong Telecom
Hong Kong Telecommunications Limited, Hong Kong Telecom , or Cable & Wireless HKT Limited later, was the largest telecommunications service provider in Hong Kong. It was parented by Cable & Wireless. It had a dominant position in fixed-line, IDD and broadband services in Hong Kong...
, and under the terms of the tracker funds' charter, its managers had to buy $225 million worth of PCC stock. Everybody knew it was going to have to do this, so a lot of traders tried to get a risk-free profit by "front running
Front running
Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers...
" this deal, i.e. buying PCC stock ahead of the fund's expected purchases.
Malcolm, though, discovered that the tracker fund wasn't going to buy the PCC stock through the exchanges at all. It made a private off-exchange deal with PCC's founder Richard Li
Richard Li
Richard Li Tzar Kai is the younger son of successful entrepreneur Li Ka-Shing and brother of Victor Li.Li was 26th in the Forbes List of Hong Kong’s 40 Richest people for 2010...
. This meant that, when the day of the expected fund purchases arrived and no purchases took place, there'd be a strong downward pressure on the stock price. Accordingly, on Malcolm's suggestion, Carney's hedge fund took a "short" position on $100 million of PCC stock. When the big day arrived, and the tracking fund didn't make the expected purchases, the price dropped dramatically, and Malcolm covered the short position, winning his firm more than twenty million dollars. This one deal made Malcolm a star, known to expat western traders throughout east Asia as their "hot young gunslinger."
The ending of the book turns on another, quite similar, but even larger deal involving the addition to the Nikkei index of several high-tech firms. This is the deal that justifies the book—Malcolm made Carney's firm five hundred million dollars in cash out of the restructuring of the Nikkei.
Then Malcolm leaves Carney's employ and heads for semi-retirement in Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
, although we're told he still does some light trading.
Other elements which Mezrich "masterfully intertwines... into the narrative with the main characters" include the sex industry in Japan
Prostitution in Japan
Prostitution in Japan has existed throughout the country's history.While the Anti-Prostitution Law of 1956 states that "No person may either do prostitution or become the customer of it," various loopholes, liberal interpretations of the law, and loose enforcement have allowed the sex industry to...
and the role of the Yakuza
Yakuza
, also known as , are members of traditional organized crime syndicates in Japan. The Japanese police, and media by request of the police, call them bōryokudan , literally "violence group", while the yakuza call themselves "ninkyō dantai" , "chivalrous organizations". The yakuza are notoriously...
in Japanese society and finance.
See also
- Roman à clefRoman à clefRoman à clef or roman à clé , French for "novel with a key", is a phrase used to describe a novel about real life, overlaid with a façade of fiction. The fictitious names in the novel represent real people, and the "key" is the relationship between the nonfiction and the fiction...
- Ugly American (disambiguation)Ugly American (disambiguation)Ugly American or similar could refer to:*Ugly American , a term used to refer to perceptions of arrogant behavior by Americans abroad*The Ugly American, a 1958 novel by William Lederer and Eugene Burdick...
- Other works about traders and trading
- :Category:Books about traders
- :Category:Trading films
External links
- Ugly Americans on benmezrich.com
- Reviews: