30 anni di truffe e scandali bancari (26 agosto)

Heroes and villains
Euromoney June 1999

This is a brief and highly selective history of the international financial markets over the past 30 years. Who were the heroes, who were the villains and who made a difference? It's the story of hopeful financial centres that flourished, showed promise but ultimately lost out to London, of banks and bankers with vaulting ambition who made it big, came a cropper or laid waste the markets around them. It's a story of creativity, excitement, success and spectacular failure. By David Shirreff

According to Hans-Joerg Rudloff, now chairman of Barclays Capital, the years 1966 to 1969 "saw a re-opening of the international financial markets after 40 years". They had been closed effectively since 1929.

Veterans remember those early days of Eurobonds and Euroloans as an era of excitement, vision and idiosyncratic behaviour. Rudloff wasn't the first into the business. He was a humble equity salesman at Kidder Peabody when the market started. But at Credit Suisse First Boston in the early 1980s, he became the archetypal Eurobond syndicate boss: arrogant, powerful, ruthless, hard-living and courageous.

There was another less glamorous side to the market, the Euroloan, responsible for recycling billions of oil dollars to developing countries in the late 1970s, and perhaps later contributing to their economic downfall.

Minos Zombanakis, then at Manufacturers Hanover, recalls his first sovereign floating-rate Euroloan, $70 million for the shahdom of Iran in 1969. That was followed by a $200 million loan for Istituto Mobiliare Italiano (IMI), which was the blueprint for all subsequent Euroloans: "We used the IMI loan to adjust for all the weaknesses [inconsistencies] of the Iranian loan," says Zombanakis.

He was in competition with the Eurobond players for the same sovereign business. Evan Galbraith, a director at Bankers Trust International in London (later US ambassador to France), had allegedly invented the floating-rate note while watching a duck bobbing in his bath. BT and SG Warburg were chasing a mandate in Italy, a $500 million FRN for Enel. Warburg's Eric Roll was already in Rome when Zombanakis flew in and persuaded the Bank of Italy that IMI (Istituto Mobiliare Italiano) should do a $200 million Euroloan instead. "Compared with $9 million in fees for the FRN they paid us half a percent," says Zombanakis. "The new market for Euroloans then burst into life."

But the Eurobond market was already flourishing. It resided mostly in two founding firms: White Weld and SG Warburg. The acknowledged visionary and cerebral genius was Robert Genillard, White Weld's senior partner, who forged an alliance with Credit Suisse, which, through various permutations, survives as Credit Suisse First Boston (CSFB). The Credit Suisse White Weld (CSWW) stable trained some of the legendary names in the Eurobond market: Michael Von Clemm, alleged inventor of the floating-rate certificate of deposit, larger-than-life chaser of mandates from Seattle to Beijing, "a thinker, a renaissance man", says one admirer; Stanislas Yassukovich, who cemented the Eurobond market's relationship with London; David Mulford, now international chairman of CSFB, who also advised the Saudi Arabian Monetary Agency (Sama), served as under-secretary for international finance at the US treasury presiding over the Brady Plan, and led some of the major privatizations in the emerging markets; John Craven, former Warburg protégé, adviser to many institutions during London's Big Bang, stabilizer of Morgan Grenfell after its Guinness scandal, and finally the first non-German member of Deutsche Bank's executive board. Walter Koller was White Weld's celebrated Eurobond trader, one of the founders of the secondary market, along with Stanley Ross, formerly with Strauss Turnbull, then with Kidder Peabody. He founded his own bond trading firm, Ross & Partners in April 1978, which goaded the big players into greater transparency by quoting "grey-market", when-issued bond prices.

Warburg's founder Siegmund Warburg had spotted the opportunity to create a new kind of merchant bank in London, "professional, hard-working, no country houses", recalls Craven. In fact, Gert Whitman was the true Eurobond genius at Warburg, says Craven: "He had the Fingerspitzengefühl [sixth sense] and knew which bond issue would get away."

'London was pretty miserable'

Only a handful of other firms saw the potential of this first truly international market and began syndicating and trading. They included NM Rothschild, Kuhn Loeb, Kredietbank (Luxembourg), Banca Commerciale Italiana, Skandinaviska Enskilda Banken, Paribas, Hambros and Strauss Turnbull, then later Swiss Bank Corporation, Orion, Deutsche Bank and Manufacturers Hanover.

The centre of this business wasn't naturally London. Genillard at White Weld favoured Paris or Geneva. Siegmund Warburg wanted at one time to create an SGW International in Luxembourg. "London was a pretty miserable place to be," recalls Craven, "beset with post-war gloom, exchange controls, and the narrow, parochial attitude of the City."

The London stock exchange wouldn't waive the rule that gave 15% of any new issue to the London jobbers, who had no placing power. "So we listed in Luxembourg instead," says Craven, "hence the creation of Cedel and Euroclear."

He continues: "We couldn't place bonds in the domestic market, and the government's credit rating was so poor we couldn't do a bond issue for them or any UK company. So it's a miracle we got the market going in London."

In its favour, London had a syndicated acceptance credit market, so its bankers understood the concept of syndication, whereas continental bankers didn't. "If the market hadn't come to London it wouldn't have grown so fast," Craven admits.

It moved from its early base in Switzerland because the Swiss authorities refused to exempt Eurobond trading from stamp tax. The UK authorities were more enlightened, recalls Yassukovich. When he came to London to set up White Weld & Co Ltd in 1969, his tax advisers discovered a 19th-century exemption (designed to facilitate intra-British-empire trade) which levied tax on office overheads rather than trading turnover. Walter Koller and his team "rented houses in Wimbledon and got trading", says Yassukovich. "We started a stampede to London, although Merrill stayed in Geneva."

Swiss banking goes Anglo-Saxon

Rainer Gut, chairman of Credit Suisse, was unusual. He hadn't gone to the right Swiss school or university or done time as a reserve officer, but he trained with Lazard in New York and married an American. He established himself at Credit Suisse having cleaned up the 1977 funds mismanagement scandal at its Chiasso branch - whose chief manager, Ernesto Kuhrmeier, was arrested. Then Gut created and presided over perhaps the only successful marriage of a commercial bank with an investment bank - first Credit Suisse White Weld, then Credit Suisse First Boston. "Gut probably brought the Anglo-Saxon culture to Swiss banking," says Patrick Odier, a partner at Lombard Odier in Geneva. "Gut was clearly instrumental in developing [the investment banking business]," recalls Rudloff. "He always gave us the freedom, favoured us over the commercial bank. His strength is instinct not strategy. But it was always of enormous benefit that we could call Gut and get him to agree [to a commitment]."

There are those who bear him a grudge, for the way he pushed through the merger with First Boston in 1978. Gut has always allowed tension and animosity to thrive. And First Boston's charge into leveraged lending - notably for Ohio Mattress in 1988 - cost Credit Suisse billions. But the history of the group is like the history of the Euromarket itself, moving from the early cult of personality, to a quest for size and volume, now restructured into an integrated risk-management machine.

Orion was another hybrid entity that somehow rode high on the spirit of the time, until its shareholders got jealous and sold it. Orion was a consortium bank set up in 1971 by NatWest, Chase, WestLB, Royal Bank of Canada (20% each), and Credito Italiano and Mitsubishi Trust (10% each), to spread the risk and cost of entry into the Eurobond market. Run by the aristocratic and dilettante David Montagu (later Lord Swaythling), it made its mark through flexibility of decision-making and the energy of its officers. Without its own market and its own source of dollar deposits it ventured opportunistically into syndicating Canadian and Aussie dollar deals. Among its alumni are Hans de Gier, until recently chairman of Warburg Dillon Read; Andrew Large, former board member of Swiss Bank Corp and chairman of the UK Securities & Investments Board; William de Gelsey, renowned Euromarket mandate-seeker, dubbed Wandervogel [globe-trotter], now adviser to Bank Austria, and to Hungary's prime minister.

De Gelsey scored an early victory while still at Hill Samuel, side-stepping the restrictive Swiss big-bank bond syndicate and bringing a Sfr12 million 22-year issue for the Oesterreichische Kontrollbank (OKB) in 1970. His syndicate included Bank von Ernst (which Hill Samuel owned), Handelsbank of Zurich, Roche & Cie of Basle, Banque Cantonale Vaudoise, Banque Privée of Geneva and Banca del Gottardo.

Orion flourished in the heyday of consortium banking. At that time there were more than 40, most of them formed by a club of western banks to enter a little-known market, or by Arab shareholders to bring in western expertise. Ebic (European Banks International Company), the most extensive, was built up in the late 1960s and early 1970s by Amro Bank, Banca Commerciale Italiana, Creditanstalt, Deutsche Bank, Midland, Société Générale, and Société Générale de Banque, with the ultimate goal of establishing a pan-European global bank. It had six separate banking operations including London (EBC), New York (European American), European Asian and European Arab. Yassukovich who was managing director of EBC, remembers setting it up in London in 1974 amid strikes and power cuts, often working by the light of a paraffin lamp. He acknowledges that consortium banks "had their moment. They allowed member banks to experiment and were a way of sharing risk. But it was always clear to me that they didn't have a long-term future."

Says de Gelsey: "It was right for the banks to club together. Now mergers are doing the same thing. In time we found that our shareholders were competing with us." Orion was sold to Royal Bank of Canada. EBC was bought by ABN Amro.

The end of the beginning

London's Big Bang in 1986 spelled the end for a number of London-based consortia, Yassukovich says. Libra Bank, which had made its mark in emerging-market debt trading, was shut down and its traders bought by Deutsche Morgan Grenfell. Of the Arab consortium banks the two biggest, which started with governments as shareholders, Arab Banking Corporation (ABC) and Gulf International Bank (GIB) are now pale shadows of what they were in the 1980s. UBAF has shrunk to a small Paris operation. Banque Arabe et Internationale d'Investissement (BAII), which was embroiled in the Bank of Credit & Commerce International (BCCI) collapse in 1991, is now just a Paris fax number. United Bank of Kuwait, set up in London by three Kuwaiti banks in 1966, is perhaps the only consortium bank that continues to thrive.

The mushrooming of Arab banks was a response to the oil revenues that poured into the Arab world after the 1973 oil crisis. ABC and GIB became big recyclers of petrodollars, through syndicated lending to the developing world. The mid-1970s to the early 1980s was the era of the syndicated loan: to Mexico, Brazil, Italy, Nigeria, Turkey.

Saudi Arabian Monetary Agency had "three wise men" as advisers: John Meyer, Alfred Schäfer, and Robert Fleming, respectively the chairmen of JP Morgan, UBS and Robert Fleming, who urged it to get some investment bankers to manage its rapidly rising cash mountain. It hired a team of eight people from White Weld and Baring Brothers. Among them was David Mulford, then at White Weld.

Oil, inflation, default

"Everyone thought the oil crisis and the petrodollars were a world-destabilizing event," says Mulford. So it was fortunate that the Saudis undertook to invest their funds smoothly and unobtrusively around the world. "We created a huge portfolio of private placements," says Mulford. "Sama was the biggest operator in the government bond markets, and the biggest holder of US government bonds. It had a portfolio of private placements and equity in double-A and triple-A corporate names. We negotiated with governments to smooth out tax barriers and the like, on the understanding that we wouldn't disrupt the local market." The Saudis were buyers and holders of government and agency bonds - they never traded in and out.

After the second oil price shock at the end of 1979, Saudi revenues were around $10 billion every 30 days. "Every business day, $50 million was added to the short-term portfolio," says Mulford. Because of the Friday holiday in Saudi Arabia, the team of eight people, managing around $135 billion, could operate on only 16 business days a month. "As the deregulation process spread, we were creating the forerunner of the global market," he concludes.

Saudi Arabia further endeared itself to the west by placing a SR10 billion enlarged access resource fund with the IMF. As a reward it became a permanent member of the IMF board of governors.

The net effect of petrodollars on the world economy, however, was of rapid price inflation, as too much cash chased too few goods. When US President Reagan's administration addressed inflation by hiking interest rates, the emerging-market borrowers began to suffer. Zaire and Turkey had already defaulted in 1976 and 1977. After 1980 the high interest rates, close to 20% for six-month Libor, shook country after country off its perch.

Interest rates weren't the only reason. The drive for 19th-century-style industrial development and import substitution piled up debt, so did the crippling price of oil imports. Without structural reforms there was no increase in productivity. The World Bank and other multilateral lending agencies were driven by lending volume. So were the banks.

Some of the early casualties were Zaire, Poland, Romania. Hungary might have followed, but its case was somewhat different. The financial wizardry of its deputy central bank governor Janos Fekete had kept the country afloat on short-term debt, but now he had reached an impasse. Fekete's good relations with Fritz Leutwiler at the Bank for International Settlements, coordinated with Gordon Richardson at the Bank of England - who saved the UK banking system in the 1970s - and Karl-Otto Pöhl at the Bundesbank, got Hungary the lifeblood it needed, a $510 million injection of funds, pending its membership of the IMF.

Turkey having suffered its rescheduling shock in 1977, had three more years of chaos until the military coup of 1980. That set Turgut Ozal, as deputy prime minister, on his path to the presidency, and the reform of the Turkish economy.

At around this time, Craven, having formed his own boutique, Phoenix Securities, was advising the IMF on changing its charter, so that, like the World Bank, it could tap the capital markets and act as a turntable, directing petrodollars to countries with balance-of-payments problems. It never happened. Craven was also discussing a $3 billion financing for the Mexican oil company Pemex.

But that was overtaken by events. In August 1982 Mexico announced that it couldn't meet its foreign debt obligations. "The [April 1982] Falklands war caused the Mexican crisis," opines Eurocredit veteran Minos Zombanakis: "The investors wouldn't refinance the Mexican investment funds [fearful that the US-Latin American relationship was ruined]." Brazil and Argentina soon followed. In the 18 months from January 1983 to June 1984, 19 countries rescheduled a total of $95 billion of debt.

It was hand-to-mouth stuff, trying to persuade banks to stay in the game, often to put in new money. Leading bankers, who had met at Ditchley Park in England the year before and agreed to pool more aggregate data on cross-border lending, founded the Institute of International Finance. Some heroes emerged during that era: Jacques de Larosière, managing director of the IMF; Paul Volcker, chairman of the US Federal Reserve; Bill Rhodes, head of rescheduling at Citibank.

The key to a deadlock

There were also smaller heroes, who started to disabuse the banks about the street value of their emerging-market loans: Marty Schubert at Eurinam and Victor Segal at Singer & Friedlander were among the first to buy and sell, or broker, these impaired loans at discounted prices. It wasn't long before discounted debt was being quoted on Reuters screens and traded by banks and even investors. It turned out to be the key to a deadlock between governments, banks and the major borrowers in default.

In 1985 US treasury secretary James Baker announced the Baker Plan, promising new money to countries burdened with debt, in an attempt to keep banks in the game. It failed. European banks had written down much of their emerging market exposure but the US banks had not. They were maintaining the accounting myth that it was worth 100 cents on the dollar, while doing deals between themselves at 50 cents.

Citibank's John Reed gave a push in the right direction with a unilateral move, in May 1987, to take a $3 billion reserve on his bank's emerging-market debt. Reed knew he would be hated: he was forcing other banks, such as the crippled Manufacturers Hanover, to follow suit.

Mulford, who was then treasury under-secretary, wanted to take things to the next stage, passing on that write-off to reduce the overall debt of the countries themselves. He feared that otherwise the nominal amount of the debt would simply be capitalized and passed from the private to the public sector. "There had to be some kind of debt relief for these countries," he said.

Origins of the Brady Plan

The October 1987 stock market crash showed that there was no escape for investors besides US, Japanese or German government bonds. Nicholas Brady, who completed a report on that crash, was appointed treasury secretary the next year. At a G7 meeting in Bonn there were the first discussions of what later became the Brady Plan - a refinancing that forced banks to provide some debt relief to the borrower. "I produced the 'truth serum paper'," recalls Mulford, "- my plan to get everyone to recognize the problem."

The Brady Plan was announced in September. It would involve debt reduction, although the terms hadn't been hammered out. Towards the end of that year JP Morgan put together a deal for Mexico which anticipated Brady bonds. Creditor banks could exchange their loans at a discount for 20-year bonds whose principal was guaranteed by a US treasury zero-coupon note. Mexico, the guinea-pig, did its first Brady deal in February 1990. Some sources credit Gerald Corrigan, then president of the New York Federal Reserve, with the real brainwork. Others mention Angel Gurria, the technical wizard at the Mexican treasury, now finance minister. Still others call it the Mulford Plan. Certainly Mulford was the figure who browbeat the financial community into accepting debt reduction.

Other countries followed Mexico: the Philippines, Uruguay, Nigeria, Brazil, Argentina, Jordan, Bulgaria, Poland, Ecuador, Peru. But there was a catch. The debt had passed from bank balance sheets to a wider investor universe. Bondholders had rights that couldn't so easily be modified by borrowers and central banks. Heaven and earth - that is 17 billion of US taxpayers' dollars - were moved, in the 1995 tequila crisis, to prevent Mexico from defaulting on its Bradys.

Of course, the bonds could be marked down to their guaranteed zero-coupon value, but thereafter Mexico's ability to refinance would be severely impaired. Some countries have bought back their Bradys, to capture the discount. But the first Brady default will send shockwaves through the market. Russia refused to do a Brady refinancing in 1994, showing foresight, since in 1999 it came within an ace of defaulting on its ordinary Eurobonds. So did Pakistan. A default would deal a severe blow to a market that has never seen a sovereign failure.

Modern exchange-rate volatility began when the US dollar came off the gold standard in August 1971. The foreign exchange market's biggest shock came three years later when Bankhaus Herstatt failed to settle the New York legs of its dollar foreign-exchange deals. Banks in other time zones, left with incomplete deals, or just fearing that they would arise, grabbed what they could, causing a general panic. A handful of banks ended up losing money. It decimated the medium-size German banks.

Ivan Herstatt was pursued by prosecutors but had fallen ill and died before the case could come to trial. Alexandre Lamfalussy, chairman of the executive committee of Banque de Bruxelles, which lost close to $100 million, honourably resigned and started a new career at the Bank for International Settlements.

A tug on the reins

"We monitored the huge development of international bank lending at the BIS," says Lamfalussy. "It was very difficult to slow down the enthusiasm of the banks." But apart from monitoring, the BIS was only marginally involved in working through the debt crisis. It turned its attention to making sense of the innovation in the financial markets, the risks of derivatives and netting schemes, and the roller-coaster of exchange rate and interest rate volatility.

That same year, 1974, Franklin National Bank in New York collapsed because of currency speculation by its major shareholder, Michele Sindona, the same who later hastened the collapse of Banco Ambrosiano in Italy and Luxembourg. At the end of 1979 came the scandal of Bernie Cornfeld's pyramid fund management scheme Investors Overseas Services, from which Robert Vesco allegedly absconded with $240 million. Vesco was last heard of in a jail in Cuba.

Out of the volatility grew increasing trade in swaps, futures and options. IBM and the World Bank did the first well-publicized interest and currency swap in 1981.

The Chicago Mercantile Exchange had started trading currency futures in 1972, but in the 1980s exchange-traded financial futures took off, with the launch of the Eurodollar future on the Merc in 1981, the opening of Liffe in London in 1982 and Matif in Paris in 1986.

Early heroes of the derivatives industry were Merc chairman, Leo Malamed, academics Merton Miller, followed by Fischer Black and Myron Scholes (devisers of the Black-Scholes option pricing model), and Richard Sandor, tireless promoter of derivatives and securitizations.

Midland Bank and Commerzbank fell foul of inexorable interest-rate movements in the 1980s which they could have hedged with derivatives. The frequency and scale of financial collapses and scandals goes up. Johnson Matthey Bankers in London, Drysdale Securities and Penn Square Bank in the US and Banco Ambrosiano in Italy were early casualties. A little close to home, Ambrosiano chairman Roberto Calvi, "god's banker", was found hanging from Blackfriars Bridge near Euromoney headquarters, and erstwhile papal bodyguard Chicago-born archbishop Paul Marcinkus disappeared for a while. In Spain, the Rumasa empire of José María Ruiz Mateos, including 17 banks, was taken over by the government. In Germany, the private bank Schröder Münchmeyer Hengst collapsed, pitching senior partner and celebrated chairman of the Frankfurt stock exchange, Ferdinand Graf von Galen, onto the street and, unfairly, into jail. The real culprit was bulldozer king Horst-Dieter Esch. Then the US government stepped in to save Continental Illinois.

The mid-1980s in the US was the era of takeover barons, corporate raiders and leveraged buyouts. Henry Kravis's finest hour at buyout firm Kohlberg Kravis Roberts was the $25 billion takeover of RJR Nabisco in 1988. At Drexel Burnham Lambert, junk bond king Michael Milken's inside deals with Ivan Boesky landed both of them in jail and led ultimately to the forced liquidation of Drexel. When US buy-outs turned sour, the US firms that financed them collapsed or, like First Boston, had to be rescued.

It was investing in junk bonds that triggered the US Savings & Loans scandal, in which scores of S&Ls whose bad and sometimes crooked lending was bailed out by the state-backed deposit insurance system, costing the US taxpayer around $300 billion. Canny private US real-estate investors, such as Robert Bass, made fortunes buying up distressed real-estate-based debt that had flooded onto the market.

Guinness left a bad taste

Morgan Grenfell's investment in Milken's deals uncovered the Guinness affair, unseating Guinness chairman Ernest Saunders and Morgan Grenfell stars Olivier Roux and Roger Seelig.

Craven was called in to put Morgan Grenfell together again, selling it his Phoenix boutique as part of the deal. Phoenix had been the honest broker in 23 of London's pre-Big Bang mergers. But Craven's biggest deal was yet to come: selling Morgan Grenfell to Deutsche Bank in 1989.

In the late 1980s the leverage available through derivatives threw up some volatile P&L figures. Volkswagen came unstuck on some unauthorized currency deals with the National Bank of Hungary. The broker in the middle Joachim Schmidt did a runner. The London borough of Hammersmith & Fulham lost $500 million in swaps and swaptions and landed in a celebrated court case. Britain's law lords controversially ruled the swaps null and void (ultra vires). Bankers Trust's star currency trader, Andy Krieger, made a killing shorting the New Zealand dollar. Merrill Lynch and others lost a bundle on new-fangled mortgage strips. Deutsche Bank rescued Klöckner & Co after its dealer Wolfgang Zeschmar's $380 million loss on oil futures. Chemical Bank, thinking it had a better option-pricing model than the street, became the market in interest-rate caps and was caught by a rise in volatility. Colleagues only half-blame cap king Steve Edelson, since management didn't question his valuations.

Meanwhile the regulators were trying to get some of these new risks properly reported and backed with appropriate capital. In July 1988 the Basle Committee on Banking Supervision, chaired by Peter Cooke, issued its guidelines on risk-weighted capital charges for credit risk. They were crude but effective for 10 years in forcing banks to build up more capital. And it was vital. "By the end of the 1980s Chase, Citi and Chemical Bank were practically bankrupt," recalls Lamfalussy. Japanese banks had special dispensation to count part of their equity holdings as capital. That came back to haunt them when Japan's bubble economy burst.

The derivatives industry worked hard at winning credibility and trust. Charlie Sanford at Bankers Trust pioneered a means of measuring one banking business against another in terms of risk-adjusted return on capital (Raroc). That helped transform a conventional wholesale bank into a lean machine that traded its loans and charged its business units capital at 20% return - risk-adjusted. Enlightened regulators, such as Volcker and the Bank of England's Eddie George took notice.

The New York Fed had a taste of systemic risk for 48 hours in November 1985 when Bank of New York's computer system failed, sending the dollar clearing system haywire. The Fed pumped $23 billion of liquidity into the banks on the assumption they weren't bust, just gasping for liquidity.

On November 29 1989, the world changed. The Berlin Wall was breached and suddenly an eastern Europe freed from communism looked a likely outcome. With amazing rapidity Germany was unified under the Deutschmark and communist heads of state toppled all over the east. Finally, the Soviet Union disintegrated into a loose-knit Commonwealth of Independent States.

This was a big opportunity for the market reformers. Take the European Bank for Reconstruction & Development, dreamt up originally by Deutsche Bank's visionary speaker Alfred Herrhausen (murdered by terrorists soon afterwards), then taken to absurdity by its first president Jacques Attali. The EBRD was the west's schizophrenic answer to economic transition: fund a development agency and run it like a merchant bank to give the natives a taste of capitalism.

Capitalism on the defensive

Harvard professor Jeffrey Sachs encouraged the countries to default and let western governments and banks take the hit for their bad credit decisions. US treasury under-secretary, Larry Summers suggested paying emerging markets for the right to pollute the planet. Privatization experts arranged voucher programmes that played into the hands of sharks such as Viktor Kozheny. Stock markets boomed and bust. Pyramid schemes like Caritas in Romania and the Mavrodi brothers' MMM in Russia flourished and inevitably crashed. Whole countries were ripped off by their former apparatchiks. A few like Poland paid that as part of the price of ultimate progress under honest reformers, such as now prime minister Leszek Balcerowicz. Others were still being ripped off.

After 10 years the balance sheet was grim: east Germany a jobless zone; Bulgaria, Romania still state-controlled monoliths, along with most central Asian states; Russia descended into chaos; only in Poland, Hungary and the Czech Republic, the Baltics, Croatia and Slovenia could transition be described as irreversible.

World Bank and IMF experts peddled the Asia model as an effective means of harnessing the private sector with the state. That looked good until unfortunately the Asia model blew up - Thailand, Malaysia, Korea, Indonesia. The darlings of development morphed overnight into nests of crony capitalism.

The decade of Europe

The 1990s were also the years of European convergence. The Maastricht Treaty was signed in December 1991 foreseeing monetary union within five to seven years, although that was nearly knocked off course in September 1992 by a crisis with the EU's exchange-rate mechanism. Macro speculator George Soros allegedly made $2 billion when sterling expelled itself from the ERM.

Financial regulators continued to learn about the wickednesses that some bankers are capable of. DG Bank in Germany tried to back out of loss-making repo trades its wayward dealers had done with Crédit Commercial de France. Paul Mozer at Salomon Brothers tried to rig an entire auction of US treasuries. His boss, John Meriwether, didn't squeal soon enough and had to quit the firm. So did his chairman, John Gutfreund.

July 1991 saw the collapse of Bank of Credit & Commerce International (BCCI). Financial conglomerates would never be as loosely monitored again. Hassan Abedi and his right-hand man, Swaleh Naqvi, had built a people's bank on sand. No single regulator took responsibility for the mess.

Another empire built on fantasy was Crédit Lyonnais. Delusions of grandeur led it into real estate and film finance, costing the French republic billions. Chairman-bureaucrat Jean-Yves Haberer, who hadn't done a bad job at Paribas, took the fall.

Then there were the derivatives debacles, starting with Metallgesellschaft, which lost $1.3 billion on oil futures contracts. Chairman Heinz Schimmelbusch, once the toast of corporate Germany, and his oil trader Arthur Benson, insisted that, if they'd had more money, those hedges would have worked. Interest rate dramas in 1994, triggered by Fed chairman Alan Greenspan's corrective hike in rates, shook some bad derivatives contracts out of the trees. Procter & Gamble and Gibson Greetings threatened to sue Bankers Trust for selling them inappropriate deals, Robert Citron at Orange County threatened Merrill Lynch with the same after a $2 billion loss of public money.

A derivatives witch-hunt led to a change of guard at Bankers Trust in 1995. Joe Jett, government bond trader at Kidder Peabody, passed into legend as the man who created $339 million in paper profits on the valuation of bond strips and wasn't found out for several years. The debacle led to the disappearance of the Kidder name.

Nick Leeson's escapade with Nikkei index futures and account 8888 nearly did the same for venerable merchant bank Baring Brothers in February 1995. The bank's poor control cost it $1.5 billion and forced its sale to ING. Leeson is due to leave his Singapore jail on July 3 1999.

Two more rogue traders came to light that year: Yasuo Hamanaka (Mr Five Percent) the copper king at Sumitomo Corporation who lost the firm $1.8 billion attempting to corner the world's copper market; and Daiwa Bank's resident New York bond genius, Toshihido Iguchi, who had been rolling over losses, with the help of client accounts, to the tune of $1.1 billion.

Staying with Japan, in March 1997 Nomura was rocked by its second scandal of the decade. Back in 1991 its chairman, Setsuya Tabuchi, and president, Yoshihisa Tabuchi (no relation), were forced to resign because of compensation payments to clients including sokaiya gangsters. This time it was the turn of chairman Hideo Sakamaki, for the same offence.

Roguish good looks

Deutsche Bank might have thought it had risks at Morgan Grenfell, London, under control. But it reckoned without a rogue fund manager at Morgan Grenfell Asset Management. Peter Young's adventures into Nordic technology stocks cost the bank more than $400 million in reparation and millions more in reputation. Young is defending himself by getting in touch with his feminine side.

The reputation of NatWest Markets took a body-blow when mismarked losses of a mere $123 million by options-trader Kyriacos Papouis came to light in an internal audit. A similar sad tale was played out at Union Bank of Switzerland where the global equity derivatives group, headed by Ramy Goldstein, lost $412 million on long-dated bets, hidden until the books were reconciled. That was just a curtain-raiser for the further embarrassment at UBS when its sweetheart deal with Long-Term Capital Management forced it into a $693 million write-off in October 1998.

LTCM was a fitting disaster for the end of 30 years in the financial markets. It involved practically every market in the world, from government bonds to mortgages, equities, takeover stocks, emerging markets, over-the-counter derivatives, exchange-traded futures and repo transactions. All this in an unregulated, non-bank entity. It is as if John Meriwether and his two Nobel laureates were conducting a grotesque satire on the real world. And when things went wrong, the real world bailed them out.