Saturday, January 2, 2021

"Europe Invests in Latin America"

 Reading this piece three thoughts came to mind. First is a quote:

"Emerging market speculation tends to appear at a juncture in the economic cycle when 
declining yields on domestic bonds combine with an excess of capital to make 
foreign investments particularly attractive."
-Edward Chancellor
Chapter 4, Fool's Gold: The Emerging Markets of the 1820's
Second is a reporter,
The FT's Colby Smith whose work during the Argentine debt crisis of 2019 - 2020 was the alpha - omega of the story. When people would ask what I thought about the IMF and the sovereign and the creditors I'd just point them to CL Smith with the comment that had she been on the same beat 130 or 200 years earlier we would have a better understanding of what brought Barings down the first time. Some weeks her stuff was an almost daily reminder that human behavior and emotions don't change that much.

Third, Nick Leeson is still a slimeball.

From Delancey Place:

Today's selection -- from The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929 by Philip Ziegler.  

The Baring Brothers, England’s most prestigious and prominent banking firm in the early 1800s, came close to failing due to large investments in Argentina and Mexico in the 1820s:

"The investors’ skepticism [of investing in Argentina] was soon justified. Things went merrily for two or three years. [Baring agent] Robertson reporting from Buenos Aires in 1825: ‘Nothing can be more satisfying than to observe the rapid strides which the Country makes in every branch of public and domestic economy. But war with Brazil changed all that, draining the National Bank and making the currency worthless. Buenos Aires has been gradually sinking into a state of Poverty and Disorganization, from which it will require many years for her to emerge,' Robertson wrote gloomily at the end of 1827. The hero of the Liberation, San Martin himself, provided an ironic commentary on the prospects for his continent. He came to London with money to invest and called at Bishopsgate to seek advice. Barings offered him a tempting range of Latin American stocks, including the 1824 Argentine loan, which was now at so much of a discount as to be yielding a return of nearly 9 per cent. He rejected them all in favour of British 3 per cent Consols. He was proved right in January 1828 when the Argentine government defaulted on its interest payments. For Barings this was the most painful of the many shocks they had suffered in the previous two years.

"They had already had a nasty fright in Mexico. Apart from Brazil, Mexico, with its long-established and profitable export of silver, was economically the strongest country in Latin America. Barings were interested in the possibilities of increased trade and perhaps even some investment. In 1825 Francis Baring, Alexander's second son, was sent out on a fact-finding mission.

"His first reactions were of dismay. 'This country is a desert,' he told Humphrey Mildmay. He urgently requested six boxes of Seidlitz powders and 'a stoutish hunting crop with bronze handle, the dogs are wolves, and one's legs are always in danger'. The country could be prosperous if properly run, but 'I do not see any material in this country out of which they could form a good set of ministers, and even were such treasures to be found, there is not public spirit or intelligence sufficient to support them in their measures'. Mexico would go on borrowing so long as England would lend, 'and they will end up by a complete break up or bankruptcy'.

"What happened next is hard to establish with any exactness, but it effectively ended his career in banking. He found the climate oppressive, took to drink, and was still further borne down by a shooting accident, in which he contrived to kill an English friend, Augustus Waldegrave. Then he fell among thieves, in particular one Robert Staples who had previously been British Consul in Mex­ico City. Egged on by these new acquaintances, he concluded that Mexico was the country of the future -- 'When I was in Mexico,' he wrote long afterwards, 'I believed -- God help me! in Mexican stabil­ity.'....


If interested here's a look at the 1890 Argentine debacle, first posted in 2007:

And from February 2020:
Things That Make Société Générale's Albert Edwards Happy: Argentina in Extremis Edition

Finally, "In Other News, Nick Leeson Is Still An Ass"