“Japanese investors would display astonishingly bad judgment in making loans and investments, and they invariably would have losses to hide.
But so far that year, Japanese investors seemed to be doing pretty well, and we hadn’t heard of any major investment disasters. Real estate losses, including the Rockefeller Centre, were in the distant past; entertainment industry losses, including Sony’s failed investment in Universal Studios, were in the near future. Through February 1995, the Japanese actually had made money. It was shocking but true. For once they seem to have nothing to hide, and they politely ignored the derivatives salesmen’s advances.
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The double whammy [loss on lending to Barings and the stock market crash upon unwinding Leeson’s trades] hit the Japanese institutions like a gallon of sake, and now they were desperate to buy derivatives, either to make up the losses very quickly or hide them. In an about-face, Japanese buyers suddenly found derivatives salesmen incredibly attractive.
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The difficult question for Morgan Stanley was how to consummate this newfound love…and fast. Japanese institutions needed a financial instrument that would generate profits of hundreds of millions of dollars in a few weeks. My bosses often told me “We love desperate clients, we get excited about them. We’ve made a lot of money of desperate people.” These Japanese buyers were desperate people. And we had just the right to trade for them, the crown jewel of the derivatives group, the most profitable trade in the history of Morgan Stanley.”
— From: FIASCO: The Inside Story of a Wall Street Trader
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