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Famous Financial Fiascos Hardcover – November 28, 1984
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The bulk of the stories presented are no more than a few pages in length, yet Train is an expert at getting to the issue quickly and establishing key elements. The stories range from the despicable and intentional such as Ponzi and his schemes, to the ludicrous and mind numbing European Tulip craze of the 1500s, and even the flat out failures of ego and planning such as the French Panama Canal Company and the 100-fold cost debacle of the Sydney Opera House. An expert at historical and international trade and business,Train presents several entertaining accounts complete with detailed and reasoned lessons.
At some point you have to have a sense of humor about things because everyone fails at one time or another, but it takes perhaps real genius to fail so colossally that you are remembered for it for centuries. If you'd like a quick rundown of what you may want to avoid if you are planning for any level of financial success, then Famous Financial Fiascos is a terrific primer.
The challenge and the beauty of this brief work is in the selection of which fiascos to present. Although many a reader will think of one or two scandals that were missed, there are enough of them here of various types that any one exclusion is not relevant to the presentation. This was not written to be a history of all financial scandals of all time. The organization of fiascos in the book is non-chronological, jumping between long stories and short stories in different time periods, offering different lessons.
"Fiascos" carefully dissects various overriding themes of financial scandal in its seven page afterword, which I will not repeat here. The book is also bracketed with an excellent foreword by C. Northcote Parkinson. I will just summarize that most of the scandals involve otherwise talented or intelligent people driven to do very foolish things, whether by personal ambition or under the influence of a crowd. It was noteworthy to me that three of the twenty scandals (John Law, the French Revolutionary hyperinflation and the French Panama Canal) involved France in a major way. What am I to make of this? France obviously had a difficult transition from its absolute monarchy into the modern era, and it appears to have been an environment ripe for manipulation. It may be correct to say that under authoritarian environments, whether involving governments or just corporate bureaucracies, financial weeds are more likely to grow. This suggests to me that China may be ripe for scandal as it continues its uneven road towards a modern economy (beyond those involving metals trading or banking that have already been disclosed).
In fact, the best antidote to financial fiasco appears to be complete transparency between buyers and sellers regarding what is being offered, and intelligent consideration of risks by those involved. This is what makes truth in financial accounting, to the extent it can be achieved, so critical.
One criticism I do have of Train's storytelling involves repentance, told towards the end of his description of the French Panama Canal fiasco [p.74]:
"[In the wake of the scandal] over a hundred parliamentarians were brought to trial, but a single poor naif who actually confessed was the only one found guilty.
...But there was a happy twist: on the basis of a legal technicality a higher court quashed the sentences."
Hooray for the "poor naif"! I don't know why he chose to confess when so many other guilty figures did not, but on the day that man died I'm sure his conscience was a little bit clearer for it. It's most difficult to "play by the rules" when the entire crowd goes mad, as these stories often illustrate. This dissent by the lone French parliamentarian is to be lauded, even if it could have cost him dearly as the sole bearer of guilt.
When the rest of the crowd goes against you, will you have the strength to stick to your convictions?