Toshihide Iguchi

Epilogue to My Billion Dollar Education

No English language edition of Toshihide Iguchi's book My Billion Dollar Education has been published. The epilogue to it is published with his permission.


I wrote this book to share with fellow Americans the true extent and historical significance of the Daiwa scandal and to shatter the prevailing myth about rogue traders. One doesn?t have to be excessively ambitious and greedy to fall into the trap. Most financial criminals are obsessed by their greed and are frequently oblivious to the degree of harm they cause. The so-called rogue trader can have the opposite motive. Not driven by greed, he might be trying to minimize damage. Ironically, the damage can often be larger, because he operates in an area where monitoring procedures have broken down. In 1995 and 1996, the amount of money lost by Barings, Daiwa, and Sumitomo totaled $5.4 billion?by only three rogue traders! And these three (including myself) were doing their best not to lose any money at all.

When the media labeled me a "rogue trader," it was saying I was the one bad apple out of thousands. Daiwa was simply unfortunate that I, the rotten apple, happened to be their trader. This is still the public perception, yet it cannot be further from the truth. Had Hamanaka, Leeson, and Iguchi worked at other institutions, do you think they would have done the same thing? Hardly. I can?t think of any other institution where I could have done what I did at Daiwa. First of all, no conscientious financial institution would let someone be in charge of its trust operation, back office operation, and trading operation at the same time. That would preclude any possible unauthorized trading. Given this fact, the opposite side of the argument is closer to the truth. It is not that traders were the bad apples, but the institutions. Sumitomo, Barings, and Daiwa were the rotten apples. They were the rogue banks, too interested in quick profits to structure themselves according to the basic rules. Many traders have engaged in unauthorized trading to recoup unreported losses. Some were discovered at an early stage, but some lost $10 million, $100 million, or even a billion. The difference in the amount of the loss correlates not with the level of the trader?s greed but with the extent of laxity of the institution?s internal controls.

Although corporations are criticized for their failure to have proper internal controls, traders are prosecuted for causing the loss. In the eyes of the public, the rogue trader is the only culprit. When he?s sent to prison, the case is closed. He is being punished so he won?t do it again. The problem is that no rogue trader thinks he is going to lose a billion dollars, because it begins with a small loss, usually less than a hundred thousand. In reality, most financial institutions have now installed check-and-balance systems to prevent anyone from losing millions without being detected.

If a trader loses more than he is allowed, he may do things he shouldn?t in order to dig himself out, especially if one of the consequences of admitting a loss is losing his job. But he wouldn?t even consider it if proper control measures were in place. Institutions must take responsibility for deterrence if they engage in the trading business. The management must take any loss from unauthorized trading as its own loss and not be allowed to call itself a victim. Many people who read my book in Japan maintained that traders like Yamada, Mizuno, Takagy, and me were the victims of Daiwa?s lack of effective controls.

Trading is a tough business. To trade well, one must often go against human nature. In doing so, one must ignore inner warnings and take a course that seems self-destructive. It?s much like turning the wheels of a car toward the direction of skidding. It takes enormous discipline to do this day-in and day-out. Traders are constantly tempted by inertia to stay on the safe side. In the course of business, all traders make erroneous judgments and lose money, especially the many junior traders who fall into traps that are set by those who are much bigger and wiser. If the institution has strict internal controls in place, they are likely to lose their job. It?s a merciless world. There are no other jobs like trading. Because of its nature and the psychological pressures traders are under, the least an employer can do is to not give them the chance to consider unauthorized activities. Passing out severe sentences will not deter them from rolling the dice one more time if they can, when that?s measured against the disgrace of losing their job. On the other hand, making management culpable will force it to implement effective controls, so we will not hear another case of a "rogue trader."

Some people have told me that the harshness of my sentence was unjustified and unnecessary, given the degree of my remorse and the extent of my cooperation with the government. Since my action was not motivated by greed, and because all I had derived from it was agony, the chance of recidivism was undoubtedly zero. Nevertheless, the Judge had to do what he felt was appropriate at that time, given the amount of the loss and the publicity. After all, it was the first unauthorized trading case prosecuted in the United States, and he had to set a precedent for future cases to enhance its value as deterrence. I am glad to be of service to society if my harsh punishment sends a message that deters similar activities, yet I feel my hardship has been wasted. Furthermore, not rewarding me properly for my unwavering cooperation may discourage others to cooperate with the government to the same extent. That being said, I have the utmost respect for my sentencing judge, since he supported me each time other areas of the Justice Department attempted to increase my punishment. Akemi and I have since come to believe that everything happens for a reason, and by accepting reality as it is, however painful, we grow spiritually.

I have learned quite a bit from my ordeal. For one thing, I know how quickly we can convince ourselves that a new situation differs from the one to which our precepts should apply. I also learned how easy it is to become fixated on blame. Throughout my ordeal, I was involved with people whose behavior was less than exemplary. At times, I consoled myself by considering how superior my actions had been, even those for which I was condemned, to those of people who were either punished to a lesser degree, forgiven, or even praised. It took me quite a while to see that this kind of recrimination is pointless, because?ultimately?we only have to answer to ourselves.

This is how we define our character. What standards will we apply to ourselves? How understanding can we be of others? To what degree can we see their actions in a broader context? How can we help them improve their perspective? How can we enrich our common life by updating the rules, procedures, and patterns of perception? These are all that matter, not whether someone has betrayed us or acted without class, style, grace, or objective morality. That?s their problem. Monitoring our own behavior is difficult enough.

I learned a lot about the interconnectivity of the world as well and how the ?global economy? is a fact and not just a metaphor. Experts claim to grasp local conditions, and they are frequently right. Yet the big picture eludes us all, and as the world becomes more complex, we must spend more and more effort to understand it.

The forces governing life are ultimately benign?if they?re accepted. For years, I fought against them, charging ahead to fulfill my idea of what was worth doing. I followed an amalgam of parental precepts and the uninformed notions of youth, resolved to push the chain up the hill. When difficulties emerged, I bore down and pushed harder until I was strained and stressed to the breaking point. I have to acknowledge that luck must also be a factor, because others have been where I was and did not emerge intact.

My luck was that, either by accident or providential design, I met and fell in love with a woman who also loved me. This allowed me to relax and accept the benediction of fate, which saved me. Looking back at my long struggle, I?m amazed at how stubborn I was, and I?m grateful I was not any more so. All around me, people have steadfastly refused to admit defeat in order to preserve their hollow victories. They have created a false picture of the world to justify their actions and intend to hold onto it until they die. They don?t understand how they are condemning themselves to pay the ultimate price: missing what life is really intended to bestow.

As for me, I wouldn?t trade a single aspect of what has come to appear as my extended maturation ceremony, my destiny, because it has blessed me with love and allowed me to achieve a sense of peace

Roy Davies.
Last updated 25 January 2008.