Alexander Fordyce was born in Aberdeen in 1729. He briefly worked in the hosiery trade before moving to London to take a position as a clerk to a banker. He eventually became a partner in a private bank, Neale, James, Fordyce, & Down. He soon acquired a reputation as a successful speculator – winning bets based on his gaining early intelligence of the Peace of Paris in 1763, and when East India Company stock soared in 1764-1765. With winnings from these and other trades he bought an estate in Roehampton, in southwest London, and spent £14,000 (£1.8m in today’s money) in an unsuccessful attempt to become the MP for Colchester. By 1770 he had risen high enough in society to marry the daughter of an earl.
What was the scam?
In 1771 Fordyce’s luck began to turn and he lost large sums of money on the market. Things really became bad when he shorted shares in the East India Company (that is, bet on the price falling). When the shares instead started to rise, he took money from his bank to cover losses, initially dipping into past profits, but later taking depositors’ money too. When his partners started to ask questions, he lied about the bank’s finances, temporarily borrowing £10,000 (£1.29m) in cash for a day to give the false impression that the bank had enough reserves.
What happened next?
By June 1772 the bank had run out of money. Fordyce went on a champagne binge and then left Britain for France with his wife, leaving his partners to pick up the pieces. Days later the bank shut its doors for good, which, combined with the subsequent collapse of the Ayr Bank, which was also badly run, caused a major financial panic that spread as far as Amsterdam, causing the implosion of at least 20 banks in Britain alone. The crisis was halted only by the intervention of the Bank of England and the Royal Bank of Scotland.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Lessons for investors
Although Fordyce declared bankruptcy and had to sell his estate, he managed to retain enough money to run for parliament again. All other affected parties fared less well. The bank faced more than £450,000 (£57.9m) in claims, but its receivers only accepted £146,000 (£18.8m) as valid, and these ended up getting around three-quarters of their money back over a period of two decades as Fordyce’s partners’ estates were liquidated. Ironically, East India Company shares subsequently plunged, though too late for Fordyce. When it comes to short-selling, even the best predictions are useless without good timing.
-
The jury's out on the AI summit at Bletchley ParkWorld governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
-
As a market correction begins, money is on the move.
The force of a market correction is equal and opposite to the delusion that preceded it, so we can imagine that the correction will also be unparalleled.
-
How small businesses can retain staff in a competitive job market
Small businesses are struggling to retain staff and compete against large companies with deep pockets.
-
The French economy's Macron bubble is bursting
Cheap debt and a luxury boom have flattered the French economy. That streak of luck is running out.
-
K-pop hitman Bang Si-hyuk aims to repeat BTS phenomenon
Bang Si-hyuk created the world’s biggest boy band, BTS, making K-pop music a global sensation and himself very rich. Can he repeat the trick with a girl band?
-
Nudge theory – how does it hold up, 15 years later?
Nudge theory, the revolutionary theory of how governments can get you to change your behavior for your own good, is now 15 years old. How does it stand up?
-
Betting on US politics – who'll be the next US President?
In the latest betting on US politics, with just over a year until the next US presidential election, punters pick Donald Trump as the favourite.
-
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
