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In June 1989, one man's YOLO gone wrong caused the worst market crash in Brazil's history & brought down six brokerages, Brazil's top stock exchange, and the head of its central bank. This is the WILD story of Naji Nahas:pic.twitter.com/Pk6de82k1S
Naji Nahas was born in 1949 in Beirut, Lebanon. Nahas grew up in a wealthy family and came to Brazil at 22 with a small fortune to begin building his empire. By the late 1970s Nahas was a billionaire with factories, farms & banking interests all across Brazil.
Nahas was a key conspirator w/ the Hunt Brothers to corner the global silver market in 1979. He helped the Hunts buy & transport 220 million oz of silver to Switzerland via armored trucks & private jets. When the play failed, Nahas was banned from trading in the US for 5 years.pic.twitter.com/cSUfnYqV0R
Turning his attention back to Brazil, Nahas began taking massive stock & options positions on the Rio stock exchange, using extreme amounts of bank leverage. Nahas was everyone's largest client, so they gave him a wide leash to trade & invest as he wished.
By 1989 Nahas accounted for 50% of activity on the Rio stock exchange. Nahas had gone all in on Brazilian stocks using the banks money, and the market was getting worried he was stretched too thin. That June banks started increasing his margin rates, and all hell broke loose.
On June 12, a $30M check to Nahas's brokers bounced. His brokers were so leveraged, this bounce cascaded from broker to broker and caused Brazilian stocks to drop -15% in one day. It was the biggest crash in Brazil's history. Nahas's brokers sufferred $500M in total losses.
The next day, the Rio stock exchange was forced to suspend trading as it recovered from Naji's bounced check. By the end of the market meltdown, the exchange's president was forced to step down due to improper internal controls and overleverage.pic.twitter.com/TTy66ewdai
Of the brokerages who did business with Nahas, six went bankrupt and had to close their doors. One of these brokerages was owned by Elmo Camoes Filho, who's father (also named Elmo Camoes) was Brazil's top central banker. Camoes was forced to step down as a result of the crash.pic.twitter.com/1uJQKvUrNW
This would be like if a rich trader in the US bought stocks with so much leverage that their blow-up meant the downfall of the NYSE, Robinhood, AND Jerome Powell. That kind of meltdown is unheard of.
Nahas, being the rich and politically connected man he was, only got one year of house arrest for his market manipulation. He remained one of Brazil's richest - and most corrupt - businessmen for many years after the scandal.pic.twitter.com/kwuhU0tf2C
I'll be writing more about Naji Nahas, Brazil'scrash, and its impact on Brazil's stock exchanges in my next Friday post. Sign up here so you don't miss it:https://frontmonth.substack.com/
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