Washington -- IN SINGAPORE last year, 27-year-old Nick Leeson was fined $140 for indecently exposing himself before a group of women in a discotheque.
But when he was running up $27 billion in financial-derivative trades that bankrupted a venerable merchant bank, what did the see-no-evil regulators of Simex, Singapore's swinging stock exchange, do? They shyly looked the other way.
"It would be much harder, nearly impossible, to work that kind of conspiracy in New York than in Singapore," says David Shulman, chief equity strategist at Salomon Brothers.
Like Paul Volcker and Alan Greenspan, he cautions against making the new form of gambling -- the casino-style bets that are made on the movement of real securities and commodities -- the scapegoat for recent huge losses.
I have had my ear bent with how wonderful derivatives can be in sharing risk, and how swaps and hedges now bestraddling the financial world insure global traders against currency swings.
Wall Streeters pass along dire warnings about "disturbing the cosmic rhythms of the universe"; about regulation driving up the cost of hedging's insurance. And there's quavering in the Quadriad about triggering fearsome credit contraction by slowing the derivatives' merry-go-round.
But it strikes me, after the sudden ruination of London's Barings bank by its Singapore slinger in a simple index-option gamble, that our financial sages are being a little too cool and comfortable.
Gerald Corrigan, former head of the New York Fed now with Goldman, Sachs, has a neat way of accepting Establishment soothing syrup and then pouring it down the drain: "Derivatives reduce the statistical probability of a systemic financial disruption," he tells me, "but with the complexity, speed, interdependence and leverage growing out of financial derivatives -- if you do have a systemic disruption, they would make it far more damaging than it otherwise would have been."
Translation: Although the new gambling may reduce the odds on a bust, it would turn any bust that does come into a global debacle. His Derivatives Policy Group, a suggestion of Security and Exchange Commission Chairman Arthur Levitt, issues a report next week.
But too many old guys don't know what the young guys are doing, or how to stop them before one huge loss gets computer-driven into a chain reaction that wipes out wealth, reputation and jobs.
What to do about a danger we can sense but do not comprehend?
First, investment bankers owe it to customers, owners and trainees to do a thorough "values check."
Their economic purpose is to assemble capital and provide it wisely for business development, an honorable service in which they can take pride and make profit.
Their purpose is not to use inside expertise gained from companies they underwrite to trade for their own accounts, while advising investment clients to follow them along and enhance their early positions.
Such "proprietary activity," as this dog-wagging by the trading tail is euphemized, is legal but dishonorable -- the banking equivalent of "honest graft" in politics. If the me-first, corporate-cultural sleaziness of high leverage and lightning-fast shuffling continues to grow, the business of investment banking will gain a stigma that will shame its practitioners and turn away its customers.
Next, in overseeing banking and securities, global exchanges and national regulators need to draw a line between legitimate risk and reckless endangerment.
That means getting the Bank for International Settlements in Basle, Switzerland (central bank for the G-10), to sit down with the International Organization of Securities Commissions in Montreal to plan now to avert a world financial crisis.
Working with the exchanges and reporting services, these too-sleepy bureaucracies could help set standards for managerial monitoring, public disclosure, leverage and firewalls in the interconnected marketplace.
They could stimulate the creation of regulatory software to counter trading software, making transparent to accountants and regulators who is trading how much on whose account and on what margin.
My sources in the bourses say that's how to defeat secrecy in Singapore and combat rogue traders everywhere.
William Safire is a New York Times columnist.