Insider trading and the birth of America

In Walter Isaacson’s biography of Benjamin Franklin I’ve just encountered the following anecdote. Edward Bancroft was secretary to the American commissioners — Franklin, Silas Deane, and Arthur Lee — who were in Paris negotiating the crucial military alliance with France. The British were desperate to forestall this alliance with their own peace overtures:

The British sent to Paris the most trusted envoy they could muster, Paul Wentworth, their able spymaster. At the time, Wentworth was angry with his secret agent Bancroft for sending inside information to his stock-speculating partner before sending it to Wentworth, who was also a speculator. King George III, upset by the bad news that his spies were giving him, denounced them all as “untrustworthy stock manipulators”, but he reluctantly approved Wentworth’s secret mission.

And indeed,

years later, when he was haggling with the British over back pay, Bancroft wrote a secret memo, telling the foreign secretary that this was “information for which many individuals here would, for purposes of speculation, have given me more than all that I have received from the government.” In fact, Bancroft had indeed used this information to make money speculating on the markets. He had sent 420  pounds to his stock partner in England… and provided him word of the impending treaties, so that it could be used to short stocks… Bancroft ended up making 1000 pounds in the transaction.

I find it delicious to think that American independence was made possible, or was, at least, expedited by British agents’ clumsy insider trading.

(Anyone who is interested in the culture of speculation and market-manipulation driven by political information, and also enjoys a good philosophical yarn, should read Neal Stephenson’s Baroque Cycle.)

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