Nick Leeson, Meet Carlo Ponzi

He was "very young, very vain, good-looking, tolerably rich, and quite uncontrolled." He "was thoroughly acquainted with the philosophy and true principles of credit," but he inundated "the country with paper money which, based upon no solid foundation, was sure to fall, sooner or later." No; not Nicholas Leeson but John Law, a Scottish gambler who, having floated dud stock in the Mississippi Co., bankrupted France in 1720. Law's tale is told in Charles Mackay's classic 1841 book "Extraordinary Popular Delusions and the Madness of Crowds," which should be compulsory reading for those worried that the errors of small men can now ripple across the globe and topple giants in their wake. In fact, financial scandals and that overbaked concept ,,the global economy" have been with us for centuries.

As early as the 1630s, for example, the Dutch developed a mania for tulip bulbs, paying fantastic prices for rare specimens. Since bulbs could be bought and sold before they ever flowered, they were a crude form of derivatives --and about as incomprehensible to innocents. Mackay tells the story of a sailor who, thinking a valuable tulip bulb was an onion, ate it for breakfast. After the price collapsed, the Dutch were left with bulbs about as useful as Barings paper.

Indeed, Barings itself is no stranger to the risks of international capital markets. More than a century ago, Barings sought business in the developing economies of the Americas. Alas, in 1890, the Buenos Aires Water Supply and Drainage Co., a fine emerging-market prospect of the time, defaulted on its debts, and Barings had to be rescued by the Bank of I England. In truth, finance houses rise and fall all the time. Sometimes Ponzi schemes (named after the Bostonian who promised a 50 percent return on investment in 45 days) are to blame; sometimes crooks like Jay Gould, the black sheep of the Gilded Age, or Ivan Boesky. And sometimes firms just make bad bets or fail to monitor their staff's.

But there's a larger point. The "global economy" has become a ubiquitous explanation of the state of the world, used one minute to explain post-coldwar foreign policy, the next to terrify those who think that a scandal like Barings's can wreck their pension plans. But the very idea of a global economy has been hyped. First, it's not new. In 1914, wrote John Maynard Keynes, "the inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep." The "internationalization" of economic life, said Keynes. was "nearly complete.

Second, the global economy isn't that important at least to the United States. Barings, after all, has so far not done much collateral damage. "The world is not as interdependent as you might think," wrote Paul Krugman, a professor of economics at Stanford, last year. Americans may, for example, be developing a taste for French bread. But if they want that bread to be fresh, it won't be baked in France but in their neighborhood Safeway.

So, years from now, Leeson may merit no more than a chapter in a new edition of Mackay. As for Law: after his Mississippi scheme went belly up, the Paris mob tried and failed to rip him to pieces, and then wrote songs about him. "Many of these songs" wrote Mackay, "were far from decent; and one of them in particular counselled the application of all his notes to the most ignoble use to which paper can be applied." Probably what Leeson's colleagues at Barings would like to do with those contracts on the Nikkei index.