Infectious Greed: How Deceit and Risk Corrupted the Financial Markets

From Publishers Weekly
Partnoy's previous book, F.I.A.S.C.O., was an inside story of a Wall Street derivatives trader. It argued that recklessness and lack of regulation made derivatives trading (trading financial instruments that have no intrinsic value) a threat to the financial system. Turning from autobiography to history, this new work makes the same points by examining financial disasters caused by derivatives of the last 15 years. "Patient Zero" is Andy Krieger, whose $80 million mismarking of currency options embarrassed Bankers Trust in 1988. Partnoy profiles other derivatives abusers, too, including Nick Leeson, who bankrupted Barings Bank; Robert Citron, who did the same for Orange County; and Joseph Jett, whose "forward recon" trades helped end the independent existence of Kidder Peabody and Long Term Capital Management. These accounts of 20th-century disasters are neither original nor deep, but readers interested in the subject will be pleased to see the links among them. Taken together, common features emerge that are hard to see in detailed accounts of individual collapses. For example, Partnoy makes a revisionist case that credit rating agencies and federal regulators, including Alan Greenspan and Arthur Levitt, bear most of the blame. The author carries his story into mid-2002, evaluating Enron, WorldCom and Global Crossing. His analysis here is more original, reversing the popular perception by claiming Enron was a profitable company that should have survived, while WorldCom and Global Crossing had no economic substance. Copyright 2003 Reed Business Information, Inc.


From Library Journal
Why the economy is so unstable; from law professor Partnoy. Copyright 2002 Reed Business Information, Inc.


From Booklist
An academic with a corporate resume, Partnoy tells the story of the rise of trading instruments and corporate financial structures that now imperil the economic health of the country. He contends that any appearance of control of the financial markets is an illusion and the "truth is that the markets have been, and are, spinning out of control." From actual cases culminating in scandals, such as Enron and WorldCom, we learn about three major changes in financial markets since the mid-1980s--financial instruments became increasingly complex and served as tools to manipulate earnings and avoid regulation; even sophisticated investors could not monitor increasingly aggressive managers; and with deregulated markets, financial malfeasance was rarely punished. Six recommendations to stem the tide of excess in financial markets include treating derivatives like other financial instruments; shifting from rules to standards; eliminating the domination of gatekeepers, especially credit-rating agencies; and encouraging informed investors to bet against stocks and encouraging investors to control and monitor their own investments. Mary Whaley
Copyright © American Library Association. All rights reserved


Review
“Ambitious . . . a useful book, bringing together details of half-forgotten scandals from the past fifteen years.” —The New York Times Book Review

“Frank Partnoy knows the landscape from the inside . . . a good, snappy read.” —The Washington Post



Review
“Ambitious . . . a useful book, bringing together details of half-forgotten scandals from the past fifteen years.” —The New York Times Book Review

“Frank Partnoy knows the landscape from the inside . . . a good, snappy read.” —The Washington Post



Review
“Ambitious . . . a useful book, bringing together details of half-forgotten scandals from the past fifteen years.” —The New York Times Book Review

“Frank Partnoy knows the landscape from the inside . . . a good, snappy read.” —The Washington Post



Book Description
“Readers are unlikely to find a more readable explanation of how the financial system has changed since the 1980s and who came unstuck.” —Financial Times

The still-unfolding financial story is terrifying. One by one, major corporations such as Enron, Global Crossing, and WorldCom are imploding all around us, prey to a greed-driven culture and dubious or illegal corporate finance and accounting. We have reached a perilous crossroads.

In a compelling and disturbing narrative, Frank Partnoy brings to bear all of his skills and experience as a securities attorney, financial analyst, and law professor to tell the story of the rise of the trading instruments and corporate financial structures that now imperil the economic health of the country. Starting in the mid-1980s, he documents how each new level of financial risk and complexity obscured the sickness of corporate America. Finally, Partnoy offers clear policies that can save our financial system.



About the Author
Frank Partnoy is a professor at the University of San Diego Law School. He has worked as an investment banker, derivatives broker, and corporate securities attorney. He also consults on regulation of the markets and white-collar crime. His expert testimony before the Senate committee investigating the Enron collapse has been widely cited in the media. Partnoy is the author of F.I.A.S.C.O.: Blood in the Water on Wall Street. He lives in San Diego, California.



Excerpt. © Reprinted by permission. All rights reserved.
From Infectious Greed:

By 2002, the closing bell of the New York Stock Exchange was barely relevant, as securities traded 24 hours a day, around the world. The largest markets were private, and didn't involve regulated exchanges at all. Financial derivatives were as prevalent as stocks and bonds, and nearly as many assets and liabilities were off balance sheets as on. Companies' reported earnings were a fiction, and financial reports were chock full of disclosures that would shock the average investor if she ever even glanced at them, not that anyone—including financial journalists and analysts—ever did. Trading volatilities were sky high, with historically unrelated markets moving in lock step, increasing the risk of systemic collapse.

In just a few years, regulators had lost what limited control they had over market intermediaries, market intermediaries had lost what limited control they had over corporate managers, and corporate managers had lost what limited control they had over employees. This loss-of-control daisy chain had led to exponential risk-taking at many companies, largely hidden from public view. Simply put, the appearance of control in financial markets was a fiction.



Buy from Amazon     Compare Prices

With hours of expert testimony on Enron before Congress under his belt, Partnoy (Law/Univ. of San Diego) also draws on his own experience in selling the arcane contracts known as derivatives to put an investor￯﾿ﾽs dilemma into perspective. The author￯﾿ﾽs previous work, F.I.A.S.C.O.: Blood in the Water on Wall Street (not reviewed), warned of the dangers inherent in financial instruments created for the sole purpose of allowing companies to evade financial regulations. Here, he goes back some 17 years, naming the University of Pennsylvania￯﾿ﾽs Wharton School of Business, Bankers Trust, its CEO and chairman Charles Sanford, and his wunderkind, Andy Krieger, as key figures in the origination of the kinds of investment banking deals and "swaps" that eventually snared firms like Enron, Worldcom, and others. As the banks soon found out, the temptation for companies to place bets on interest or exchange-rate fluctuations in order to fund business ventures as cheaply as possible was irresistible from the start. Partnoy makes it appallingly clear that as these hedges against debt have evolved and become increasingly convoluted, the number of takers who will never understand them, much less profit from them, has continued to swell. For example: one structured note￯﾿ﾽs terms included a variable based on the number of wins by the NBA￯﾿ﾽs Utah Jazz. Partnoy makes a telling point in stressing that Enron￯﾿ﾽs deals and those of other now-scandal-plagued companies were basically not illegal and were all enumerated in annual reports in some occluded form or other. Perhaps the worst news for investors is that in Partnoy￯﾿ﾽs view the government￯﾿ﾽs response, last summer￯﾿ﾽs Sarbanes-Oxley Act, was "weak and limited" becauseCongress "had no blueprint" and was merely responding to public pressure to place blame. The markets today are "like Swiss Cheese," he claims, "with the holes--the unregulated places--getting bigger every year as [rules beaters] eat away at them from within." Riveting, for those who can persevere through the slack prose.


Buy from Barnes & Noble     Compare Prices