Infectious Greed: How Deceit and Risk Corrupted the Financial Markets [Bargain Price] [Paperback]

Frank Partnoy (Author)

Book Description

Publication Date: September 8, 2009

As the global financial crisis unfolds people everywhere are seeking to understand how markets devolved to this perilous, volatile state. In this dazzling and meticulously researched work of financial history, first published in 2003, and now thoroughly revised and updated, law professor and financial expert Frank Partnoy tells the story of how “classical” Wall Street securities like stocks and bonds were quietly eclipsed by ever more “quantum” products like derivatives. He documents how, starting in the mid-1980s, each new level of financial risk and complexity obscured the sickness of corporate America, and how Wall Street’s evlving paradigm moved farther and farther beyond the understanding—and regulation—of ordinary investors and government overseers, leading inevitably to disaster.

Editorial Reviews

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. --This text refers to an out of print or unavailable edition of this title.

From Library Journal

Why the economy is so unstable; from law professor Partnoy.
Copyright 2002 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

See all Editorial Reviews

Product Details

• Paperback: 496 pages
• Publisher: PublicAffairs (September 8, 2009)
• Language: English
• ISBN-10: 1586487841
• ASIN: B003R4ZDT4
• Product Dimensions: 8.2 x 5.4 x 1.5 inches
• Shipping Weight: 1 pounds (View shipping rates and policies)
• Average Customer Review: 4.6 out of 5 stars  See all reviews (36 customer reviews)
• Amazon Best Sellers Rank: #75,316 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

33 of 35 people found the following review helpful

5.0 out of 5 stars Get this book if you want to understand Wall Street antics July 14, 2003

By Srikumar S. Rao VINE™ VOICE

Format:Hardcover|Amazon Verified Purchase

This book is an absolute must read if you want to understand Wall Street shenanigans. Partnoy has done a phenomenal job of demystifying the world of swaps, derivatives and other exotic financial instruments. Even better, he shows how investment banker antics have affected Main Street inhabitants including yourself. How did Orange County and so many other municipalities get so deeply in trouble? The author explains.

I have a Ph.D in business and many finance courses under my belt, but I never quite understood the systemic dangers of the 'financial innovation' that is sweeping our markets. Now that I have, I will sleep much less well at night.

Partnoy describes the evolution of exotic instruments and the characters involved in this evolution. How CS First Boston made securites of virtually any type of debt, Salomon pioneered the CMO and so on. He details the specific wrongdoings of companies like Enron, Global Crossing and WorldCom. He shows you the enabling role played by gatekeepers like accounting firms, law firms, analysts and credit rating agencies.

Even more important, he shows you exactly how the collusion happened and why. He gives you both an aerial view of the markets and a down-in-the-trenches description. I often wondered why, in efficient markets, participants voluntarily involved themselves in such convoluted transactions that had high costs in terms of record-keeping and fees. The answer, as Partnoy shows, is that virtually all of these arrangements permit some set of parties to subvert law or regulation or both. This is true domestically and internationally.

He graphically describes how lobbying keeps regulators at bay and the venality and ineffectuality of politicians.... The chairperson of the Commodities Futures Trading Commission, for example, exempted important parts of Enron's business from regulation and, just weeks later, joined Enron' board. There are many such stories that show exactly how self-serving our legislators and regulatory guardians are.

My quibbles are minor. While Partnoy is clear, his language is colorless. Perhaps his legal background has something to do with this. Given the strength of his material and the depth of his research, he could have made this book a popular bestseller if he had used more forceful colloquial expression.

Also, he does not talk at all about the role of technology in this evolving mess. Greedy, incredibly smart bankers have always been with us. What has permitted them to have this huge impact now is the ability of computers to churn massive amounts of data, pick out the faintest of patterns and keep records of incredibly complex transactions involving dozens of parties over vast stretches of time.

This said, this is the best book I have yet come across that explains how and why large scale financial malfeasance happens. And why it is hardly ever punished. You will understand why the perpetrators of Enron, Global Crossing, Adelphia, WorldCom, Sunbeam and so many others will walk and hold on to their vast gains. Start praying that there is justice beyond our courts. Read more ›

26 of 28 people found the following review helpful

5.0 out of 5 stars A chilling summary with very thorough analytical background June 23, 2003

By S. L. Cranshaw

Format:Hardcover

In a much more serious project than his previous FIASCO, Partnoy gives an extremely persuasive explanation of how the interaction between financial product developments, legal change and administrative character have led to the series of financial scandals witnessed over the last twenty years. Few books on the subject have managed to explain the bizarre stories of Enron or LTCM in an understandable way but Frank puts together a convincing interpretation. The story depends not just on developments of financial products but also on accounting and legislative reforms, which he details. I'm not sure any other book on the subject approaches this one in detail and scope. Many have been written on individual cases but this is perhaps the first work to explain an overall pattern of corruption and it's evolution. The most familiar scandals are no longer bizarre events but can be seen as almost a logical consequence of a system going off the rails.
Other reviews have suggested that Frank is anti-derivatives but this is not at all the case. He makes it clear that derivatives are in many case useful structures with a role to play but that they have been used at other times to less beneficial ends. There is an undertone of indignation in the writing but such anger is surely more than justified considering the huge injustices which have gone more or less unpunished.
The suggestions for financial reform at the end of the book should be a blueprint for new legislation worldwide.

15 of 15 people found the following review helpful

4.0 out of 5 stars A very good book, but not of the FIASCO type November 11, 2003

By ServantofGod

Format:Hardcover

I always regard FIASCO as the Morgan Stanley version of Liar's Poker. Both of them are outrageous. It's certainly great fun to read insider stories, which are interesting but fifthy, of how the supposedly honorable banks screwed their customers. Naturally I had very high expectation of this book before I started reading it. To my minor surprise, the author had adopted a completely different style writing this book, making it a very serious and exhaustive account of how big banks like Bankers' Trust, CSFB, LTCM, Morgan Stanley and gigantic conglomerates like Enron, Worldcom, Orange County made use of dubiously legal practice for their own profits or demise, but certainly at the expense of shareholders. This material is really qualified to be a testimony before the Congress, which the author really did.

I do appreciate the author's sincerity of warning the public about the legal and moral problems of the real financial world with the advance in technology and financial techniques. A reviewer here said that the author was living in an ivory tower. I feel so sorry for that critic and those who thought so. As a professional trader, I assure you that the real world is indeed more dangerous and fifthy. Anyway, I do recommend this book as an indispensable material for anyone, especially govt officials (though I doubt very much they will humbly read and take this book seriously) who want to look into this. For those who just want to read for fun, FIASCO might be a better choice.

14 of 18 people found the following review helpful

4.0 out of 5 stars Insightful and complex reading October 6, 2003

By R. Spell VINE™ VOICE

Format:Hardcover|Amazon Verified Purchase

There are many positives and negatives about this book. Are derivatives bad? Well, they can be. Partnoy builds the case that derivatives were sold that carried massive risk to customers that did not understand them. In addition, the salesmen were greedy individuals raping and pillaging only to make money with no regard for the customer's well being. While I don't find this totally wrong, any customers who are buying assets they don't understand should share in the blame. For example, he gives the Gibson Greeting example where they are making an interest rate bet with their investment while stating they had no such risk. You can't have it both ways.

Irrespective of this double standard for investors (I want higher returns unless it goes bad then I want to sue), Partnoy brings some very valid criticism. The massive off-balance sheet investments hiding true risk were inappropriate and harmful to shareholders. I think Partnoy does an excellent job examining this risk and presenting his case with Enron and Worldcom specifically as examples. The interesting point he made in this book I wasn't aware of is that Enron's trading operation was highly profitable and was a solid going concern until the liquidity crunch of the publicity.

But derivatives that are appropriately understood can be excellent investments. In the 80s CMOs (Collateralized Mortgage Obligation) were invented allowing investors to invest in short tranches to receive lower average lives to match their funding liabilities. This was a great investment for many banks for which credit is not given in this book. Now, these type derivatives did have extension risk or prepay risk if mortgages prepaid faster or slower than anticipated.... In the 90s we saw volatility of many markets that caused such fluctuations and left an aftermath of blame placing. But in this case, the derivative was not the issue, market prepayments were.

Be forewarned this is not light reading. This book took twice as long as most I read due to the complexity of the examples. It is an interesting read but a complex read. I would strongly recommend this book for finance geeks or stock investors who would like an in-depth look at how company financial statements could be manipulated.

DISCLOSURE: I took a massive loss in Worldcom preferred stock based on the accounting fraud. However, I reinvested in utility preferreds such as Dynegy and Williams, both mentioned in this article that turned around from their low to recoup gains. Also, my largest holding has been mortgage derivatives that generated substantially above market returns ANNUALLY over a 6-year period. Read more ›