Infectious Greed: How Deceit and Risk Corrupted the Financial Markets by Frank Partnoy

From the Publisher

“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.

The Washington Post

Partnoy has written an important book that provides a well-reasoned blueprint for fighting corporate corruption and restoring the integrity of America's financial markets. Unfortunately, it appears that the cops on Wall Street and the regulators in Congress are not ready to heed his advice. — Robert Bryce

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. (Apr. 14) Copyright 2003 Cahners Business Information.

Library Journal

In this excellent backgrounder to current scandals, law professor Partnoy (F.I.A.S.C.O.: Blood in the Water on Wall Street) provides some valuable historical perspective on earlier problems on Wall Street. Partnoy walks the reader through the evolution of such financial innovations as currency swaps, structured finance, and proto-derivatives, showing how top Wall Street traders utilized them to fleece their clients while making buckets of money for themselves and their respective firms. He explores how traders, notably John Meriwether of Salomon Brothers and later Long-Term Capital Management fame, became wildly successful in their attempts at financial alchemy only to crash and burn later. The book clearly spells out how the misapplication of complex financial instruments such as derivatives, not to mention a grievous lack of governmental oversight, contributed to truly treacherous times on Wall Street. In the final analysis, this well-written, comprehensively documented book makes for compelling reading, much like James Stewart's Den of Thieves, which chronicled the Wall Street scandals of the 1980s. Recommended for larger public libraries.-Richard Drezen, Washington Post/NYC Bureau Copyright 2003 Reed Business Information.

Kirkus Reviews

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’s dilemma into perspective. The author’s 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’s 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’s terms included a variable based on the number of wins by the NBA’s Utah Jazz. Partnoy makes a telling point in stressing that Enron’s 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’s view the government’s response, last summer’s 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.

Product Details

• ISBN: 0805075100
  
• ISBN-13: 9780805075106
• Format: Paperback, 496pp
• Publisher: Henry Holt & Company, Incorporated
• Pub. Date: January 2004
• Edition Description: REV
• Sales Rank: 99,709

• Table of Contents
• Read an Excerpt

Table of Contents

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