- Hardcover: 466 pages
- Publisher: Profile Books; 1st edition (27 Mar 2003)
- Language English
- ISBN-10: 1861974388
- ISBN-13: 978-1861974389
- Product Dimensions: 23.2 x 15.6 x 4.8 cm
- Average Customer Review: 4.3 out of 5 stars See all reviews (6 customer reviews)
- Amazon Bestsellers Rank: 467,031 in Books (See Top 100 in Books)
Infectious Greed
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Review
"A sweeping account... Exemplary" --William Leith, Evening Standard
--This text refers to the
Paperback
edition.
Review
'Partnoy's account of what happened within these companies will send a shiver down the spine of anyone with a humble investment in a unit or investment trust' Bill Jamieson, The Scotsman
--This text refers to an out of print or unavailable edition of this title.
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Most Helpful Customer Reviews
3 of 3 people found the following review helpful
Format:Paperback|Amazon Verified Purchase
Published in 2003, 'Infectious Greed', by Frank Partnoy, a professor at the University of San Diego School of Law' paints a disturbing picture, drawing on actual cases, of how an individual rogue trader can take down an entire firm, and how the derivative instruments may be destabilising the market.
Beginning with the development of 'casino mentality' derivatives at Bankers Trust and elsewhere, Partnoy guides us through the crazy, convoluted, and greed driven world of high-stake speculation, using spurious computer modelling engineered by so-called mathematical geniuses as tools of justification for the excessively leveraged high risk 'betting'. The most malign aspect was the banks themselves making huge fees out of exposing their own clients to mega losses by selling the client unnecessarily complicated 'mumbo-jumbo' derivative trades, when it was abundantly clear that the client had not the first clue as to the risks it was taking on board.
Whilst the clients had little or no understanding of the risks being assumed, it came to pass that neither at the end of the day did the senior management of the financial institutions themselves, as the rogue traders in pursuit of massive bonuses bamboozled their bosses and, in the main fled with their $millions when the 'muck hit the fan', and the bank's shareholders were left to pick up the tab.
One might have imagined that the dire warnings laid down in the book about the lack of regulation for the derivative industry, the banks feeble internal risk, accountancy and audit controls, and the all to obvious systemic risk, would have rung alarm bells just about everywhere from Capitol Hill downwards. But it didn't and the result was the catastrophic credit crunch 2007-2008 that very nearly destroyed the global monetary system.
Mr Partnoy has an incredible ability to relate very complicated financial situations and transactions with great lucidity so as to retain the interest of the reader. An excellent and illuminating book - pity all the caveats went unheeded.
Beginning with the development of 'casino mentality' derivatives at Bankers Trust and elsewhere, Partnoy guides us through the crazy, convoluted, and greed driven world of high-stake speculation, using spurious computer modelling engineered by so-called mathematical geniuses as tools of justification for the excessively leveraged high risk 'betting'. The most malign aspect was the banks themselves making huge fees out of exposing their own clients to mega losses by selling the client unnecessarily complicated 'mumbo-jumbo' derivative trades, when it was abundantly clear that the client had not the first clue as to the risks it was taking on board.
Whilst the clients had little or no understanding of the risks being assumed, it came to pass that neither at the end of the day did the senior management of the financial institutions themselves, as the rogue traders in pursuit of massive bonuses bamboozled their bosses and, in the main fled with their $millions when the 'muck hit the fan', and the bank's shareholders were left to pick up the tab.
One might have imagined that the dire warnings laid down in the book about the lack of regulation for the derivative industry, the banks feeble internal risk, accountancy and audit controls, and the all to obvious systemic risk, would have rung alarm bells just about everywhere from Capitol Hill downwards. But it didn't and the result was the catastrophic credit crunch 2007-2008 that very nearly destroyed the global monetary system.
Mr Partnoy has an incredible ability to relate very complicated financial situations and transactions with great lucidity so as to retain the interest of the reader. An excellent and illuminating book - pity all the caveats went unheeded.
3 of 3 people found the following review helpful
Format:Hardcover
Partnoy's previous book described his experiences in the trenches selling dodgy derivatives to unsuspecting clients. This book is a wider survey of the derivatives scandals that the banking world has seen. It is great to have such a history and gives a sense or perspective when new scandals hit the papers.
However not everybody will agree with his conclusions as to how to fix the system.
The book is well written, it is relatively free of jargon, and the content justifies the length - unlike many other business books you never feel that the book has been stretched thin.
Highly recommended.
2 of 2 people found the following review helpful
Format:Paperback|Amazon Verified Purchase
From the 1980s onward, a financial `revolution' (better: disaster) took place. Top executives were paid with stock options. `Irrational Exuberance' reigned about the profitability of Internet companies. Financial instruments became so complex (better: risky) that control by regulators over the industry, control by owners over their company's books and control by executives over their employees was inexistent. Even the valuations of the financial products and/or of the trades themselves became impossible.
The players
The cop of Wall Street, the SEC, was controlled by the other players.
The politicians (the regulators, better: the deregulators) received ample campaign donations and promoted further deregulation.
The CEOs were responsible for massive accounting frauds. Two-thirds of them wanted a misrepresentation of their company's financial statements in order to pump up the share price.
The credit-rating agencies (an oligopoly) were paid by those who asked for a rating (of course, the highest).
The securities analysts pumped up the new offerings as true salesmen, and dumped the stocks after the fat fees were collected.
And those who put the money on the table, the `investors'? Well, they were considered to be morons and had to be fleeced.
Some financial instruments
Quantos (structured notes based on foreign interest rates, paid in home currencies)
Inversed floaters (coupon of x % - LIBOR), long term financed with short term paper
FELINE (Flexible Equity-Linked Exchangeable Securities) convertible preferred stock
CBOs (Collateralized Bond Obligations): bonds emitted offshore (and off balance sheet)
Synthetic CDOs (Collateralized Debt Obligations) based on credit default swaps (as `assets')
Trades
Trading systems based on standard deviations were demolished by the 1987 market crash (20 times s).
Trades on stable/low interest rates resulted in a $1.5 trillion loss in 1994 when the Fed hiked his rate by 0.25 per cent.
Carry trades on interest differences between currencies generated monstrous losses when the Mexican peso and the Thai baht fell into the ravine.
Some traders made a fortune (putting the entire capital base of the company at risk) on tiny price discrepancies (kinks) in the yield curve and by waiting for prices to converge. However, when other players stepped in, the sources of fortune dried up. Other discrepancies had to be found.
Result
The dot.com bubble burst.
Big companies (Enron, WorldCom, Global Crossing, Barings, Kidder Peabody) went bankrupt. `Sophisticated' speculators (LTCM) put the whole financial system at risk.
And ultimately, the CDO explosion brought the whole capitalist system on the brink of implosion. Governments had to step in to save the `free market'. But that happened after the publication of this book.
Frank Partnoy did a monumental job by delving up trading and `cooked books' secrets, by explaining outlandish investment `opportunities' and, ultimately, by exposing the extreme greed of the salesmen.
His phenomenal research will be a handbook for all those who want to understand the financial history of the world from the 1980s till the beginning of the Third Millennium.
A must read.
The players
The cop of Wall Street, the SEC, was controlled by the other players.
The politicians (the regulators, better: the deregulators) received ample campaign donations and promoted further deregulation.
The CEOs were responsible for massive accounting frauds. Two-thirds of them wanted a misrepresentation of their company's financial statements in order to pump up the share price.
The credit-rating agencies (an oligopoly) were paid by those who asked for a rating (of course, the highest).
The securities analysts pumped up the new offerings as true salesmen, and dumped the stocks after the fat fees were collected.
And those who put the money on the table, the `investors'? Well, they were considered to be morons and had to be fleeced.
Some financial instruments
Quantos (structured notes based on foreign interest rates, paid in home currencies)
Inversed floaters (coupon of x % - LIBOR), long term financed with short term paper
FELINE (Flexible Equity-Linked Exchangeable Securities) convertible preferred stock
CBOs (Collateralized Bond Obligations): bonds emitted offshore (and off balance sheet)
Synthetic CDOs (Collateralized Debt Obligations) based on credit default swaps (as `assets')
Trades
Trading systems based on standard deviations were demolished by the 1987 market crash (20 times s).
Trades on stable/low interest rates resulted in a $1.5 trillion loss in 1994 when the Fed hiked his rate by 0.25 per cent.
Carry trades on interest differences between currencies generated monstrous losses when the Mexican peso and the Thai baht fell into the ravine.
Some traders made a fortune (putting the entire capital base of the company at risk) on tiny price discrepancies (kinks) in the yield curve and by waiting for prices to converge. However, when other players stepped in, the sources of fortune dried up. Other discrepancies had to be found.
Result
The dot.com bubble burst.
Big companies (Enron, WorldCom, Global Crossing, Barings, Kidder Peabody) went bankrupt. `Sophisticated' speculators (LTCM) put the whole financial system at risk.
And ultimately, the CDO explosion brought the whole capitalist system on the brink of implosion. Governments had to step in to save the `free market'. But that happened after the publication of this book.
Frank Partnoy did a monumental job by delving up trading and `cooked books' secrets, by explaining outlandish investment `opportunities' and, ultimately, by exposing the extreme greed of the salesmen.
His phenomenal research will be a handbook for all those who want to understand the financial history of the world from the 1980s till the beginning of the Third Millennium.
A must read.
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Still Complaining, Mr Partnoy.
Frank Partnoy, author of this book and the very silly 'FIASCO: Blood in the Water on Wall Street', implies an illustrious career structuring and selling complex derivatives. Read more
Published on 20 Feb 2004 by O. Buxton
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