Infectious Greed
How Deceit and Risk Corrupted the Financial Markets
Partnoy is a
former derivatives salesman who grew disillusioned, quit, and wrote FIASCO, an expose of derivatives
abuses of the mid 1990s. With Infectious Greed, Partnoy is back. In some
respects, this is more of the same. In others, it is something new.
The book is
familiar in that it returns to the topic of scandalous behavior in the financial
markets. It is different because this is not a memoir. It is a detailed
third-person account of financial shenanigans from the late 1980s to the early
2000s. Milken's junk bonds, unregulated derivatives, unhedged hedge funds,
"cooked" financial statements, "pump-and-dump" collusion—it is all here with a
depth of detail that will appeal to professionals.
Partnoy's is a
history with a
message. His thesis is that the financial markets are under-regulated and
white collar crime is under-prosecuted.
Opening chapters
explore the formative years of today's OTC derivative markets. In the early
1990s, Charlie Sanford transformed Bankers Trust into a derivatives powerhouse.
He alienated employee Allen Wheat, who moved to CS First Boston, transforming
that firm into Sanford's most fierce rival. At the same time, John Meriwether
(of Liars Poker and When Genius Failed fame) was
transforming Salomon's arbitrage group into a hedge fund within a bank.
These early
chapters are one of the most engrossing parts of the book. Even professionals
who were working during those years will appreciate the details Partnoy has dug
up. For less experienced professionals, this is the insiders' history of derivatives other
books never explore—highly recommended reading. The discussion closes with the
derivatives and structured note losses of the mid-1990s—Gibson Greetings,
Proctor & Gamble, Orange County, Piper Jaffray, Askin Capital Management, etc.
Partnoy offers some of the best discussions of these incidents that I am aware
of.
Contents
Introduction
1. Patient Zero
2. Monkeys on Their Backs
3. Wheat First Securities
4. Unreconciled Balances
5. A New Breed of Speculator
6. Morals of the Marketplace
7. Messages Received
8. The Domino Effect
9. The Last One to the Party
10. The World's Greatest Company
11. Hot Potato
Epilogue
At this point
Partnoy shifts gears, turning to the topic of markets regulation. This is
disappointing. It would be more interesting to continue with the engrossing
history of derivatives markets, perhaps bringing it up to the present day.
Unfortunately, this is a history with a message, and pursuit of that message
takes it in many different directions before it is done.
In summary, this
is a well researched history. It can be disappointing because
topics are explored only to the extent that is necessary to highlight scandal or
regulatory issues. For sophisticated professionals, this is an excellent book to
learn about the abuses of the past twenty years.
Be aware that
there is none of the first-hand anecdotes of FIASCO here. Partnoy hasn't worked
on Wall Street in almost a decade, and he isn't exactly popular among sell-side
professionals. He has relied heavily on media reports and court records to
compile his story. Also, he is not a historian. His research is in-depth, but
not meticulous. Facts tend to be interpreted in a manner most supportive of his
thesis. He makes sloppy mistakes at times (for example, the Group of 30 is
not a group of 30 nations.)
Despite its flaws,
this is an excellent book that should be read by any financial professional with
an interest in the abuses of the past twenty years. It is an informative and
engrossing book.
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