Rating: 
Summary: Riveting narrative, sub-par analysis
Review: Frank Partnoy's "Infectious Greed" demystifies the byzantine financial transactions underlying much of the corporate fraud witnessed over the past decade. Although the usual suspects like Enron and Worldcom make cameo appearances in the book, Partnoy also exhumes scandals at lesser-known firms like Kidder Peabody and Banker's Trust for a thorough post-mortem. What's more, he spotlights the incestuous relationships between regulators and the corporations they ostensibly oversee, revealing details that even the most religious readers of the financial press would have surely missed.
However, some of Partnoy's analysis is wide of the mark. Throughout the book he points to the unintended and often toxic consequences of regulation - and yet in the epilogue, he inexplicably calls for still more regulation. He chides Harvey Pitt for his missteps as SEC Chairman, but nary a few paragraphs later he delivers a glowing endorsement and concludes that Pitt should not have been forced to resign. Finally, he inveighs against limits to short-selling - such as the uptick-rule - claiming that they helped perpetuate the tech bubble. The notion that human psychology had a lot more to do with the lack of short-selling than did the uptick-rule apparently never crosses his mind.
In conclusion, "Infectious Greed" is an engaging and insightful book, but one should be wary of the conclusions proffered by the author.
Rating: 
Summary: Partnoy's still complaining
Review: 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. In actual fact he worked on Wall Street for just two years in total, straight out of college. Instead of succeeding by staying the course, Partnoy made his millions by violating the Wall Street code of omerta and knocking out a sensationalist, mostly ignorant, account of the year or so he spent at Morgan Stanley. Infectious Greed is the follow-up, which purports to document the wreckage across the market since.
Having read FIASCO, which was valuable mostly for its unintended humour, I didn't expect much of Infectious Greed; I was rather looking forward to slating it, to be honest. It has the same air of maiden-aunt prurience as FIASCO but, almost despite himself, Partnoy's conclusions here aren't especially objectionable, and mostly undermine the tone of studied outrage he cultivates throughout the early part of the book.
The thesis of the book is that the financial markets have, of late, been corrupted by deceit and risk (hang on a minute: financial markets are *about* risk. Is it meaningful to say they can they be corrupted by it?). Yet at least half the book recounts events which took place ten or more years ago, in the primordial soup of the derivatives market. If a week is a long time in politics, a decade is an aeon on Wall Street: in 2004, the exploits of Bankers Trust and CS First Boston in 1993 aren't exactly current. The nascent derivatives market is now a mature trillion dollar industry. I dare say Professor Partnoy wouldn't recognise it.
Partnoy's explanations of the transactions are, however, lucid: so much so that they undo his conclusions. At one point he describes in two paragraphs the 'whipsaw' risk of an 'Inverse IO' instrument. It's a very clear explanation, which completely undermines his concluding observation that 'it was unclear whether any mutual-fund mangers [the investors] understood all of this'. Here's the thing: to put not too fine a point on it, a professional fund manager who doesn't understand what can be lucidly explained in eight sentences, yet still invests in it, should be shot. So should his employer. And neither deserves the respect (for which, read, money) of the public. It might seem a harsh lesson, but it wouldn't take too many collapses to shake the mums and dads in Ohio out of their complacent stupor and shift their funds to a manager who was prepared to employ qualified managers and supervise them properly. The market has a way of teaching people valuable lessons that market regulation and government bail-outs really don't.
The funny thing is, Partnoy does continually stumble over this axiom, but doesn't recognise it. He quotes a Peat Marwick partner who derides ignorant fund managers thus: 'if you don't understand, you might as well place it all on red at Atlantic City or Las Vegas, because at least there you get free drinks.' Though Partnoy doesn't think so, the analogy is a good one: the very monied nature of Wall Street is the most graphic illustration of the fact that, unless you really know your onions, you are NOT going to end up a winner. The house is; which is why most of them can afford to pay their 20,000+ employees salaries which average out at half a million dollars each (it's all in the annual report - do the sums!). Like Casinos, Wall Street trading desks have a motive ulterior to realising some poor schmuck's American dream: the object is to make, not lose, money, and this is exactly what they do and a statistically constant basis.
Partnoy repeatedly calls for regulation of the derivatives market without ever making a case for how this might be done or how it would prevent the losses he documents in the book: criminal statutes don't stop people committing murder, after all. All the regulation in the world won't stop fraudsters (if they're committing fraud, then by definition the regulations are already there, and they're breaking them). On the other hand, exploring the idiosyncrasies of rules *without* breaking them is the prerogative of every citizen, not just Wall Street banks. After all, regulatory arbitrage is only possible because of prescribed regulatory rules tend not to precisely reflect economic reality. If rules have irrational boundaries, then it is economically rational to exploit them.
Eventually, Partnoy acknowledges this. He cannot ultimately muster much venom for the perpetrators of the Enron debacle, and by the epilogue, where he sets out his recommendations (full marks to him for putting his money where is mouth is, by the way: it's one thing to criticise; quite another to suggest a solution) his proposals don't include regulation of the wholesale derivatives market ("some derivatives markets might appropriately have been left unregulated" he concedes) but simply equivalent accounting treatment with comparable financial instruments, and most of his fire is reserved not for Wall Street traders or greedy executives, but the credit rating agencies which operate under the umbrella of a government-sponsored oligopoly (only Moody's, Fitch and S&P are recognised for regulatory purposes). And you'll never guess what his solution is for dealing with the rating agencies: Without a hint of irony, he suggests they be deregulated!
By the final sentence of the book, it seems the most elementary elements of market theory may have finally slipped through: Partnoy asks his readers whether they have taken any prudent steps to properly evaluate their investments before putting up any money: 'If you answered 'no,' you have one more person to blame in addition to the accountants, bankers, lawyers, credit raters, corporate executives, directors and regulators who failed to spot the various financial schemes of recent years. You.'
Not, in the final analysis, quite the damning indictment it cracked up to be, then.
Olly Buxton
Rating:
Summary: A very good book, but not of the FIASCO type
Review: 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.
Rating:
Summary: his first book was better
Review: I am about halfway through this book, but so far I enjoyed Frank Partnoy's first book, "FIASCO: Blood in the Water on Wall Street", much better. FIASCO was mainly an auto-biographical account of Partnoy's career at Morgan Stanley. Writing about his own life afforded Partnoy the opportunity to be more anecdotal and humorous about his subject matter. In this book, his focus is on scandals that made the headlines, or even worse, were suppressed from greater public knowledge. (Enron, LTCM, Orange County, the Salomon Bros Treasury auction scandal, etc). He recants these tales with tongue in cheek humor, and he translates finance-geek-speak into a language which people outside of the business can understand. However, in his Vernacular translation, he loses some of the wind of the real story. Maybe its because I am in the business, so no details need to be spared for my benefit, but I would have preferred reading more technical accounts. At any rate, Partnoy is a crusader, out to teach the world about the dangers of financial products. Frankly, I think he goes to far in his ranting, and this book is merely a vehicle for him to advance his agenda of reform and regulation. Its true that some people have exploited the market for less than altruistic purposes, but the truth is that derivatives have been more beneficial than harmful to the global financial system. To tell the tale all of the evil in the financial markets without mentioning the good is misleading.
Rating:
Summary: It all Looks Bad from the Ivory Tower
Review: Partnoy was a Morgan Stanley derivatives salesman who burned his bridges right at the start of his career with a tell-all book that couldn't quite tell all. He's no Michael Lewis, but he has adapted his exclusion to a useful role as an ivory tower intellectual opining on the world of derivatives, and is influential. It's a good book that makes several important points. It's written at the highest possible level in terms of assuming reader understanding, which I liked. However, I think some of his conclusions are unduly alarmist, and I wonder whether it will end up confusing some readers who don't know where to take the grains of salt.
Rating: 
Summary: Partnoy is the man !!!
Review: POSITIVE: In-dept overview of what happend in the last 15 years in "high finance". The authors knowledge on the topics can hardly be beaten. Author pretty harsh in critisicing Moodys, CDOs etc. Very interesting findings (e.g. trading profits at Enron, harsh treatment of Quattrone). The author provides some good solutions in the finance world at the end of the book. NEGATIVE: Value creation, especially of derivatives, is not mentioned in the book. Thus, book rather critical. Book not as readable as FIASCO due to more difficult topics (and NOT authors fault).
Rating:
Summary: Insightful and complex reading
Review: 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.
Rating:
Summary: Insightful and complex reading
Review: 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.
Rating:
Summary: Get this book if you want to understand Wall Street antics
Review: 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.
Rating:
Summary: Good advice and exiting facts
Review: This book it's a very exiting journey since the late 80's until the issues of enron and worldcom, it covers step by step how financial innovation has been changing and is a good reference for anyone who likes true stories.
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