Infectious Greed: How Deceit and Risk Corrupted the Financial Markets

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.


Be afraid, be very afraid...   July 8, 2003
Mike Howard (Melbourne, Aus)
8 out of 10 found this review helpful

Wow... what a scary book.

You already knew that something very wrong has been happening in the relationship between investment banks and their customers but I'll bet you didn't how wrong.

Partnoy's long book (there is an ENORMOUS amount of malfeasance available for the author to dissect) is well written. He has done an excellent job of creating separate threads from inter-connected stories without falling into too much repetition between chapters.

An earlier reviewer remarked that Partnoy is a crusader and "Frankly, I think he goes to(o) far in his ranting".

I couldn't disagree more. It is clear (to me, anyway) that, for too many people, the balance between the desire to make money on the one hand and the utterly vital community issues of honesty and integrity has been lost.

It's also clear (to me) that the justice system does not seem to be properly configured to deal with this.

If you've an interest in how your investment banker will roll you if he gets the chance - READ THIS BOOK.


A chilling summary with very thorough analytical background   June 23, 2003
S. L. Cranshaw (Tokyo Japan)
21 out of 22 found this review helpful

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.


his first book was better   May 12, 2003
9 out of 17 found this review helpful

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.


Scandals for the beginner   April 30, 2003
eLizabeth bennett (washington, dc)
5 out of 7 found this review helpful

An excellent review of some of the better-known financial scandals of the last two decades. Partnoy is an engaging writer, and he provides enough background information to make the book understandable to a layman. This is not a book for anyone who needs to keep an eye on his blood pressure. Partnoy shows how a few troubling trends--desire for prediction-busting profits, weakening social norms, and poor controls over employees--spread from one sector to the next, bearing increasingly bitter fruit throughout the financial world. His take on Enron--that it was really a trading firm, and a successful one, right up til the end--is controversial but worth the time. Partnoy has an impressive command of the facts and the industries he covers and a rare ability to communicate. Essential reading for anyone interested in this field.