Infectious Greed: How Deceit and Risk Corrupted the Financial Markets - Softcover

Frank Partnoy is a professor at the University of San Diego Law School. He has worked as an investment banker, derivatives broker, and corporate securities attorney. He also consults on regulation of the markets and white-collar crime. His expert testimony before the Senate committee investigating the Enron collapse has been widely cited in the media. Partnoy is the author of F.I.A.S.C.O.: Blood in the Water on Wall Street. He lives in San Diego, California.

From Infectious Greed:

By 2002, the closing bell of the New York Stock Exchange was barely relevant, as securities traded 24 hours a day, around the world. The largest markets were private, and didn't involve regulated exchanges at all. Financial derivatives were as prevalent as stocks and bonds, and nearly as many assets and liabilities were off balance sheets as on. Companies' reported earnings were a fiction, and financial reports were chock full of disclosures that would shock the average investor if she ever even glanced at them, not that anyone—including financial journalists and analysts—ever did. Trading volatilities were sky high, with historically unrelated markets moving in lock step, increasing the risk of systemic collapse.

In just a few years, regulators had lost what limited control they had over market intermediaries, market intermediaries had lost what limited control they had over corporate managers, and corporate managers had lost what limited control they had over employees. This loss-of-control daisy chain had led to exponential risk-taking at many companies, largely hidden from public view. Simply put, the appearance of control in financial markets was a fiction.