Library:F.I.A.S.C.O.
| F.I.A.S.C.O.: Blood in the Water on Wall Street | |
|---|---|
| Author | Frank Partnoy |
| First published | 1997 |
| ISBN | 978-0-393-04622-9 unverified |
| Role | Primary source |
| Domains | Business, Finance & Scams |
| Tactics | Fraud or Scam Statistical & Evidentiary Distortion |
F.I.A.S.C.O.: Blood in the Water on Wall Street is a 1997 book by Frank Partnoy.
Summary
Frank Partnoy sold derivatives at the investment bank Morgan Stanley in the mid-1990s before becoming a law professor and a leading scholar of financial regulation. In F.I.A.S.C.O., he describes how his group designed and sold complex financial products to clients who often did not understand the risks, and how the bank profited handsomely from the gap in knowledge. The title comes from the name of an annual company sporting event, the Fixed Income Annual Sporting Clays Outing. The book was controversial on publication and is often compared with Michael Lewis's Liar's Poker.
The derivatives desk
Derivatives are financial contracts whose value depends on something else, such as interest rates, currencies or other securities. Partnoy describes a desk that created customized derivatives and "structured notes," bonds whose payments depended on complex formulas. These products could be tailored to give clients the returns they wanted on paper, while hiding risks that were difficult to see. Partnoy writes that the products were often deliberately complex, because complexity made it harder for clients to judge whether the price was fair.
The clients
Customers included pension funds, insurance companies, mutual funds and public entities seeking higher returns. Partnoy describes how some clients used derivatives to get around rules limiting the risks they were allowed to take. The mid-1990s saw large derivatives losses at institutions around the world, including Orange County, California, which declared bankruptcy in 1994 after its treasurer's leveraged bets on interest rates went wrong.
The culture
Like Lewis, Partnoy portrays a culture of aggression and gamesmanship in which salespeople boasted about "ripping off" customers. Morgan Stanley criticized the book. Partnoy later wrote Infectious Greed and other books on financial markets and regulation.
Relevance to Bullshitopedia
F.I.A.S.C.O. shows how complexity can be used as a tool of deception in finance. It encourages readers to ask why a product is complicated, who designed it, and whether the seller understands it far better than the buyer.
Related entries
- AAA ratings on subprime mortgage securities
- Liar's Poker (Lewis)
- The Big Short (Lewis)