F.I.A.S.C.O.: Blood in the Water on Wall Street
By Frank Partnoy
Norton, 252 pages, $25
One Sunday in 1995, a client called and inter-rupted a dinner party I was giving to tell me that a young derivatives trader in Singapore had bankrupted Barings, the elite British merchant bank. In addition, many of the firms that had dealings with the Singapore International Monetary Ex-change and Barings were in danger of failing.
As serious as the situation was for the international financial system, I found it impossible to explain what was happening to my guests. Though they had watched the rise and fall of Ivan Boesky, Michael Milken and the U.S. savings and loan industry with wry amusement, they were unable to comprehend the wheeling and dealing that destroyed Barings and earli-er bankrupted Orange County.
Frank Partnoy was a derivatives salesman at the American investment bank Morgan Stanley when Orange County, Barings and the Mexican banking system blew up, at least partly with the help of derivatives trades. His inside story will be interesting reading for those in the financial industry who enjoy some good gossip and for those outside the industry who want a thorough explana-tion of what really happened.
Partnoy tries to do for the derivatives markets what Michael Lewis’ “Liar’s Po-ker” did for the ’80s bond markets. He uses his own adventures at Morgan Stanley to illuminate another chapter in the annals of greed.
F.I.A.S.C.O. stands for Fixed Income Annual Sport-ing Clays Outing, an annual clay-pigeon shoot organized for members of the Morgan Stanley sales force to hone their killer instincts. The successful account executive is supposed to take advantage of the clients who might be in distress from a derivatives trade gone wrong by con-vincing them that they need Morgan Stanley to help unravel the mess. The sales force echoes the battle cry of President John Mack: ” `There’s blood in the water. Let’s go kill someone.’ “
Partnoy proceeds to dissect a series of deliberately baf- fling deals that Morgan Stanley put together with his assistance. He describes how the firm creates bonds that earn high credit ratings but that mask complex bets on the direction of the Mexican peso or Argentine interest rates. The hapless clients who are misled into buying these bonds are labeled “wi-dows and orphans,” every salesman’s dream.
But this is 1994, and explo-ding derivatives deals are making the front page. It gets harder to “jam” the deals down the clients’ throats. The firm begins to rely on a pro-duct that has no real eco-nomic value and is created solely to manipulate the balance sheet. Partnoy is shipped off to Tokyo, where such a product is wildly po-pular with bankrupt finan-cial institutions.
Any illusions he had about the value of derivatives are shattered forever. He finds the business to be a complete fraud, and he resigns to the cleaner career of a lawyer in Washington, D.C.
Like “Liar’s Poker,” Partnoy’s tale is popu-lated with hilarious caricatures. A salesman nicknamed Scarecrow hides bottles of Scotch in his desk and amasses an impressive collection of guns, swords and mili-tary uniforms. A manag-ing director spends his days locked in a chess match with a computer. His immediate boss, a woman whose family escaped Iran with the shah, alternates be-tween berating her under-lings and creating the most complex and profitable deals of all.
It is disappointing that Partnoy does not handle his colleagues with the same degree of humor and detach-ment that Lewis did. His descriptions are often colored by his personal resentment and even a bit of the sexism he claims to deplore. For example, his single experi-ence with a saleswoman in a demeaning job interview at Bankers Trust enables him to say, “I had learned my lesson about challenging female managers on a trading floor.”
The book is at its best when Partnoy takes the reader through the intricacies of a derivatives transaction in a clear and amusing way. For example, he describes the valuation of options and for-wards by laying out various contracts for the purchase of a new Corvette. The book is at its worst when the author resorts to the same sopho-moric exaggeration that is often found on a trading floor. An Argentine bond is so ugly it would make Eva Peron die even earlier than she did. On a first-class flight to Tokyo, he “inhaled several mounds of caviar and belted down half a dozen vodkas and a steak.”
But Partnoy is one of the “rocket scientists” who is able to decipher the con-voluted transactions that nearly brought down the world financial markets. His book goes a long way toward helping us understand what happened and preventing us from becoming the “widows and orphans” who buy these products without under-standing them.
