Author: Frank Partnoy
Publisher: W.W. Norton & Company, Inc.
The following review was contributed by: SHELDON (SHELLY) WAXMAN & click to view Shelly's reviews.
The title is a play on words or in this case, a play on letters. F.I.A.S.C.O. really are initials that represent: “Fixed Income Annual Sporting Clays Outing.” It is a poor theme on which to base the book. It’s an affair held by Morgan Stanley Investment Company (“MS”). The title is a little too cute. It would have been better to just call it FIASCO without any periods. This is because the book is an insider’s tell all memoir revelation of some of the enormous monetary losses suffered during the 1990’s from misguided betting in the derivatives market.
Much of the book involves the author’s attempt to simplify the definitions of the various products he dealt with while an employee at MS selling derivatives. It is difficult to simplify “investments” that the author admits were largely not understood by the sellers or the buyers.
The best simplification he provides is that it is a bet that a financial instrument will go up or down—an option in that sense—although much more complicated. The option itself is bought and sold and it value is derived from the performance of another financial instrument or a package of instruments. It is inherently complicated stuff.
However, the fiasco part of it is a sampling of stupidity, fraud, theft and graft. Losses of billions of dollars by outfits such as Orange County California, ended with the losses repaid by the public—of course. One instance—which blew me away—was the story of the bankruptcy of Barren Bank—the Queen of England’s bank that had existed for hundreds of years.
As a result of the bank’s collapse, there occurred a general financial collapse in Japanese banks, markets, and currency. In order to cover their losses for the upcoming financial reporting season, MS created a financial instrument that allowed the Japanese to take large quick profits immediately while deferring the losses to a time of their choice in the future. While doing this and making a large fee on the sale, MS reaped a benefit not revealed to the Japanese of an additional $75 M.
This book debunks the whole field of financial “investments”—derivatives or otherwise. It was published in 1997 but is as current today as it was then. If you can get past the difficult technical explanations, you come to a point where you applaud the author for leaving this wasteland, although to the law, which is another wasteland filled with graft, greed and corruption. But the author states that he is happier being a lawyer. Perhaps when he learns the insides of the law, we may get another revealing insider’s look. I already wrote mine—“In the Teeth of The Wind.”
If the book is republished, it would be helpful to include an Index.