Partnoy's complaint
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Partnoy's complaint

There could yet be one beneficiary from the collapse of Yamichi: Frank Partnoy, author of recently published FIASCO, subtitled Blood in the Water on Wall Street. The former emerging-markets derivatives trader at Morgan Stanley exposes the aggression and greed that drove derivatives teams to take advantage of naive clients during the mid-1990s.

Aside from describing the usual jolly japes we might expect from traders, Partnoy records his growing disillusionment with a business which took big fees selling derivatives to clients who could not value them properly and sometimes had scarcely the faintest grasp of the risks they were taking. "The way you made money selling derivatives was by trying to blow up your clients." He writes that most derivatives in his specialist area, repackaged emerging market debt, were designed to help investors circumvent restrictions on taking exposures to local-currency risk. How shocking.

In the final pages of the book, he details work on a trade called MX, the largest of a series designed to create false profits for Japanese investors desperate to cover up trading losses. The MX was a mortgage derivative including a more valuable collateralized mortgage obligation mainly consisting of interest payments and a less valuable zero-coupon bond.

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