Frank Partnoy is the author of F.I.A.S.C.O.: The Inside Story of a Wall Street Trader and Infectious Greed: How Deceit and Greed Corrupted the Financial Markets. He has worked as an investment banker at Morgan Stanley and a corporate lawyer, and has testified as an expert before both the United States Senate and House of Representatives. A graduate of Yale Law School, he currently teaches law at the University of San Diego. His new book is The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals.For the Wall Street Journal, Partnoy named a five best list of books on financial schemes.
One title on the list:
Manias, Panics, and CrashesRead about all five books on Partnoy's list.
Throughout his long career as a professor at the Massachusetts Institute of Technology, Charles P. Kindleberger battled the dominant thinking in finance. His multi-stage theory,presented in “Manias, Panics, and Crashes,” about “the instability of expectations, speculation, and credit and the role of leveraged speculation in various assets,” was simple but radical. More important, it worked, and still does. First, financial innovation and technology create new opportunity (think subprime lending and derivatives, particularly credit-default swaps). Then profits are fueled by increasing credit and expanding money supply (thank you, Mr. Greenspan). People overestimate expected returns and borrow too much (ah, those AAA credit ratings). Speculation spreads until there is financial distress, and news about a bankruptcy or financial fraud leads to a panicked rush for liquidity (take your pick: Bear Stearns, Lehman, Citigroup, AIG). Regulators should heed Kindleberger’s moral-hazard warning: A lender of last resort should exist, but its “presence should be doubted.”
Manias, Panics, and Crashes also appears on Martin Mayer's list of the five best books on financial meltdowns.
The Page 99 Test: The Match King.
--Marshal Zeringue
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