Friday, September 8, 2017

Friday Feature Book Review: F.I.A.S.C.O. Frank Partnoy 大破局(フィアスコ) デリバティブという: フランク パートノイ

F.I.A.S.C.O. is a financial "tell all" classic alongside Liar's Poker fame, which told the inside scoop on Salomon Brothers. F.I.A.S.C.O. is all about the author's time inside Morgan Stanley. He worked for the debt derivatives side of capital markets, mostly Interest Rate Swaps, and learned of a very special event, the Fixed Income Annual Sporting Clays Outing or F.I.A.S.C.O. The perfect place for sales staff and clients to get together to drink and shoot. Perhaps not at the same time though.

First published in 1997, it is full of amazing colorful language about big trades, and the clients who do them. When trades go wrong with clients, those accounts get "blown up" and those same clients get their "faces ripped off". These terms were new to many in finance 20 years ago, but are mainstream now. One favorite story is about how to describe a chocolate cake. If vanilla cake layers have chocolate icing outside, is it still a chocolate cake? The definition translates well with financial products. If it looks like one thing but inside is another, what do you call it? Many other books have written similar financial insider language since, but this was the original, the template for many other books since. It many ways, it was a template for many others to follow.

After getting a call from a headhunter in New York, the author gets his wished for "money call". After learning the ropes within Credit Suisse, he hears the whispered magic words of the best firm on Wall Street at the time, Morgan Stanley. He travels to Tokyo, and stays at the Imperial hotel, where even today, they clean shirts like no other hotel. He meets with executive legends like Jonathan Kindred, now country head in Japan, more than 25 years later. Japanese banks were big clients, as were many corporates around the world.

The book is about the early days of derivatives, and the creative solutions they gave clients to get around restrictions. If a "cheater", a sophisticated user who needed to get around any law or guideline used them, it was a way of bending the law. If the client was part of the "widows and orphans" type, they were the type of client that did not really understand what they were buying, and did not read the fine print. The Morgan Stanley CEO at the time, John Mack, AKA "Mack the knife" kept a real spike on his desk. It was said he used it as a deterrent to threaten and impale the incompetent. The very clear "take no prisoners" was the hardcore attitude on deals at the time. Compliance regulation has since changed this greatly across many investment banks globally. The motivations of the client however, have never changed. Many still want to "get around things" in whatever market they are in. That is still the very core of many creative financial transactions.

The Top 3 Takeaways from this book that really impact any reader are:

1) This is the story of a very different time with derivative products. The early days were really wild west and have matured a lot since then.

2) The ability to work with numbers is one thing, but to sell products requires creativity, even in finance. The products do not sell themselves. Good stories do.

3) This is the story about how things really work, not how they ought to work. Real stories and real people are included. The names were not changed to protect the incompetent.

The book came out after the first negative reaction to derivatives generally. Barings Bank went bankrupt, Procter & Gamble, Dell, Gibson, Daiwa, Sumitomo and even California's Orange County all got hit hard by derivatives deals. Warren Buffet, after seeing the full impact of these derivatives deals started to call them financial instruments of mass destruction. It gives a very detailed account of what it was like to be "in the belly of the beast", a really great read. Highly recommended.

Please visit us for our Friday Feature Review where TMJ Partners will review books, movies, services and anything else with a financial theme.  Follow us now for our free weekly updates, just click here. Thank you for reading and learning more about how money is made in finance!

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