Infectious Greed (74 page)

6
Krieger, p. 27.

7
Stevens, p. A1.

8
Stevens, p. A1.

9
Krieger, p. 6.

10
Krieger, p. 6.

11
The theory of options pricing was developed in two key articles published in 1973, one coauthored by Fischer Black and Myron Scholes, the other by Robert Merton. Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities,”
Journal of Political Economy, Volume 81,
May-June 1973, p. 637; Robert C. Merton, “Theory of Rational Option Pricing,”
Bell Journal of Economics and Management Science, Volume 4,
Spring 1973, p. 141.

12
Peter L. Bernstein,
Capital Ideas: The Impossible Origins of Modern Wall Street
(The Free Press 1992), p. 227.

13
Millman, p. 19.

14
Millman, p. 13.

15
Michael Lewis,
Liar's Poker
(Penguin 1990).

16
Lewis, p. 119.

17
Stevens, p. A1.

18
Bernstein, p. 17.

19
This research ultimately was published in 1970. Eugene F. Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,”
Journal of Finance, Volume 25
(1970), p. 383.

20
A good review of this literature is Stephen F. LeRoy, “Efficient Capital Markets and Martingales,”
Journal of Economic Literature, Volume 27
(1989), p. 1,583.

21
Krieger, pp. 33, 38.

22
James B. Stewart,
Den of Thieves
(Simon & Schuster 1991), p. 14.

23
Krieger, p. 38.

24
Krieger, p. 96.

25
Krieger, p. 104.

26
Put-call parity typically is stated as the value of a put (with an exercise price equal to the price of a stock), plus the price of the stock, is equal to the value of a call (with an exercise price equal to the price of a stock), plus the value of the exercise price, discounted by the risk-free rate. In other words, P + S = C + PV(E), where PV(E) is the present value of the exercise price.

27
Krieger, pp. 76, 98.

28
Krieger, pp. 69-70.

29
Michael R. Sesit, “Krieger Returns to Trading Role in Currencies,”
Wall Street Journal,
September 12, 1990, p. C1.

30
Sesit, p. C1.

31
Stevens, p. A1.

32
Stevens, p. A1.

33
Lenny Glynn, “The Forex Game,”
Institutional Investor,
June 1988, p. 88.

34
Randall Smith, “The Big Casino: How Currency Traders Play for High Stakes against Central Banks,”
Wall Street Journal,
September 18, 1992, p. A1.

35
Smith, p. A1.

36
“How Bankers Trust Lied About $80 Million,”
Fortune,
September 7, 1992, p. 79.

37
“Bankers Trust Data on Restatement,”
New York Times,
July 21, 1988, p. D5.

38
Stevens, p. A1.

39
Stevens, p. A1.

40
Sesit, p. C1.

41
Millman, p. 244.

42
“Bankers Trust Data on Restatement,” p. D5.

43
“Bankers Trust Data on Restatement,” p. D5.

44
Millman, p. 245.

45
Glynn, p. 88.

46
“How Bankers Trust Lied about $80 Million,” p. 79.

47
Robert Guenther, “Bankers Trust Reduces Gain on Fed's Orders,”
New York Times,
July 21, 1988, p. C1.

48
Guenther, p. C1.

49
Charles W. Stevens, “Bankers Trust Isn't Expected to Post Big Gains from Currency Trading for the First Quarter,”
Wall Street Journal,
April 18, 1988.

50
Glynn, p. 88.

51
Charles W. Stevens, “Stable 1st-Quarter Currency Rates Hurt Most Big Bank Foreign Exchange Profit,”
Wall Street Journal,
April 27, 1988.

52
“How Bankers Trust Lied about $80 Million,” p. 79.

1
Gary Hector, “Bankers Trust Takes On Wall Street,”
Fortune,
January 9, 1984, p. 104.

2
“Up from Savannah: Bankers Trust Taps Sanford,”
Fortune,
January 10, 1983, p. 7.

3
Sarah Bartlett, “Bankers Trust: Let's Make a Deal, and Another, and Another, . . . ,”
Business Week,
August 11, 1986, p. 51.

4
Wyndham Robertson, “New York City Is Still on the Brink,”
Fortune,
July 1977, p. 122.

5
“Wholesale Banking's New Hard Sell,”
Business Week,
April 13, 1981, p. 82.

6
Robert M. Garsson, “Sanford Named Bankers Trust's Next President,”
American Banker,
June 17, 1982, p. 3.

7
Sarah Bartlett, “Bankers Trust Could Beat the Street at Its Own Game,”
Business Week,
April 4, 1988, p. 86.

8
Daniel F. Cuff, “A New President for Bankers Trust,”
New York Times,
June 17, 1982, p. D2.

9
Ida Picker, “Bankers Trust's Amazing Risk Machine,”
Institutional Investor,
August 1992, p. 29.

10
Brett D. Fromson, “Guess What? The Loss Is Now . . . $20 Million: How Bankers Trust Sold Gibson Greetings a Disaster,”
Washington Post,
June 11, 1995, p. A1.

11
Fromson, p. A1.

12
“A Game of Skill as Well; Innovating off the Balance Sheet,”
The Economist,
March 21, 1987, p. 39.

13
“In Search of the Crock of Gold: Diversify or Die,”
The Economist,
July 21, 1990, p. 18.

14
Glynn, “The Forex Game,”
Institutional Investor,
June 1988, p. 88.

15
“In Search of the Crock of Gold: Diversify or Die,” p. 18.

16
“In Search of the Crock of Gold: Diversify or Die,” p. 18.

17
“Bankers Trust and Salomon Brothers: Noises Off,”
The Economist,
February 24, 1990, p. 80.

18
Saul Hansell, “Change at Bankers Trust: Easier Said than Done,”
New York Times,
January 15, 1995, Sec. 3, p. 5.

19
Bartlett, “Bankers Trust Could Beat the Street at Its Own Game,” p. 86.

20
Bartlett, “Bankers Trust Could Beat the Street at Its Own Game,” p. 86.

21
Carol J. Loomis, “A Whole New Way to Run a Bank,”
Fortune,
September 7, 1992, p. 77.

22
Bartlett, “Bankers Trust Could Beat the Street at Its Own Game,” p. 86.

23
“Bankers Trust; Leaner, Meaner, Keener,”
The Economist,
January 24, 1987, p. 73.

24
“Charlie's Angels,”
The Economist,
April 10, 1993, p. 14.

25
Fromson, p. A1.

26
Garsson, p. 3.

27
Gary Hector, “Bankers Trust Takes On Wall Street,”
Fortune,
January 9, 1984, p. 104.

28
“Bankers Trust; Leaner, Meaner, Keener,” p. 73.

29
“Loans for Sale: A New Way to Stretch Bank Dollars,”
Business Week,
October 1, 1984, p. 94.

30
Loomis, p. 77.

31
Hector, p. 104.

32
John P. Forde, “Big Firms Involved in Rate Swaps Form Dealers Association,”
The Bond Buyer,
March 8, 1985, p. 4.

33
“How AMF Knocked Down Its Debt Load,”
Business Week,
January 9, 1984, p. 104.

34
Forde, p. 4.

35
Forde, p. 4.

36
Forde, p. 4.

37
Arthur Walther, an investment banker with Goldman, Sachs & Co., said that in addition to trying to standardize documentation and practices among interest-rate swap deals, the group will also “explore the accounting and regulatory implications” of the off-balance-sheet financings. Forde, p. 4.

38
Forde, p. 4.

39
“Interview with Gary Hector,”
Fortune,
March 26, 1990, p. 108.

40
Merton H. Miller, “Financial Innovation: The Last Twenty Years and the Next,”
Journal of Financial and Quantitative Analysis, Volume 21,
December 1986, pp. 459-471.

41
Frank Partnoy, “Financial Derivatives and the Costs of Regulatory Arbitrage,”
Journal of Corporation Law, Volume 22
(1997), p. 211.

42
Gibson Greetings, Inc. v. Bankers Trust Co.,
U.S. District Court, Southern District of Ohio, Civil Action No. 94-620, September 12, 1994, pp. 1-2.

43
In the Matter of BT Securities Corporation,
S.E.C. Release Nos. 33-7124, 34- 35136, 3-8579, December 22, 1994, p. 3.

44
In the Matter of BT Securities Corporation,
p. 3.

45
Fromson, p. A1.

46
Gibson Greetings, Inc. v. Bankers Trust,
p. 7.

47
Alfred Steinherr,
Derivatives: The Wild Beast of Finance
(Wiley 1998), p. 76.

48
“Gibson Greeting's Thank-You Card,”
Derivatives Strategy, Volume 3,
September 19, 1994, p. 2.

49
Blaise Labriola, “Modeling the Gibson Trades,”
Derivatives Strategy, Volume 3,
September 19, 1994, p. 5;
Gibson Greetings, Inc. v. Bankers Trust,
p. 8.

50
Gibson Greetings, Inc. v. Bankers Trust,
p. 9.

51
“Corporate Hedging, Hard Soap,”
The Economist,
April 16, 1994, p. 82.

52
“Gibson Greeting's Thank-You Card,” p. 2.

53
Gibson Greetings, Inc. v. Bankers Trust,
p. 10.

54
In the Matter of BT Securities Corporation,
p. 1.

55
Jessica Sommar, “Bankers Trust Announces New Managing Directors,”
Investment Dealers' Digest,
October 4, 1993, p. 10.

56
Richard Layne, “BT's Bet on Derivatives Business Pays Off,”
American Banker,
August 10, 1993, p. 20.

57
John Thackray, “The Two Faces of Kevin Hudson,”
Derivatives Strategy,
1995, p. 1.

58
Thackray, p. 2.

59
Fromson, p. A1.

60
Kelly Holland, Linda Himelstein, and Zachary Schiller, “The Bankers Trust Tapes,”
Business Week,
October 16, 1995, p. 106.

61
Fromson, p. A1.

62
Frank Partnoy,
F.I.A.S.C.O.: Blood in the Water on Wall Street
(W. W. Norton 1997), back cover.

63
Thackray, p. 8.

64
Procter & Gamble v. Bankers Trust,
1996 U.S. Dist. LEXIS 6435, Southern District of Ohio, May 8, 1996, p. 10.

65
Carol J. Loomis, “Bankers Trust Times; More Dirt about Derivatives!,”
Fortune,
November 27, 1995, p. 34.

66
Thackray, p. 5.

67
Holland, Himelstein, and Schiller, p. 106; Loomis, “Bankers Trust Times; More Dirt about Derivatives!,” p. 34.

68
Thackray, p. 8.

69
Thackray, p. 8.

70
The facts related to Fonkenell are based on a reported decision in the case of
In the Matter of Guillaume Henry André Fonkenell, a Former Institution-Affiliated Party of Bankers Trust Company,
New York, New York, Docket No. 98-032-B-I, 98-032-CMP-I, Federal Reserve Bulletin, May 1, 2001.

71
Graef S. Crystal, “How Much CEOs Really Make,”
Fortune,
June 17, 1991, p. 72.

72
Hansell, p. 5; Loomis, “A Whole New Way to Run a Bank,” p. 77.

73
Loomis, “A Whole New Way to Run a Bank,” p. 77.

74
Hansell, p. 5.

1
“CS First Boston: As Many Names as a Russian Novel,”
The Economist,
November 3, 1990, p. 90.

2
Frank Partnoy,
F.I.A.S.C.O.: Blood in the Water on Wall Street
(W. W. Norton 1997), p. 21.

3
“CS First Boston: As Many Names as a Russian Novel,” p. 90.

4
Helen Dunne, “Wheat's Promise of a Rich Harvest,”
Daily Telegraph,
June 6, 1998, p. 32.

5
David Fairlamb, “Bankers Trust's Mr. Fixit,”
Institutional Investor,
June 1989, p. 64.

6
Dunne, p. 32.

7
Fairlamb, p. 64.

8
“Bankers Trust and Salomon Brothers: Noises Off,”
The Economist,
February 24, 1990, p. 80.

9
Stephen Fiddler, “Anger at Bankers Trust over Defector to CSFB,”
Financial Times,
February 15, 1990, p. 35.

10
Dunne, p. 32.

11
Mary Radford, “CS First Boston Creates Unique Swaps Subsidiary,”
Investment Dealers' Digest,
July 9, 1990, p. 6; Julian Walmsley, “Credit Suisse Still Out in Front in Derivatives Market,”
Extel Examiner,
June 28, 1993, p. 865.

12
Michael Liebowitz, “Credit Suisse Derivative Unit Opens with a Bang in New York,”
Investment Dealers' Digest,
October 1, 1990, p. 6.

13
Tracy Corrigan, “Derivatives Newcomer Expects Quick Profits,”
Financial Times,
July 17, 1990, p. 29; “City Shop,”
The Times
(London), July 17, 1990.