Frank Partnoy: Derivative Dangers Years before the current economic crisis, former derivatives trader Frank Partnoy warned about the dangers of tricky financial trading. He joins Fresh Air to explain how we got where we are.

Frank Partnoy: Derivative Dangers

Frank Partnoy: Derivative Dangers

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Frank Partnoy directs the University of San Diego's new Center for Corporate and Securities Law. Fergus Greer/Courtesy of Frank Partnoy hide caption

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Fergus Greer/Courtesy of Frank Partnoy

Years before the current economic crisis, law professor and former Wall Street trader Frank Partnoy was warning about the dangers of risky financial practices.

In his 1997 book FIASCO: Blood in the Water on Wall Street, Partnoy detailed how derivatives — financial instruments whose value is determined by another security — were being used and abused by big financial firms. Partnoy used his experiences as a derivatives trader at Morgan Stanley to give the book an insider's perspective. In the preface to FIASCO, Partnoy wrote about the growing influence of derivatives:

"Derivatives have become the largest market in the world. The size of the derivatives market, estimated at $55 trillion in 1996, is double the value of all U.S. stocks and more than 10 times the entire U.S. national debt. Meanwhile, derivatives losses continue to multiply."

Partnoy is a professor at the University of San Diego law school. In addition to FIASCO, he's the author of Infectious Greed: How Deceit and Risk Corrupted the Financial Markets.

Partnoy joins Fresh Air to explain derivatives, credit default swaps and how they led to the current financial crisis.

Blood in the Water on Wall Street
By Frank Partnoy

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