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.
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