In his book “Infectious Greed: How Deceit and Risk Corrupted the Financial Markets,” University of San Diego Professor Frank Partnoy identifies Andy Krieger as “patient zero” of our current epidemic. Nearly forgotten today, Krieger became an early success in options under Charlie Sanford at Bankers Trust in the 1980s. As Krieger’s successes grew, so did his power within the company — which he abruptly left after the company reneged on the bonus he felt he was due.
Only then did Banker’s Trust realize it had miscalculated Krieger’s winnings, and was forced to reduce them by $80 million. Rather than come clean fully, it pressured accountants at Arthur Young to reduce its obligation to pay employees’ future bonuses by exactly that amount — and the twin practices of free-wheeling trader and accounting shenanigans were enabled.
Partnoy takes us step-by-step down the slippery slope of deregulation as more and more companies enter swaps not to offset risk, but to manipulate their accounting results and hide from regulators.