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.
Chapter 2: Monkeys on Their Backs
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 Thack
ray, 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.
Chapter 3: Wheat First Securities
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.
14 Radford, p. 6.
15 Hazell v. Hammersmith and Fulham London Borough Council, 2 QB (CA) 697 (1990), p. 801.
16 Liebowitz, p. 6.
17 “Credit Suisse Financial Products Establishes Representative Office in New York,” PR Newswire, September 26, 1990, p. 1.
18 These agencies were designated “Nationally Recognized Statistical Ratings Organizations.” By the late 1990s, only Moody’s, S&P, and Fitch had NRSRO status, and the Securities and Exchange Commission consistently had denied applications from competing agencies from the 1970s until 2002. Frank Partnoy, “The Siskel and Ebert of Financial Markets: Two Thumbs Down for the Credit Rating Agencies,” Washington University Law Quarterly, Volume 77, Fall 1999, p. 619.
19 The News Hour with Jim Lehrer: Interview with Thomas L. Friedman (PBS television broadcast), February 13, 1996.
20 Partnoy, “The Siskel and Ebert of Financial Markets: Two Thumbs Down for the Credit Rating Agencies,” pp. 619-711.
21 John Eatable and Lance Taylor, Global Finance at Risk: The Case for International Regulation (New Press 2000), p. 101.
22 Leslie Scism, “Low Yields Spark Flurry in New Notes,” Wall Street Journal, October 4, 1993, p. C1.
23 “Structured Products: Background and Investment Opportunities,” Morgan Stanley, March 1994, p. 12.
24 Michael Liebowitz, “Can the Triple-A Subs Live Up to their Billing?” Investment Dealers’ Digest, November 2, 1992, p. 16.
25 “An Issuers’ View of the Structured Note Market,” Derivatives Strategy, February 20, 1994, p. 6.
26 Liebowitz, “Credit Suisse Derivative Unit Opens with a Bang in New York,” p. 6.
27 Scism, p. C1.
28 “An Issuers’ View of the Structured Note Market,” p. 6.
29 Kevin Muehring, “Who Do You Trust?” Institutional Investor, May 1992, p. 73.
30 “Once in Jeopardy, Diff Swaps Prove Resilient,” Bloomberg News, May 7, 1993.
31 James M. Mahoney, “Correlation Products and Risk Management Issues,” Federal Reserve Bank of New York Economic Policy Review, October 1995, p. 7.
32 Miriam Bensman, “How Do I Get Out of This? New Exit Strategies for the Structured Note Market,” Futures, October 1993, p. 32.
33 Mahoney, p. 7.
34 “Traders Sell Strategies for Falling European Rates.”
35 Ronald H. Coase, “The Problem of Social Cost,” Journal of Law and Economics, Volume 3, October 1960, pp. 1-44.
36 “A Large Car-Loan Issue,” The New York Times, December 13, 1985, p. D4.
37 Steven Bavaria, “Fuzzy Line between Private and Bank Debt,” Investment Dealers’ Digest, September 16, 1991, p. 13.
38 Everette D. Hull and Leslie Annard, “Time to Jump on the Securitization Band-wagon?” ABA Banking Journal, October 1987, p. 137.
39 David Gillen, “More Junk Bonds May Be Repackaged as High-Grade Securities, Analysts Say,” The Bond Buyer, February 22, 1990, p. 3.
40 Martin Mayer, “The Latest Junk Bond Scam?” Los Angeles Times, January 7, 1990, p. D3.
41 David Gillen, “Columbia to Sell Entire Junk Holdings, Put at $3.5 Billion, through First Boston,” The Bond Buyer, March 15, 1990, p. 3.
42 Anne Schwimmer, “Chancellor’s CBO Pulled as Investor Backs Out,” Mergers & Acquisitions Report, November 19, 1990, p. 9.
43 “Moody’s Affirms the Rating of CBC Holdings CBO,” Asset Sales Report, September 30, 1991, p. 3.
44 Kevin Muehring, p. 73; “In World of High-Tech Financial Instruments, Compliance Officer to Become King of Bank,” Thomson’s Financial Compliance Watch, March 23, 1992, p. 3.
45 Philip Maher and Ron Cooper, “CS First Boston’s Wheat Begins to Exert Control,” Investment Dealers’ Digest, October 11, 1993, p. 5.
46 Dunne, p. 32.
47 Ron Cooper, “In Switch, First Boston Comes to Rescue of CSFB,” Investment Dealers’ Digest, December 7, 1992, p. 5.
48 “CS First Boston, All Together Now?” The Economist, April 10, 1993, p. 90.
49 Tracy Corrigan, “Survey of Derivatives,” Financial Times, December 8, 1992, p. 4.
50 Dunne, p. 32.
51 “CS First Boston’s Wheat Plans Strategy after Reorganization,” Bloomberg News, September 27, 1993.
52 Peter Lee, “Wheat and the Chaff,” Euromoney, May 1996, p. 46.
53 Dunne, p. 32.
54 Dunne, p. 32.
55 Michael Siconolfi, “CS First Boston Asks Departing Workers to Sign Sweeping Nondisclosure Pact,” Wall Street Journal, February 27, 1995.
56 “The Market’s Revenge,” BusinessWeek, April 18, 1994, p. 32.
57 Dunne, p. 32.
58 Fairlamb, p. 64.
Chapter 4: Unreconciled Balances
1 Roger Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (Random House 2000), p. 5.
2 Peter Grant and Marcia Parker, “Hurtling toward Scandal,” Crain’s New York Business, June 1-7, 1992, p. 3.
3 Lowenstein, p. 33.
4 Grant and Parker, p. 3.
5 Lowenstein, p. 19; Nicholas Dunbar, Inventing Money: The Story of Long-Term Capital Management and the Legends behind It (John Wiley & Sons 2001), p. 110.
6 Grant and Parker, p. 13.
7 Lowenstein, p. 4.
8 Lowenstein, p. 15.
9 Dunbar, p. 123.
10 Dunbar, p. 123.
11 Dunbar, p. 79.
12 Dunbar, p. 58.
13 Burton G. Malkiel, A Random Walk Down Wall Street (W. W. Norton 2000), p. 243.
14 Dunbar, p. 118.
15 Lowenstein, p. 11.
16 Grant and Parker, p. 9.
17 Dunbar, p. 82.
18 Dunbar, p. 107.
19 Robert Lenzner and William Heuslein, “The Age of Digital Capitalism,” Forbes, March 29, 1993, p. 62.
20 Lenzner and Heuslein,
p. 66.
21 Lenzner and Heuslein, p. 62.
22 Neil Bennett, “Salomon Takes $194m Hit over London Errors,” London Times, February 3, 1995.
23 “Ways of Wall Street, Bad News for Brokerage Accounting,” Bloomberg News, February 27, 1995.
24 Grant and Parker, p. 4.
25 Dunbar, p. 105.
26 Dunbar, p. 97.
27 Dunbar, p. 95.
28 Dunbar, p. 98.
29 Dunbar, p. 110.
30 Grant and Parker, pp. 3, 13.
31 Grant and Parker, p. 12.
32 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, Securities Exchange Act of 1934, Release No. 34-31554, December 3, 1992, p. 11.
33 Martin Mayer, Nightmare on Wall Street (Simon & Schuster 1993), p. 196.
34 Robert J. McCartney, “Salomon’s Mines; What Makes These Traders Tick?” The Record, September 29, 1991, p. B1.
35 Mayer, p. 200.
36 Grant and Parker, p. 13.
37 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 4, note 3.
38 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 4.
39 Kenneth H. Gilpin, “Credit Markets; Treasury’s Rule Upsets Note Sale,” New York Times, July 12, 1990, p. D1.
40 Grant and Parker, p. 13.
41 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, pp. 5-6.
42 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 6.
43 Grant and Parker, p. 14.
44 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 8.
45 In the Matter of Paul W. Mozer, Securities Exchange Act of 1934, Release No. 34-34373, July 14, 1994, p. 3.
46 Mayer, pp. 206-208.
47 In the Matter of John H. Gutfreund, Thomas W. Strauss, and John W. Meriwether, p. 10.
48 Mayer, p. 210.
49 Michael Lewis, Liar’s Poker (Penguin 1990), p. 92.
50 Lewis, p. 111.
51 Lewis, p. 101.
52 Mayer, p. 155.
53 Lowenstein, p. 21.
54 Dunbar, p. 101.
55 Lewis, p. 124.
56 Lewis, p. 126.
57 Salomon ultimately decided to abandon this cap; for example, the firm paid Michael Lewis, author of Liar’s Poker, more. Lewis, p. 245.
58 Lewis, p. 126.
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