Wall Street Versus Main Street: How Ignorance, Hyperbole, and Fear Lead to Regulation

Abstract

For two years in the early 1990s, Frank Partnoy worked for a couple of investment banks (CS First Boston and Morgan Stanley) selling derivatives. He made a lot of money doing this. Now he is trying to make a little more money from his experience by writing a sensationalist book about his time at Morgan Stanley. The book is clearly patterned after Michael Lewis's bestseller, Liar's Poker, which chronicled the author's life as a bond salesman for Salomon Brothers in the 1980s. What F.I.AS.C.O. and Liar's Poker have in common, and the reason they are of interest to those studying the regulation of the financial markets, is the way the two books depict the relationship between investment banks and their clients. These books provide significant ammunition to those interested in regulating the securities markets by characterizing the investment banks as willing and able to take advantage of their clients' naivete. Similarly, they are of interest to those of us concerned with norms, particularly the reputational norms that operate in business environments.