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Essay / Research Paper Abstract
This 3-page paper analyzes questions from Frank Partnoy's book Infectious Greed: How Deceit and Risk Corrupted the Financial Markets. Bibliography lists 1 source.
Page Count:
3 pages (~225 words per page)
File: D0_MTpartno.rtf
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Unformatted sample text from the term paper:
Financial Markets" by Frank Partnoy. Discuss two or three reasons for why regulation, auditing, and managerial oversight were so consistently ineffective at preventing the abuses chronicled by Partnoy.
For this question, the student can select from a variety of examples here. The first one is located in Chapter 1, involving Bankers
Trust, Andy Krieger, and how $80 million simply disappeared from the balance sheets. Despite the regulations in place through the Securities and
Exchange commission, Krieger, a trader with bankers trust, somehow managed to overstate the profit he had earned by $80 million, namely because despite all of the reporting mechanisms in place,
"Bankers Trust initially relied on its traders to evaluate the profits or losses in their own portfolios" (Partnoy, 2003, 28). Because the companys back office marked to market all of
the traders positions, the marks were the basis for reporting annual results -- and for reporting the profits. Furthermore, no one questioned Kreigers trading position when Bankers Trust issued its
press release -- and following that issuance, the companys control teams realized that the volatility estimates that were used to mark the trades had been higher than they should have
been -- being overstated by as much as 25 percent. This drastically changed Bankers Trust balance sheet, effectively erasing the companys profit.
What was the solution? Bankers Trust reduced its compensation expenses by $80 million, thus exactly offsetting the loss it experienced. This way, it was thought, the mangers could claim they
werent "knowingly making any misstatements," but were "relying on their accountants advice that it was reasonable to reduce the banks compensation expense" (Partnoy, 2003, 30).
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