Premise of Fortune Cover Story is Incorrect
January 11, 2009
by Janet Tavakoli, president of Tavakoli Structured Finance

The premise of this week’s Fortune cover story, “Sending Wall Street to Jail,” (January 19, 2009) is not only incorrect, it lacks Common Sense. The article seems unable to muster outrage. In the words of Thomas Paine: “a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT.” Fortune talks about the difficulty of proving criminal intent when the SEC, Fed chairman and others thought (or more to the point, studiously avoided rational thought) things had gotten as bad as they could get. Since when are the popular delusions of those outside one’s firm a defense for willfully failing to mark your positions to market and material accounting weaknesses, if not misstatements?

Fortune also gives the benefit of the doubt to senior managers who were way off the mark in their earnings releases and says “we’re not talking here about …Ponzi schemes.” In a few cases, the latter is actually true, but in others, we should be talking about Ponzi schemes and asking why the SEC did not shut down the securitization groups at some of the major investment banks doing business in the United States.

Let me help out the folks at Fortune. As I explain in my new book Dear Mr. Buffett: What An Investor Learns 1,269 Miles from Wall Street, value-destroying securitizations went well beyond securitizing overrated mortgage loans and morphed into the accelerated manufacture of CDOs and CDO-squared transactions (especially in 2007) designed to cover up losses. Many of the securitizations were doomed on the day they closed, and any multi-million dollar payday securitization professional worth his or her salt knew it or should have known it.

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Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008), and
Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (John Wiley & Sons January 2009)

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