VIDEO: America's Next Top Regulator
CNBC - May 18, 2009



Janet Tavakoli appeared on CNBC to debate whether the Central Bank should be America's next super regulator. Towards the end of the interview, she was trying to make the point that he stock market was only a lagging indicator. By the time the stock market reacted, the damage had been done, even if it had not fully shown up in earnings reports in the financial industry.

As for the Fed, it dismissed direct warnings on the basis of the "efficient market" theory. In the fourth quarter of 2002, Ms. Tavakoli spoke with Adrian de Silva in capital markets risk at the Chicago Fed about super senior tranches and “AAA” tranches of CDOs. The ratings were misleading, and games could, and were, being played. She wrote about the incident in her book without naming him or the Chicago Fed at the time: Collateralized Debt Obligations & Structured Finance, Wiley, 2003, P. 289.

He was unaware of the issue [the potential problems with super senior tranches and “AAA” rated tranches], even though he is a “structured products expert.” As we discussed the pricing of super senior economics of synthetic deals, his brow furrowed in accustomed thought. If he thought about this hard enough, he might actually have to take a position….The regulator persuaded himself that it wasn’t a problem at all.

“I’ve read that the market figures out all new products in around eighteen months, so this will soon be generally known.”


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)


Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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