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VIDEO:
Pigeon Fever: Ponzi Schemes Still Thriving
60 Minutes (CBS) with Morley
Safer – February
14, 2010 - Click
here for full text
At 9:26 minutes, Janet Tavakoli discusses
Wall Street's pre-meltdown actions (video
below):
Watch
CBS News Videos Online
Poking
through the wreckage, many experts
believe the
root
cause was
a perfect
storm:
a monsoon of gullibility colliding
with a tidal wave of greed.
" This was a massive Ponzi scheme. And it's the biggest
crime against the American economy in our lifetimes, in fact,
ever," analyst Janet Tavakoli explained.
Tavakoli is an analyst specializing in derivatives, the exotic
financial instruments at the heart of the meltdown. She argues
that the bad mortgage loans that fueled the crisis were repackaged
by investment banks, sliced into increasingly complex derivatives
and resold to other investors, even though the underlying mortgages
were often virtually worthless.
"
You had various traders buying each others' products to
artificially keep the prices up so that the bubble didn't collapse," she
told Safer.
Not only that. But the mortgage derivatives being
traded were so mind-numbingly complicated, nobody understood
them fully.
Certainly not the pigeons: the buyers at banks, mutual funds,
pension funds and insurance companies who wound up holding a
bag full of worthless paper.
"
But these guys are smart guys. They're all graduates of
the finest business school, correct?" Safer asked.
"
Yes. If they were gullible, they're sophisticated investors.
So they can't really go back to the investment banks that sold
them this product and say, 'We've been had.' Because they held
themselves out to be experts in these kinds of securities," Tavakoli
replied.
All of which proves that whether you're on Wall Street
or Main Street, brain power is no defense against con men. In
fact, smart
guys may be the biggest suckers of all.
JT Note:
Also from the interview: “’We wouldn't want to live
in a world where we couldn't be conned because in effect we would
then be living in a world where we mistrusted or refused to trust
anyone. So this is the price we pay,’ [Ricky] Jay said.”
I agree with Mr. Jay. Who would want to live in a world like
that? But equally, who would want to live in a world where trusting
hard-working taxpayers are unprotected by government, so they
become the easy prey of exploiters? That’s why we have
laws. That way, we can remedy wrongs and make criminals pay the
price. It's time to put that theory into practice.
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).
Janet
Tavakoli's book on the global financial meltdown is Dear
Mr. Buffett: What An Investor
Learns 1,269 Miles From
Wall Street (Wiley 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.
TSF
makes some information available to the general public. Please
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