By Peter Eavis Senior Reporter
Real Money TheStreet.com July 24, 2003

The [Baker Botts] report...adds that Arthur Andersen, Freddie's auditor at the time, said that the move was consistent with GAAP. But this is a weak justification. Freddie actually went to the length of moving from the standard valuation method that is heavily based on current market prices to one that used historical data. It did that because of a spike in a certain measure of volatility. But Janet Tavakoli, a derivatives consultant at Chicago-based Tavakoli Structured Finance, asks, why didn't Freddie just get an independent valuation? (The firm has had no consulting relationship with Freddie Mac.) Notably, Parseghian was at a meeting that discussed how to treat the swaption adjustment.

"It would be a real stretch of the imagination to say that these swaps were done for risk-management purposes," says Tavakoli. Indeed, a Freddie trader was recorded as saying that the linked swaps had some risk-management impact but were "really" about "cash flows," the report says. The swaps seemed so odd to other financial institutions that traded with Freddie that an employee at one such firm commented: "I don't want to be taken off in handcuffs here for doing something that's not kosher."

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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).

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.

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