Lehman Gets Piece of All the Action (Preferred Credit Default Swaps)

TheStreet.com - March 13, 2006
by Matthew Goldstein - Senior Writer

"How does one price them? Well, let me give you a peek behind the curtain. There is only one man manipulating the levers,'' says Janet Tavakoli, a Chicago-based structured-finance and derivatives consultant.

With any kind of credit derivative, the Wall Street firms that make a market for these exotic financial products exercise tremendous control over pricing. But critics say the situation is particularly problematic in a new market, such as the one Lehman is trying to build for PCDS.

"Pricing on these instruments is difficult to model,'' says Tavakoli. "This is an illiquid market, and there will be a problem the minute there is a bump in a road.'


END OF EXCERPT


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 click here for other articles.