By Janet Tavakoli

Updated June 2025

Wall Street Insider vs Media Narrative

My Experience in Salomon’s 1985 Training Class

I was in the Salomon Brothers’ 1985 training class that Michael Lewis lampooned in his amusing book, Liar’s Poker. Imagine my surprise to see him billed as a trader on 60 Minutes, since he was actually a junior salesman. Well-heeled male peacocks strutted the trading floor, and junior salesmen were girlie-men, mere eunuchs serving their pashas.

Michael hit the roof when I ribbed him about the mischaracterization.* Yet, in January 2007 he didn’t spare the “wimps, ninnies, and pointless skeptics” at Davos. I wasn’t at Davos (Michael wasn’t either), but he derided people who staked their reputations–as I staked mine–on the fact that the financial system was in peril. One might think he’d have a thicker skin, when turnabout was fair play and truth was his casualty.

Lewis’s Davos Commentary: Missing the Warning Signs

The Derivatives Risk Michael Lewis Dismissed

Michael had asserted “Davos Man…will brood about virtually anything, no matter how little he knows about it.” He ridiculed their concern of a pending crisis due to the surge in derivatives demand and called it “this year’s case in point.” Then Michael showed how dangerous it is to be a brilliant writer with a poor command of facts and their true meaning:

“None of them seemed to understand that when you create a derivative you don’t add to the sum of total risk in the financial world; you merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about.”

Evidence Lewis Ignored: Predatory Lending Crisis

Actually, there was a lot of evidence that risk was being “redistributed” in ways we should all worry about. Predatory lending was a national scandal. I was well-published on phony securitizations, phony AAA ratings, phony accounting–and the mother of all risk–excessive leverage on securities that could only plummet in value.

Other serious people also spoke and wrote eloquently and accurately about the risks. They were often ridiculed by mainstream media girlie-men and intimidated by their bosses. Some–like my friend, Arturo Cifuentes–stood their ground and were maliciously fired for it.** Meanwhile, Michael was still cheerleading Wall Street:

“But the most striking thing about the growing derivatives markets is the stability that has come with them.”

Expert Predictions vs Lewis’s Analysis

Warning Signs Lewis Called ‘Pointless Skepticism’

Derivatives had destabilized the global financial system, albeit Michael was clueless. Leverage was much more dangerous than at the time of Long Term Capital Management‘s implosion. Then Michael gave us the payoff:

“If they really believe the markets mispriced risk…they must also believe they could make vast sums of money if they quit their day jobs and opened a hedge fund to take the other side of stupid trades.”

Why Risk Managers Were Silenced

Exactly. That is what I wrote to risk managers at the same time Michael was penning his Davos screed. I told them to get out of investment banks and short those trades, since bank managers had their boots on the necks of risk managers, as regulators and the media licked the managers’ boots.

Not “Mispricing,” It Was Malfeasance

Michael had it wrong in more than one profound way. The markets weren’t just “mispricing risk,” those in-the-know were manipulating prices–covering up malfeasance and losses. Meanwhile, some members of the fourth estate used their pernicious pens as pawns in the cover-up.

Setting the Record Straight on Wall Street

Beyond Media Mythology: The Fraud Reality

All of the legacy investment banks enabled predatory lending, yet they now perpetrate what Elizabeth Warren calls the “myth of the immoral debtor.” Wall Street banks were the key architects of the financial meltdown. The Fed provided cheap money, but irresponsible financiers exploited it. Banks massively over-borrowed, their agents extracted billions in bonuses, and now they blame hard-working taxpayers. These predators call this “God’s work,” while most of the media covers-up for them.

The Real Story Behind The Big Short

How Lewis Mischaracterized the Financial Crisis

Michael wrote me that he read my book on structured finance while he was working on his book, because “it inspired one of the main characters” of The Big Short. *** Yet, Lewis mangled the facts in his eagerness to create a story, since it is again fashionable–and profitable–for Michael to bash Wall Street.

The irony is profound: while Lewis dismissed the “pointless skeptics” warning about derivatives risks, the very protagonist of his book was learning those exact risks from my 1998 work. Michael Burry himself confirmed this in testimony to the Financial Crisis Inquiry Commission:

“It was a dark market. I was onto WorldCom pretty early, and they went from investment grade to bankrupt overnight. I wondered why I didn’t make more money on this. It hit me that’s the way to short companies, and I noted there was a lot of these highly rated super leveraged companies where you could buy credit default swaps, and so I bought books: Janet Tavakoli’s 1998 book and that was the first book I read. I didn’t take all those equations and apply them, but I got the basics of the market from that.”*

*Michael Burry, interview by Financial Crisis Inquiry Commission staff, May 18, 2010, audio recording, timestamps 1:36:20-1:38:40, Financial Crisis Inquiry Commission Archive.

From ‘Mass Delusion’ to Systematic Fraud

Michael told 60 Minutes (March 14, 2010) the financial crisis is a story of “mass delusion,” but he’s only deluding himself. It takes courage to tell the real story. This is actually a story of Wall Street’s massive, wide-spread, multi-year fraud, including accounting fraud.

Why Courage Matters in Financial Journalism

I appeared on 60 Minutes (February 14, 2010) and said Wall Street’s dealings with mortgage lenders, securitizations, derivatives, and investors were a massive Ponzi scheme, the biggest crime ever against the American economy. Wall Street and Washington hope you are gullible enough to believe otherwise.

The Washington Post says The Big Short reads like the “same smart-alecky Michael Lewis,” a biased account of industry players “whom he holds up to ridicule for their arrogance.” I’m sure I’ll enjoy it for the irony.

About the Author

Janet Tavakoli is the president of Tavakoli Structured Finance founded in 2003. She is a globally recognized structured finance expert and derivatives authority who has advised financial regulators, testified as an expert witness in major financial litigation, and authored definitive works on credit derivatives and securitization.

For comprehensive analysis of structured finance products and securitization strategies, consult Tavakoli Structured Finance.

Notes:

* We are not colleagues but have exchanged the occasional email.

** Arturo Cifuentes, Ph.D., later joined R.W. Pressprich & Co. and is currently a professor at the University of Chile (Business School en Universidad Adolfo Ibanez) and a member of the Investment Committee of the Chilean Sovereign Fund. As a Sr. V.P. at Moody’s, he developed early CDO technology (where his ratings had meaning) from 1996-1999. Upon my recommendation, Dr. Cifuentes testified before the Senate Committee on Banking, Housing and Urban Affairs in April 2008 about subsequent unsound practices and the role of the credit rating agencies in the global financial turmoil.

*** Lewis was referring to Michael Burry who later testified to Congress, and confirmed to me via email, that he was inspired to do the trade in part by my books: Credit Derivatives (Wiley, 1998, 2001), and Collateralized Debt Obligations & Structured Finance (Wiley, 2003).

The Michael Lewis quotes are from “Davos is for Wimps, Ninnies, Pointless Skeptics,” Bloomberg News, January 30, 2007, by Michael Lewis.

Related Articles

Tavakoli, Janet. “2008 Crisis: Bailouts Without Accountability (2025 Update).” Tavakoli Structured Finance. July 19, 2025.

Tavakoli, Janet. “Bear Stearns Bailout Warning: June 2007: Collapse Prediction.” LIPPER HedgeWorld, June 27, 2007. Updated with Epilogue July 2025.

Tavakoli, Janet. Bill Ackman and the MBIA Confidence Game: A Big Short

Tavakoli, Janet. “Comments on SEC Proposed Rules and Oversight of NRSROs” Letter to Securities and Exchange Commission, February 13, 2007.

Tavakoli, Janet. “Dicey Deals Done Dirt Cheap: (MBIA and Ambac Face Massive Downgrades: Monoline Crisis) Tavakoli Structured Finance. Originally published January 3, 2008 | Updated July 2025.

Tavakoli, Janet. “Financial Media Commentary: When Watchdogs Fail to Bark.” TSF. July 21, 2025. Originally published as separate commentaries 2009-2014, Consolidated and Updated 2025.

Tavakoli, Janet. “Goldman Sachs and AIG: The Hidden Financial Crisis Story .” Tavakoli Structured Finance, November 10, 2009. 2025 Update is a consolidation of several subsequent articles with up-to-date legal and regulatory fallout.

Tavakoli, Janet. “Letter to the Editor: An alternative to the Paulson plan – one that does not violate the spirit of democracy.” Financial Times, September 29, 2008.

Tavakoli, Janet. “Letter to the Editor: Cynical use of derivatives has market in a pickle.” Financial Times, January 31, 2008.

Tavakoli, Janet. “Letter to the Editor: Greater Global Risk Now Than At Time of LTCM.” Financial Times, May 7, 2007.

Tavakoli, Janet. “Letter to the Editor: Subprime lending excesses have damaged US’s standing as global leader in finance.” Financial Times, March 19, 2007.

Tavakoli, Janet. “Merrill Lynch CDO Crisis: Analysis & Aftermath (2008-2025).” Tavakoli Structured Finance. July 30, 2008. Last Updated July 18, 2025.

Tavakoli, Janet. “Nassim Taleb’s Black Swan Fund Strategy Fail (2025 Update)“

Tavakoli, Janet. “The Broadcast That Changed Everything.” TSF, April 2015.

Related Books

Tavakoli, Janet. Collateralized Debt Obligations and Structured Finance. New Jersey: Wiley, 2003. Early warning explanation of how collateralized debt obligations can be misrated and used to transfer damaged debt from investment banks to investors.

Tavakoli, Janet. Credit Derivatives and Synthetic Structures. New Jersey: Wiley, 1998 and 2001. Early warning analysis of how credit derivatives amplify risk of built-to-fail financial products and their legitimate uses for protection and profit.

Tavakoli, Janet. Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street. New Jersey: Wiley, 2009. Chronicle of key events before, during, and after the financial crisis.