Credit Derivatives and Securitization, 3rd Edition

Lyons McNamara, 2022

Fully revised and updated for 2022 with all new material.

How did one short the ABX and why was it such a good idea? What are the good ideas today? Which trades are most likely to have the most upside with the least downside? Which are most likely to pose high risk for little reward?

The third edition of Janet Tavakoli’s seminal book on credit derivatives takes a fresh approach. She highlights profitable trading strategies in troubled times, synthetic securitization, closely related trading products, and the future direction of the market.

Here is the only comprehensive source that explains the various instruments and applications in the credit derivatives market, their economic value, how to document trades, and more. This new edition includes enhanced treatment of U.S. and worldwide regulatory issues, and new product structures.

“Tavakoli’s research work has been endorsed by, for example, the late Nobel prize winner, Merton Miller, and The Big Short hedge fund manager, Michael Burry.”
Intelligent Commodity Investing

Risk

Lyons McNamara, 2016

Tavakoli’s unique insights on risk and reward: “Higher math produces the wrong answer to nine decimal places, and computers spit out the wrong answer faster. Technology churns out numbers that are astonishingly precise even when they are terrifyingly inaccurate.” Learn how to identify risk and opportunities.

Praise for RISK

“Unusually ambitious, instructive, and entertaining.” The CFA Institute

“Rare is the book that is instructive and entertaining, that appeals to a diverse readership, and that accomplishes these feats within 200 pages. Risk is such a book. This high level perspective should be required reading for CEOs of financial institutions and their risk officers, compliance personnel, traders, and portfolio management teams…a timeless reference. ” Financial Analysts Journal

“With her meticulous due diligence and wary eye, Tavakoli has discovered big risks most others have missed…pinpoints more than 10 red flags for fraud. By scrubbing fraud from your portfolio, ‘you’ll outperform almost everyone.’ Tavakoli is all about finding problems in advance and identifying opportunities.” Think Advisor

Structured Finance & Collateralized Debt Obligations

Wiley Finance, September 2008. Republished by Lyons McNamara 2019.

Tavakoli’s global financial crisis classic is used by securities lawyers. It has a valuable time stamp. The book was released in the midst of the September 2008 global financial crisis. She gave advance and real-time coverage of “the big short,” shorting of the ABX index, and the fraud-riddled reference obligations that made this trade the windfall it was. Michael Burry told Congress he read the first edition of this book along with Tavakoli’s Credit Derivatives, before he put on “the big short” mentioned in Michael Lewis’ post-crisis book about the trade.

Tavakoli’s second edition explains those trades and the financial meltdown caused by derivatives combined with phony securitizations and fake ratings. State-of-the-art look at the CDO and structured credit products market. Tackles key issues in valuing structured financial products: fraud, phony ratings, misleading structures, poor underwriting standards, and more. Coverage begins with an overview of market basics, technology, subprime and Alt-A mortgages, mortgage backed securities, special issues, special purpose entities, total return swaps, cash and synthetic arbitrage CDOs, STCDOs, CDO equity structures, selling CDO equity, balance sheet CDOs, risk and return, the role of the rating agencies, the ineffectiveness of monoline “insurance,” and credit hedge funds.

Praise for Structured Finance & Collateralized Debt Obligations 2nd Ed.

“Janet Tavakoli has been able to dissect with a brisk style the intricacies of many structured products. Not only does she explain in a clear and insightful manner how certain things work, but more important, why others DO NOT WORK!!! Highly recommended and very much needed.”
Arturo Cifuentes, Ph.D. Professor/Business School en Universidad Adolfo Ibanez. Member, Investment Committee, Chilean Sovereign Fund

“Janet Tavakoli has warned people about the risks in structured finance for years. Now she has written a primer that the investor on Main Street can understand and the pro on Wall Street would be unwise to ignore.”
Roger Lowenstein Author of When Genius Failed, and Buffett: The Making of an American Capitalist

“Janet Tavakoli warned the world this disaster was coming well in advance. Now she explains it again for those who did not listen before as well as why it is not over yet. You need to read this book to understand the biggest credit bubble in world history.”
Jim Rogers Author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker

“CDO Evolution Creates New World of Risk”
– GARP Risk Review

“Buyer Beware” (adaptation)
– International Financing Review

“Book Debates Racing Deal”
– Financial Times

Credit Derivatives & Synthetic Structures, 2nd Edition

John Wiley & Sons, June 2001

Credit Derivatives & Synthetic Structures is a contemporary finance classic. This groundbreaking global bestseller, was the only comprehensive resource of its kind and remains a testament to early identification of problems in the credit derivatives market, some of which are still unresolved. Michael Burry told Congress he read this book along with Tavakoli’s Collateralized Debt Obligations, before he put on “the big short” mentioned in Michael Lewis’ post-crisis book about the trade.

In the revised and updated Second Edition, Tavakoli covers total return swaps, advanced balance sheet management, credit default swaps, exotic structures, first-to-default options, credit linked notes, synthetic structures, sovereign risk, convertibility options, mortgage backed securities, collateralized loan obligations, BISTROs, principal protected notes, leveraged exposure to credit spreads, conditional probability of default, callable step-ups, secured loan trusts, securitizing first loss risk, basis risk and delivery options, credit arbitrage funds, credit event definitions, notice of credit events, first to default options, firm-wide credit risk management and more. Tavakoli describes the strengths and weaknesses of models and the real world performance of various credit derivative products.

Praise for Credit Derivatives & Synthetic Structures, 2nd Edition

“If you want to know more about credit derivatives – and these days an increasing number of people do – then you should read this book.” Merton H. Miller Nobel Prize in Economics, 1990

Decisions: Life and Death on Wall Street

Lyons McNamara, April 2015 Read an excerpt here.

Janet Tavakoli’s Wall Street memoir of personal and professional decisions that reshaped financiers’ lives, drove some to despair, and changed the landscape of global finance. A short light read on heavy topics. Unanimously chosen by Amazon editors for both the Kindle Single and Prime Reading programs.

Praise for Decisions: Life and Death on Wall Street

“Tavakoli takes us on a scenic tour of the recent lowlights of Wall Street and the industry’s handmaidens in Washington from the perspective of an insider…demystified and rendered tragically human. It’s a compelling tale.” Jake Bernstein, winner of the Pulitzer Prize for National Reporting

“Janet Tavakoli is a born storyteller with an incredible tale to tell. In her captivating memoir, Decisions: Life and Death on Wall Street, she takes us on a brisk journey from the depravity of 1980s Wall Street to the ramifications of the systemic recklessness that crushed the global economy. Her compelling narrative sweeps through her warnings about the dangers of certain bank products in her path-breaking books, speeches before the Federal Reserve, and in talks with Jaime Dimon.” See: Nomi Prins’ review of Decisions. Nomi Prins, author of All the President’s Bankers

“Good things sometimes happen in life. Janet Tavakoli’s latest book. Recommend it to all financial professionals.” Global Association of Risk Professionals

“Merrill Debauchery Only Begins This Woman’s Tale… ‘Neither Bill nor I believed Calvi committed suicide,’ Tavakoli writes. ‘Bill joked that he’d never hang himself. It was too gruesome.’” Bloomberg News

Unveiled Threat

Lyons McNamara, 2014

Tavakoli’s brief memoir bears witness to the incompatibility of fundamentalist Islam and Western civilization.

What were you able to learn about fundamentalist Islam by following the money?

If you read the 9/11 report, it states the Saudis, among others, funded terrorism. There is a theory that Saudi Arabia, among others, funded the fellows who formed ISIS to advance the Wahhabi agenda on the Arabian Peninsula, but their monsters went rogue and formed their own Wahhabi-based caliphate.

Read the entire interview about Unveiled Threat at Think Advisor.

Read an excerpt from Janet Tavakoli’s brief memoir, Unveiled Threat: A Personal Experience of Fundamentalist Islam and the Roots of Terrorism.

The New Robber Barons

Lyons McNamara, 2012

With Trillions on the Table, Nobody Plays Fair, and Everyone Plays for Keeps

Anthology of Janet Tavakoli’s original web-based articles from the September 2008 financial crisis through February 2012. The web commentaries pick up where her mainstream book, Dear Mr. Buffett (Wiley, 2009), leaves off. The original commentaries are unrevised so that readers experience the real-time thought process.

Tavakoli serves up example after stunning example of no-strings-attached socialization of losses and privatization of gains. She exposes the criminogenic environment that enabled international oligarchs to solidify power.

Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street

Wiley 2009

Click here for errata

If legendary investor Warren Buffett invited you to lunch, what would you talk about? Dear Mr. Buffett is a witty, well-told account of how principle triumphs over greed and panic. If you don’t read this book, you won’t understand what caused recent financial history’s most turbulent times.

Praise for Dear Mr. Buffett

“To Janet – Who should have been listened to much more carefully in the past…& who will be in the future.” Warren Buffett

“A clear and pacy run through the multitude of sins and sinners in the modern financial world. Full of anecdotes, details and character sketches…she knows her stuff, has strong opinions and turns a colourful quote…references her many cameos in both print and broadcast media – including in the Financial Times. There is a healthy dose of “I told you so”, but Tavakoli is one of the few who did. Paul J. Davies Financial Times

“Zero Hedge joins in endorsing Mr. Keiser’s glowing recommendation of . . . Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street a must read for anyone who wishes to get a deep understanding of the real severity of America’s economic debacle.” Zero Hedge

“This book is so good, I’m on my second reading of it. That’s how good it is.” Max Keiser, “On the Edge with Max Keiser”

“Buffett, Tavakoli Flag Ponzi Scheme Bigger than Madoffs” Bloomberg News

“Leaving no schmuck — whether investment bank, credit rating agency, monoline insurer, mortgage brokers, regulators and their ilk — unspared. Based on more than 20 years in the derivatives arena, and having served time at Salomon Bros, Bear Stearns and Goldman Sachs, she knows that of what and who she speaks. Should anyone ever display the slightest interest in criminalizing the criminals who led us down this path, a prosecutor could do worse than ordering up copies for the grand jury.” Greg Newton (1956-2009) Founder and Editor of MarHedge

“Tavakoli has been railing against emperors wearing no clothes in the credit derivatives markets forever. If only people had listened.” Andrew Tobias Author of The Only Investment Guide You Will Ever Need, AndrewTobias.com

“Janet Tavakoli writes about the exotic, abstract financial instruments that helped implode the U.S. financial markets, and she writes in a clear, sprightly way.” Adam Smith (George J.W. Goodman) Author of The Money Game and Supermoney

“Dear Mr Buffett,” Financial Times – February 22, 2009 “Buffett, Tavakoli Flag Ponzi Scheme Bigger Than Madoff’s,” Bloomberg News – March 5, 2009 “Rousing Tale of Advice Left Unheeded,” Business Standard – April 23, 2009 “Buffett Author: Warren Doesn’t Rely on Luck” – CNBC – February 10, 2010 “No Mere Buffett, a 14-Course Menu,” Seeking Alpha – January 8, 2009 “The Housing Collapse: What would Buffett do?” Free Lance Star – January 25, 2009 “On Buffett and Derivatives,” Seeking Alpha – February 2, 2009 “Dear Mr. Buffett: A Book Review with a Little ‘Extra,’” – Seeking Alpha – February 2, 2009 “Featured Book Look: Dear Mr. Buffett,” TraderFeed – February 20, 2009

Other Languages: Orthodox Chinese, Japanese, simplified Chinese, Portuguese (Brazil), and Turkish.

Collateralized Debt Obligations and Structured Finance (First Edition)

Wiley 2003

The only CDO book that discussed phony ratings, dangers posed by extreme leverage made possible by credit derivatives, and fraud prior to the 2008 crisis. Wall Street cannot claim it didn’t know.

Janet Tavakoli’s classic 2003 cutting-edge read on cash and synthetic collateralized debt obligations and credit market structures is the only resource that warned investors to “expect fraud.” Tavakoli’s analysis provides evidence that Wall Street knew or should have known the pitfalls of the products it sold prior to the financial crisis.

Tavakoli’s analysis proved both prescient and accurate. She provided a then state-of-the-art look at the exploding CDO and structured credit products market. She exposed securitization topics never before seen in print, including the huge increase in the CDO arbitrage created by synthetics, the tranches most at risk from this new technology, dumping securitizations on bank balance sheets, the abuse of offshore vehicles by companies such as Enron, and securitizations made possible by new securitization techniques and the introduction of the Euro.

This valuable guide has been referenced by law firms, Congress, and scholarly publications. It comprehensively covers the fastest growing market on Wall Street prior to the 2008 financial crisis, predicting where new bank regulations and other developments would lead to product growth or product extinction.

Praise for Collateralized Debt Obligations and Structured Finance (First Edition)

“The market for collateralized debt obligations has grown so quickly in recent years that…problems have led to…an abundance of opportunities for fraud. Tavakoli…does what she can to address this market’s growing pains in…this intriguing book” Hedge World

“…Tavakoli uses her broad professional experience to examine the CDO market in simple and clear language.” Risk Magazine