Tavakoli takes the gloves off and tells it like it
is in the cover story in the May 2012 issue of Research Magazine.
You'll have to read it here, because I doubt you would hear this in any of
the mainstream media.
I hate to apply the overused term 'expert,' but Janet is a highly
credentialed expert in financial derivatives with years of practical
experience. That does not mean that everything she says is necessarily right,
but it certainly has credibility.
Someone asked me why would someone who is in the financial industry, and has
benefited from their expertise in derivatives, speak out like this?
Have we really sunk that low that we cannot believe that some people could
ever wish to speak the truth as they see it from moral principles, even
against their short term material advantages? No wonder we are so easily
taken in by lies, because that is what we want to hear. We are a lost
This straight talk is a good spice to add to the somewhat bland presentation on the financial
crisis last night from PBS Frontline.
It's all about fraud and the subsequent cover up and ongoing bailouts. Its the credibility trap, and it
continues to undermine the recovery and the real economy today.
The cover story is that these are just well meaning and extremely bright people who did their best, but a few people got carried
away, and well, you know, things just happen.
Just like MF Global, right?
Derivatives expert Janet Tavakoli takes a hard look at what — and who
— caused the financial crisis.
By Jane Wollman Rusoff
...Now Tavakoli sees another huge financial crisis
The University of Chicago MBA has traded, structured and sold derivatives at
firms including Merrill Lynch, PaineWebber and Westdeutsche
Landesbank; and she had earlier stints at Bear
Stearns and Goldman Sachs. Research
recently talked with her about red flags and preventive solutions.
You write that, in the
past three years nothing has been fixed but that we must hold Wall Street
responsible for the fraud that resulted in the financial crisis. What should
We need to have investigations. But with the pushback and all the lobbying, what
they’ve been counting on is that the statute of limitations for some of
these frauds is expiring. So if you don’t file complaints, you may
not be able to.
Members of Congress are enabling the lack of punishment and covering up
great misdeeds in our financial system — and they’re doing it
with no fear of consequences — i.e., being voted out of office, in
which case they could find themselves the subject of investigation.
What do you mean:
Many people are covering up for cronies who have a lot of money sloshing
around. We threw money into the financial system with no accountability and
thus made the problem worse. Our system has been completely infiltrated and
bought off. Things aren’t changing because Big Money doesn’t want
it to change.
What other indications
are there of a cover-up?
The MF Global dog-and-pony show. The attitude toward bundlers like Jon
Corzine [the firm’s ex-CEO], who is a big bundler for the Obama campaign,
is that the guy can do no wrong. This was before he even testified. People
who are raising big money for campaigns get off with no real investigation.
In the Sarbanes-Oxley age, for MF Global to say they were unaware of what
they were doing beggars belief. And yet there has been no indictment.
Is President Obama part
of the cover-up?
Yes, in that he’s enabled it. He’s left people in place who
crashed the global financial system in the first place: [Treasury
Secretary] Tim Geithner and [Federal Reserve chair] Ben Bernanke. Obama had
told us: “You can’t keep doing things the same way and expect
different results.” So he’s been quite a hypocrite.
Who else is in the
Mary Schapiro was appointed [by President Obama] to head the SEC. She was
formerly head of FINRA, the antichrist of investor advocacy! Yet she was
chosen SEC [chair] because the regulators are captive by and serve the people
they’re supposed to be regulating. They do not serve investors.
In a way, Obama has been the anti-regulator because he didn’t put
people in the regulatory agencies, the Fed or the Treasury who would
investigate and fix things that are wrong in our global financial system.
If he’s re-elected,
then presumably, things will continue in this same way?
What if a Republican is
Who else is not in the pocket of Big Money interests! (Ron Paul - Jesse)
So, no matter who’s
President, these crimes — if you want to call them crimes — will
Yes. And we do want to call them crimes! They are crimes.
What should Obama do now
to help Americans?
He has a lot of resources at his disposal, one main one being moral suasion
— he’s got the pulpit. When there was a crisis, Reagan, Carter,
Bush went on television and explained what needed to be done. We
haven’t seen that kind of leadership from President Obama. If anything,
the American people have been told things to make them think [conditions]
aren’t really as bad as they are: inflation isn’t as bad as you
think because an iPad is cheaper now —
nonsense like that.
So the public is being
Yes. Therefore, financial advisors need to be doing fundamental analysis
of investments and not [only] be reading the Wall Street Journal or, God forbid, watching
CNBC. (Don't look for any
appearances on CNBC or Bloomberg TV, Janet - Jesse)
In other words, FAs
should do their own research and figure things out for themselves.
Yes. Sadly, you’re on your own. That’s part of how we got
into this mess: We lost the art of rolling up our sleeves and looking for
On Internet TV, you
stated that we’re “absolutely vulnerable to a repeat [crisis]
because the fraud went unpunished and we printed money like crazy to bail us
out of the last one.” That’s scary.
But the fact is we’ve bailed people out and had no consequences for
them. So it emboldened them to turn around and behave in the same way. Look
at banks like JP Morgan: Shortly after the crisis, they thumbed their nose at
the idea of trying to separate speculation from the rest of the bank. So if
you don’t have restraints on behavior, you’ll see it repeated.
And now we’ve made it worse. It’s like handing a drunk driver
who got into a crash the keys to a bigger, faster car together with a bottle
In every area of finance where we bailed people out, you see the same
wrongdoers volunteering to help fix the situation. That’s pretty funny:
They weren’t trustworthy before, and they’re not trustworthy now.
But what about the
investigations that already have been held?
They’re all for show, and people end up with a slap on the wrist for
minor issues. Investigators should be looking instead at the
interconnected fraud that infected the mortgage lending market. And there is
still a lot today, especially fraud on borrowers. If you go to the root of
the problem and choke off the money supply, you stop the fraud in its tracks.
But the banks say they
The fact that a bank lost money isn’t an indication that they were a
victim as opposed to being a perpetrator. A classic problem with control
fraud is that the parasites destroy the host — in this case, the host
being the bank and the parasites being the bank employees. If you were the
victim of a control fraud by the people who worked in your own bank but meanwhile,
you were collecting huge bonuses, you overlooked the control fraud within
your own institution.
Why haven’t the
apparently guilty been punished?
We haven’t seen the felony indictments that these people richly
deserve because our regulators and investigators are captive — and
Congress, more than ever, has been lobbied, courted and bought off by Wall
Street. More than any time in the past, you’ve seen these big-money
interests protected by Congress.
Is there an alternative
to bailouts, such as those of the financial crisis?
Yes. Troubled financial entities should be restructured, old shareholders
should be wiped out and we should return Glass-Steagall.
What should have been
done in the case of, say, AIG?
Bankruptcy declared, and then [the government] says: “We’ll
back-stop your contracts for now, but we’re going to investigate all
those fraudulent credit derivative contracts and ‘claw’ money
‘back’ from your counterparties — like Goldman Sachs and
Credit Suisse — if need be.” So there’s a controlled
demolition. You’re not just handing money out with no
Read the rest here.