Q&A: Janet Tavakoli

[Supercilious]

This is a great interview. There are bankers and banksters.


"There weren't any outliers... there were just a lot of outright liars."


(Direct link: http://www.youtube.com/v/WA20Am0pwtA)

[oddlots]

Re: Q&A: Janet Tavakoli

Hey symbols,

Thanks for posting this. That guy's no Bill Moyers (substitute your favourite interviewer) and the first 9 minutes is kind of excrutiating but Tavakoli has a lot to impart from then on:

- the "failed models" thesis is a crock (the computer made me do it defense.) This is really significant to me since the problem has so persistently been blamed on "passive voice explanations" from behavioural economics to Taleb's black swans. (And no, I don't blame Taleb for people misunderstanding his argument.) This is someone who knows the derivatives market inside and out. I like the approach: you were either a crook or you were incompetent: your choice. Clear and to the point.

That said I would love to hone the message because beyond this I think she is hard to understand, partly because she's trying to spare people the jargon believe it or not (or at least the explanation of it.)

I want to ask her: what is the prize in Washington? And (in a similar vein to the - usefully? artfully? - clueless interviewer) how did these people thrive for so long and seem so respectable?

She really didn't have a good respone to these questions and I felt like I wanted to interject: DISCUSS REGULATORY ARBITRAGE. I don't think its too difficult to understand. Just ask the question, how does a bank grow assets? Clearly, if you can find a clever way to reduce the reserves required to back loans through adjustments to legislation you will have a huge edge on your competitors and they will be forced to either 1) wait it out or 2) join in.

That's the doomsday device: competition forcing people into a corner where they have no choice but to make a fortune. (Gresham's law, finance edition.) Homespun values regarding debt haven't got a chance against that and, frankly, I'm sort of distrustful of people who don't lead with that story.

[Chris Coles]

Re: Q&A: Janet Tavakoli

He did keep asking the question, "you are sitting in the White house what would you tell Mr. Obama?" and she did keep dodging the question.. so in a very real way I agree, the interviewer could have done better. But on the other hand, she is a lifetime professional in banking and the one fact that is today totally overlooked by everyone......

Banks do not invest in jobs; they loan people in jobs their forward income to allow them to purchase something today that they would otherwise have to save for years to purchase....

So, with the greatest of respects Mr. Obama, until that message sinks in, you cannot get a handle on the underlying problem which is; as Adam Smith points out in The Wealth of Nations... all jobs are created in proportion to the amount of capital invested.

It is equity capital, invested into the grass roots of a nation that drives the long term prosperity of the nation and which in turn underpins the loans from the banks.

So the question is; do you want bankers sitting on a sunny beach sipping an iced tea or do you want ordinary citizens in a good, well capitalised job, earning enough to be able to pay sufficient tax to pay for the administration of the nation, raise their children and be able to borrow a small proportion of their long term income to be able to provide a roof over the heads of their families?

You can have one or the other, but right now, not both....... the choice is yours.

[Supercilious]

Re: Q&A: Janet Tavakoli

Hey symbols,

Thanks for posting this. That guy's no Bill Moyers (substitute your favourite interviewer) and the first 9 minutes is kind of excrutiating but Tavakoli has a lot to impart from then on:

Thanks oddlots, I'm glad you liked this interview, and sorry for missing your post earlier.

- the "failed models" thesis is a crock (the computer made me do it defense.) This is really significant to me since the problem has so persistently been blamed on "passive voice explanations" from behavioural economics to Taleb's black swans. (And no, I don't blame Taleb for people misunderstanding his argument.)

I think Taleb has a beautiful parable for explaining this aspect of his Black Swan Theory. I'm talking about the turkey parable:

In the book, I have the story of a turkey that is fed for 1,000 days by a butcher, and every day confirms to the turkey and the turkey’s economics department and the turkey’s risk management department and the turkey’s analytical department that the butcher loves turkeys and he is dedicated to the well being of turkeys, and every day brings more confidence to the statement. So it’s fed for 1,000 days... Gets fatter and fatter and fatter. Until one day there will be a surprise for the turkey's economic department....

No doubt some banks were the turkeys, and some incompetent managers believed in the world seen through the four eyes of an astronomy PhD . For them this crisis was a black swan... the unthinkable event. But a turkey surprise cannot happen without a butcher, and there are no surprises for butchers.

This is someone who knows the derivatives market inside and out. I like the approach: you were either a crook or you were incompetent: your choice. Clear and to the point.

Yup, there was no middle way. Crooks or deluded incompetents, butchers or turkeys.

That said I would love to hone the message because beyond this I think she is hard to understand, partly because she's trying to spare people the jargon believe it or not (or at least the explanation of it.)

I like too what I hear from Janet Tavakoli, and recently a lot of people who know how the system worked are putting great effort in explaining things in more or less plain language. I think this is very encouraging, unfortunately this effort happened a little bit too late. The same happens now with the carbon tax scam. There are quite a few people who understand how the fraud is designed, but nobody seems to be willing, at this time, to explain it in accesible language.

I want to ask her: what is the prize in Washington? And (in a similar vein to the - usefully? artfully? - clueless interviewer) how did these people thrive for so long and seem so respectable?

I don't think there is a prize in Washington. I think, by now it should be obvious Washington is nothing else than an apron used as protection equipment by the financial butchers. And these days is extremely dirty from so much use. A Nobel Prize laureate like Stiglitz can say almost in plain language that Washington (including the current administration) is corrupt, without being labeled as a conspiracy cook. Janet Tavakoli cannot say the same thing directly. My big question about her is with the openly professed admiration for Warren Buffet, who is one of the ultimate insiders (although he has been very careful not to get his hands dirty).

She really didn't have a good respone to these questions and I felt like I wanted to interject: DISCUSS REGULATORY ARBITRAGE.

Sorry, oddlots, but to discuss regulatory arbitrage in a meaningful way one needs a full separate long interview. I would prefer a conference

I don't think its too difficult to understand. Just ask the question, how does a bank grow assets? Clearly, if you can find a clever way to reduce the reserves required to back loans through adjustments to legislation you will have a huge edge on your competitors and they will be forced to either 1) wait it out or 2) join in.

I think the problem is even more complicated. In an environment of falling profitability for financial institutions, if some crooks are allowed to perpetrate a fraud and extract much higher profits, the rest of the players have only two chances: go belly up, or get in the fraud game (joining the butchers' union or becoming turkeys). I don't think there was a "wait it out" option.

Those who understand how the fraud works and refused to get in the game were not able to survive. There was the Goldman Sachs category or the AIG category.

It's true though there were very few in between cases like Lahde. But those were the exceptions. Neither butchers nor tukeys, just foxes cutting in the profit of butchers.

That's the doomsday device: competition forcing people into a corner where they have no choice but to make a fortune. (Gresham's law, finance edition.)

Or rather competition forcing people in a corner where they have no chance but to participate in the fraud (as butchers or turkeys).

Homespun values regarding debt haven't got a chance against that and, frankly, I'm sort of distrustful of people who don't lead with that story.

Yup, I have the same reservations....

[WildspitzE]

Re: Q&A: Janet Tavakoli

I like too what I hear from Janet Tavakoli, and recently a lot of people who know how the system worked are putting great effort in explaining things in more or less plain language. I think this is very encouraging, unfortunately this effort happened a little bit too late. The same happens now with the carbon tax scam. There are quite a few people who understand how the fraud is designed, but nobody seems to be willing, at this time, to explain it in accesible language.

Symbols,
Perhaps this isn't the forum, but if you have questions on how structured finance and securitizations (there are about 40 different asset classes) work and are structured let me know. I'll be happy to explain how they're structured or answer any questions as best as I can. Cheers.

[WildspitzE]

Re: Q&A: Janet Tavakoli

btw - zerohedge has posted a paper today that conceptualizes the structures pretty well. Look at slides 6-9.

http://zerohedge.blogspot.com/2009/0...d-finance.html

I haven't read the thing, but those figures (in the slides I mentioned are pretty good summaries). Not sure if the paper goes into tranching methodologies, excess spread, rating agencies, surety wraps,etc etc...

[Supercilious]

Re: Q&A: Janet Tavakoli

Symbols,
Perhaps this isn't the forum, but if you have questions on how structured finance and securitizations (there are about 40 different asset classes) work and are structured let me know. I'll be happy to explain how they're structured or answer any questions as best as I can. Cheers.

WildspitzE, if you have a good knowledge of the field of structured finance I think it would be a great idea if you can open a thread (a course) at Education and Resources (or even on bart's forum if he agrees). I'm currently relatively busy but I'll do my best to participate. And analysing every type or paper and giving explanations in plain language, I believe, it would be very useful.

btw - zerohedge has posted a paper today that conceptualizes the structures pretty well. Look at slides 6-9.

http://zerohedge.blogspot.com/2009/0...d-finance.html

I haven't read the thing, but those figures (in the slides I mentioned are pretty good summaries). Not sure if the paper goes into tranching methodologies, excess spread, rating agencies, surety wraps,etc etc...

Thanks for the link. The presentation is quite interesting but I guess the most interesting part is that it raises the rarely discussed issue of competition between structured finance and the financial monopoly of the traditional banking. I find that a fascinating subject.

[Chris Coles]

Re: Q&A: Janet Tavakoli

WildspitzE, if you have a good knowledge of the field of structured finance I think it would be a great idea if you can open a thread (a course) at Education and Resources (or even on bart's forum if he agrees). I'm currently relatively busy but I'll do my best to participate. And analysing every type or paper and giving explanations in plain language, I believe, it would be very useful.

I second that request and please let us have a link from here so we can all join in. A VERY useful suggestion. Thanks symbol.

[WildspitzE]

Re: Q&A: Janet Tavakoli

I second that request and please let us have a link from here so we can all join in. A VERY useful suggestion. Thanks symbol.

Ok, sure. I'm also extremely busy at the moment, but will try to write a quick introductory salvo soon.

[WildspitzE]

Re: Q&A: Janet Tavakoli

Chris - per your post, a link:
http://www.itulip.com/forums/showthr...8331#post98331