| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
She wrote on her firm's Web site:
Tavakoli is basically arguing that the $1 trillion in write-downs that the banks have taken since the credit crunch began dwarfs the $50 billion that Madoff allegedly swindled from his clients. Tavakoli furthers her case by making a series of comparisons including a lack of transparency.
However, Tavakoli may be confusing the commonality between bubbles and Ponzi schemes. Both rely on a suspension of disbelief and an expectation of large profits, but that's about it. A Ponzi scheme relies upon a central individual or schemer. Who is the central figure behind the mortgage mess? You can't argue that there was a cabal of bankers who met to plan their scheme together. Sure there was Davos and other moments when bankers convened meetings, but who really thinks they were in Switzerland to plan destruction of the developed world when the ski slopes beckon? And, even if you believe the conspiracy theories, how did smaller banks, who's chiefs weren't invited to Davos, get involved or recruited into the fraud? Tavakoli's indignation over the credit crisis is understandable, and certainly there may have been wrongdoing at some level along the way. However, the mortgage mess is not a Ponzi scheme. - Matthew Wurtzel See Tavakoli's argument CategoriesComments
From: Rodrigo Riadi,
You call it a bubble when you don't think anything improper was done, a Ponzi scheme when whatever was done was clearly illegal. Since regulation is being questioned, what has been called a bubble up to now could become illegal (or a Ponzi scheme) under a future regulatory framework. Your article is unfortunate in that it relies on the semantics instead of on the essence of Tavakoli's argument. Her argument deserves to be understood as it can help better frame the future regulatory environment. Cheers.
Posted on:
May 9, 2009 12:57 PM
 Deal Video
    Community
 Elsewhere on The Deal.comDealwatchThe Deal MagazineCorporate Dealmaker
The Deal VideoCategories
Blog roll
Archives
| |||||||||||||||||||||||||
The media has accepted Bernard Madoff's reported admission that his $50 billion Ponzi scheme is the largest in history, but Janet Tavakoli, president of Tavakoli Structured Finance, disagrees. The financial consultant and author, who has a new book 
|
|
|
|
|
Tavakoli makes a persuasive case in her book, Structured Finance, that the relationship between failed mortgage lenders and the securitization groups is indeed a Ponzi scheme.
In her book, Dear Mr. Buffett, she is even more specific naming deals and culprits. Many of the securitizations that raised new money disguised losses and kept things going. When investors dried up, CDOs were created just to prop up prices and CDO-square products were riddled with products that literally had zero value, i.e. BBB-rated tranches that were total write-offs.
She knows what she is talking about, and gave her own analysis and specifics.