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Tuesday, November 03, 2009 10:32 AM

Janet Tavakoli on Financial Meth Labs

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Here is a lengthy but well worth listening to 59 minute interview of Janet Tavakoli on C-Span. The interview is from April 20, 2009 but given that Tavakoli's name is just now on everyone's radar, most will have missed it.

Interview Topics

  • Money
  • Transparency
  • Job security
  • Banking crisis
  • Credit derivatives
  • Invisible Debt
  • How and why credit derivatives came into existence
  • Mortgage lending, Countrywide, New Century, etc
  • Investment banks churning money to collect fees
  • Bipartisan problem of promotion of home ownership to buy votes
  • Crony capitalism

Select Quotes

  • Democracy has been diluted by the actions we have taken to get out of this crisis.
  • The government is willing to willy nilly print money to prevent any bank from going into receivership which I think is a galacticly bad idea.
  • Credit derivatives added to the problems by providing leverage and opacity. They increased people’s ability to borrow in hidden ways.
  • There is a lot of debt in the system that is invisible. And banks themselves were often running invisible hedge funds. The legacy investment banks were running invisible hedge funds, but so were our major banks, and that includes JPMorgan, and Citigroup Bank of America.
  • Collateralized Debt Obligations (CDOs) were overrated and overpriced the minute they came to market. If that wasn’t enough, investment banks were creating these things in their financial meth labs , knowingly selling things they knew or should have known were overrated and overpriced.
  • In 2007 when it was clear that this activity should be shut down, because we had mortgage lenders failing throughout the country, instead of shutting down the financial meth labs, the investment banks sped up, they accelerated the bad deals they were bringing to market. Many of them were just phony secutritizations with no other purpose than to hide losses.
  • I was hopeful that when someone like Obama came in, there would be meaningful change. If anything, the situation has gotten worse. But this is bipartisan. You’ll notice that President Bush when he was in office, he elevated Roland Arnold who was the head of Ameriquest, that had been involved in alleged mortgage fraud, massive, sued by almost every state in the union, and he was elevated to the position of Ambassador to the Netherlands. The Netherlands did not even like it.
  • This was not a model issue. This was a management issue. We had people who knew or should have known they were selling things that were value destroying securitizations, and their sale provided money to lenders were originating fraudulent loans, overrated by complicit rating agencies.

Janet Tavakoli is a straight shooter and an equal party basher. You have to like that.

Mike "Mish" Shedlock
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