Janet M. Tavakoli - Dear Mr. Buffett: What an Investor Learns 1,269 Miles From Wall Street

Marcus Aurelius

Preface

In 2003, I moved from London to Chicago, my original hometown, and founded a finance consulting firm,Tavakoli Structured Finance, Inc. Sophisticated financial institutions call me when they have trouble understanding complex financial products, and in recent years, the products have exploded in size and complexity. They also call me when they fight with each other over these products. As a result, my firm is a lightning rod for the myriad problems facing the credit markets. My client list is short and elite, and in one way or another, most of my business comes from my former employers.

I created a niche business at the right time. Structured finance birthed a plethora of new products with acronyms such as ABS, MBS, CDO, and CMO, among other alphabet combinations. Reporters and television networks frequently ask me to make sense of market madness. Ive made repeat television appearancesCNN, CNBC, BNN (Canadas Business News Network), CBS Evening News, Bloomberg TV, and First Business Morning News on where Ive frequently predicted problems long before the market or even the Federal Reserve acknowledged them. Ive been quoted in major financial publications including the Wall Street Journal, the Financial Times, BusinessWeek, Forbes, Fortune and Investors Dealers Digest (among others) in which I was often the first to publicly and specifically challenge major financial institutions, the Federal Reserve Bank, and the major rating agencies: Moodys Corporation (Moodys); Standard & Poors (S&P), part of the McGraw-Hill Companies, Inc.; and Fitch, owned by France-based Fimalac SA.

Beginning in 1985, I worked for various Wall Street firms in New York and London. These included Salomon Brothers (now part of Citigroup), Bank One and Bear Stearns (both now part of JPMorgan Chase), Goldman Sachs, Merrill Lynch, and others. I chiefly worked on trading floors, and most of my colleagues were men. My career travels took me to New York, Japan, continental Europe, and England. I traded, structured and sold complex financial instruments. Although I often held management jobs, I was chiefly a hired gun; I took the jobs others considered too new or too difficult.

I wrote finance books well known to users of esoteric financial products with tongue-twisting names such as credit derivatives and collateralized debt obligations. Ten years ago, these products were limited to a small group, but now these products pose hot-button issues for investors ranging from very sophisticated banks to near-retail clients including local governments, small pension funds, and condominium associations. I wrote articles for major financial publications explaining problems in structured finance and warned that it would not end well. I predicted the mortgage meltdown, the global credit bubble, and the collapse of investments backed by unwise mortgage loans. I warned about the risks of hedge funds using leverage including Long-Term Capital Management (LTCM).While the rest of the financial community tripped over themselves to extend LTCM credit (and later regretted it), I recommended cutting their credit. Along the way, I acquired fans and a few groupies. At a Washington D.C. conference, a woman approached me in the ladies room to ask me to sign a blank sheet of paper, just to have my autograph. At a New York conference, an attendee from the Netherlands asked me to sign an extra book he had packed for his absent colleague, a fan who could not make the trip to New York. As I was finalizing paperwork at my doctors office in Chicago, a man standing at the counter said: Tavakoli? Are you the lady who wrote the credit derivatives book?

I stumbled upon a career in finance. My parents met near the end of World War II, during which my mothers brother was killed after parachuting into Normandy. My Wisconsin-born father was chief of surgical services tending wounded soldiers in the Central Europe and Rhineland campaigns. My mother, who hailed from Buffalo, nursed burn victims in England. They met through mutual friends and returned to Chicago to raise a large family. My father had worked his way through medical school at Jesuit-run Loyola University during the first half of the last century, when well-educated adults were expected to be well-read polymaths. He died when I was 12, and during the summers of my teenage years, I read his collection of books, including texts about medicine, mathematics, Greek philosophy, history, and poetry. My father had read the Wall Street Journal every day, but after he died, my mother had not kept up the subscription. I was interested in finance, but I did not yet know much about it.

I graduated with a B.S. in chemical engineering from the Illinois Institute of Technology, and got married five days after graduation. I worked as a chemical engineer, and a couple of years later (in 1978), I moved to Iran with my Iranian (and now ex-) husband. Our timing couldnt have been worse. Six months after we arrived, Iranians deposed the Shah, and the Ayatollah Khomeini returned to lead an anti-American, repressive theocratic government. I returned to the United States carrying one suitcase of clothing and $1,000. My husband remained in Iran with his wealthy family. He returned to the United States a few years later to start a business with his fathers help, but by then, he was my ex-husband. I had lost my possessions and savings, but my true wealth is portable and remained on my shoulders. I worked as an engineer by day and received an MBA from the University of Chicagos Graduate School of Business night program, where I later taught derivatives part time.