'This is the biggest fraud in the history of the capital markets'

[Joanne98]

Washington Post

'This is the biggest fraud in the history of the capital markets'

By Ezra Klein
10/8/2010


Janet Tavakoli is the founder and president of Tavakoli Structured Finance Inc. She sounded some of the earliest warnings on the structured finance market, leading the University of Chicago to profile her as a "Structured Success," and Business Week to call her "The Cassandra of Credit Derivatives." We spoke this afternoon about the turmoil in the housing market, and an edited transcript of our conversation follows.

Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?

Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.

EK: And how much danger are the banks themselves in?

http://jessescrossroadscafe.blogspot.com/2010/10/tavakoli-biggest-fraud-in-history-of.html

[bvar22]

1. Frog Marches......

..or Bailouts?

[Po_d Mainiac]

2. Frog marches

for Joe & Jane Sixpack, no doubt..

If you mention this fiasco to 1000 people, perhaps 5 will know difference between a MERS MIN and an MBS.

The PTB are getting away with diverting attention from the real villains, and directing the anger towards the unemployed, minorities, foreign sovereigns, etc.