I mentioned earlier how much I liked the 60 Minutes piece with Michael Lewis.

Janet Tavakoli called foul this morning on Lewis assertions, pointing to a Bloomberg column he wrote in 2007, titled “Davos Is for Wimps, Ninnies, Pointless Skeptics.” Tavakoli specifically points to this paragraph:

“None of them seemed to understand that when you create a derivative you don’t add to the sum of total risk in the financial world; you merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about.”

That statement, as of 2007, was simply wrong. Plenty of people were warning about this, and as his And, the column trashed variant perspectives warning about derivatives and an unhealthy credit market — Lewis, according to Tavakoli is guilty of precisely the sort of groupthink he criticized in both his book and on 60 Minutes.

I’m a big fan of Lewis’s work — I defended his book against some Amazon idiot reviewer trashing it only because the kindle version isn’t out yet — but back in2007, he got derivatives, Sarbox, and risk all wrong.

Score this one for Tavakoli . . .

>

Sources:
Michael Lewis: Junior Salesgirlieman
Janet Tavakoli
Huff Po. March 15, 2010 06:26 AM
http://www.huffingtonpost.com/janet-tavakoli/michael-lewis-junior-sale_b_498781.html

Davos Is for Wimps, Ninnies, Pointless Skeptics
Michael Lewis
Bloomberg, January 30, 2007
http://www.bloomberg.com/apps/news?pid=20601039&sid=aaagOLYMd4yg&

Janet Tavakoli home page
http://www.tavakolistructuredfinance.com/

Michael Lewis Bloomberg Columns
http://www.bloomberg.com/news/commentary/lewis.html

Recent Books

Lewis:
The Big Short: Inside the Doomsday Machine

Moneyball: The Art of Winning an Unfair Game

Tavakoli:
Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street

Collateralized Debt Obligations and Structured Finance : New Developments in Cash and Synthetic Securitization

Category: Derivatives, Really, really bad calls, Television

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Smackdown! Tavakoli Calls Lewis a GirlieMan”

  1. EAR says:

    Oh… snap.

    But… he’s sayin’ all of the right things. I was enjoying his book tour, it just started for cryin’ out loud!

    When’s someone gonna call Ratigan out?

  2. Marcus Aurelius says:

    “They have no evidence that financial risk is being redistributed in ways we should all worry about.”
    ____________

    Risk? What risk? The taxpayer picks up the tab if things go wrong, so there is no risk we should “all” worry about. I suppose all of the pain we’ve suffered lately was not a result of all of the “redistribution of risk” but instead should be attributed to being an act of god.

  3. peachin says:

    Chit chat bullshit. The best way to cure Wall St. (on a level playing field) is to incarcerate about 5000 people who knew how they were dealing with a hot potato that would explode and taking big profits, ripping off markets. There is a Sheriff in Phoenix Arizona who built Tent Cities of criminals and dressed them in pink – and demeaned them in every way – It would be called “Wall Street – Southwest” with a full division and separate area to house Goldman Sachs people, so that the others would not cut them up, cook them and eat them…..

  4. JAH says:

    I guess it might be poorly written, because it’s not apparent to me reading that column, but doesn’t Lewis usually adopt a persona to write his Bloomberg column as satire? Is it possible that is the case here?

  5. Michael Osinski nailed him on that with his 3/12 Bloomberg review as well:

    “Even when default rates initially started rising, bond prices held firm. It wasn’t until Jan. 31, 2007, that the index of subprime bonds suffered its first ever one-point drop. According to Lewis, that was the day “the market cracked.” What Lewis fails to note is that the day prior, Lewis himself had filed a column for Bloomberg News from Davos mocking Nouriel Roubini’s warning “that the risk of a crisis happening is rising.” Such forecasts of doom came from “people with no talent for risk-taking gather(ed) to imagine what actual risk takers might do,” Lewis wrote. The headline described them as “Wimps, Ninnies, Pointless Skeptics.”

    In “The Big Short,” Lewis recognizes he was wrong. The ninnies have inherited the earth. “

  6. Chief Tomahawk says:

    Put Janet Tavakoli’s brain in WWE Chairman Vince McMahon’s body and then we’d have the savvy to accomplish financial reform, clawbacks, etc.

  7. alfred e says:

    Isn’t there some way to nail these bastards? Sarbox? Or the law used against the Enron bastards?

    No. The SEC and the feds and the White House have no appetite for spilling the blood of the biggest fattest cats.

  8. Mr.E. says:

    Now that’s what I call a smackdown! Note to self — never end up on Tavakoli’s shit list.

  9. Julia Chestnut says:

    I am a huge fan of Tavakoli. She’s usually right, whether I like what she says or not.

  10. Tarkus says:

    I think Lewis’ error arises from his assumption that the risk-bearing instruments would be properly evaluated for their risk-level, not captured and corrupted by the pay-for-play mechanism. So in one way, he was right – but not by the lopsided field of Wall St.

  11. DeDude says:

    The fact that an author like Lewis didn’t understand the derivatives back in 2007 does not invalidate anything that this author is saying about Wall Street and how it works. The fact that the banksters and their pinup boys and girls are going for the man not the ball pretty much says a lot about them and about how right Lewis is in what he is writing about these people. They apparently cannot attack what he is saying so the try to drag him down by personal attacks.

  12. DeDude says:

    Back in 2007 there were about 10,000 people who’s job it was to understand derivatives (what they are and what they do or don’t). The author Michael Lewis was not one of them. So its not that surprising that he was misled by the people who’s job it was (but who apparently didn’t understand them either). Maybe Janet Tavakoli is impressive, but this little hit job of hers is not impressing me.

  13. smartaleck says:

    All f$%^king monday morning QBs

  14. cheese says:

    I heard they were classmates at Solomon Bros. training program…….I agree with DeDude…

    I remember him gloating last night saying that he was one of the 10-20 investors who saw this coming………..

  15. Equityval says:

    @DeDude

    And of those 10,000, maybe a few hundred actually understood how they actually worked. The rest of them were flogging products they had only a faint understanding of, if any and no conception of the magnitude of the risk embedded in them. All they knew were, higher yield, bigger fees. One thing that should have been a red flag for everyone was that if you asked the sell side for their models on how these things worked, they would never give you one.

  16. DeDude says:

    Cheese; I understand why she gets irritated with him. I even agree with her that he is only half right (assigning to stupidity what was probably worse). But he actually is half right and is bringing something back into light that needs to get back into the spotlight. So there is not need for her to give the banksters ammunition to shoot him down.

    Equityval; yes and one of the few lucky that actually was presented with a model found that the model had been build such that it was unable to take a negative number for house price growth. They had no clue what would happen to them if house prices began to fall (because that supposedly would never happen. The question is how many of them really believed that in their heart of hearts and how many of them didn’t give a sh!t because they knew that it was someone else’s a$$ on the line and they were just bonus harvesters.

  17. two things:

    1. Lewis is a good story-teller.

    2. Tavakoli is correct.

  18. BR,

    as an aside, nice Source List~

  19. algernon says:

    You haven’t made the case that Lewis is wrong. That AIG insured the tranches of sub-prime mortgages didn’t increase the total amount of risk. AIG merely absorbed risk from someone else who had the good sense to reduce their own…GoldmanSachs, DeutcheBank