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Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street

ISBN: 978-0-470-40678-6
304 pages
January 2009
Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (047040678X) cover image
Janet Tavakoli takes you into the world of Warren Buffett by way of the recent mortgage meltdown. In correspondence and discussion with him over 2 years, they both saw the writing on the wall, made clear by the implosion of Bear Stearns. Tavakoli, in clear and engaging prose, explains how the credit mess happened beginning with the mortgage lending Ponzi schemes funded by investment banks, the Fed bailout and its impact on the dollar. Through her narrative, we hear from Warren Buffett and learn how his enduring principles caused him to see the mess that was coming well in advance and kept him and his investors well out of the way.
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Preface.

Acknowledgments.

Chapter 1: An Unanswered Invitation.

Chapter 2: Lunch with Warren.

Chapter 3: The Prairie Princes versus the Princes of Darkness.

Chapter 4: The Insatiable Curiosity to Know Nothing Worth Knowing (Oscar Wilde Was Right).

Chapter 5: MAD Mortgages—The “Great” Against the Powerless.

Chapter 6: Shell Games (Beware of Geeks Bearing Grifts).

Chapter 7: Financial Astrology—AAA Falling Stars.

Chapter 8: Bear Market (I’d Like a Review of the Bidding).

Chapter 9: Dead Man’s Curve.

Chapter 10: Bazooka Hank and Dread Reckoning (AIG, Fannie, Freddie, Lehman, Merrill, and Other F luid Situations).

Chapter 11: Bond Insurance Burns Main Street.

Chapter 12: Money, Money, Money (Warren and Washington).

Chapter 13: The Fogs of War, Religion, and Politics.

Chapter 14: Finding Value.

Notes.

Bibliography.

Index.

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Janet M. Tavakoli is the President of Tavakoli Structured Finance, a Chicago-based consulting firm to financial institutions, institut-ional investors, and hedge funds. She gave advance warning of major collapses including Long-Term Capital Management, First Alliance Mortgage, the thrift industry, and the current credit bubble. BusinessWeek called her "The Cassandra of Credit Derivatives." Tavakoli is a former adjunct associate professor in the Finance Department of the University of Chicago's Graduate School of Business, where she taught derivatives. She is also the author of several professional finance books, and is frequently quoted in the business press, including the Wall Street Journal, the Financial Times, BusinessWeek, the New York Times, and many others. She also appears on CNN, CNBC, CBS Evening News, Bloomberg TV, First Business Morning News, Fox News, Fox Business News, ABC, and BBC.
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Altogether this book is an excellent read, loaded with information about the goings-on in the financial sector in the US till as recently as September 2008. The is informal, almost like a conversation in a lounge bar, racy, laced with wit and when it comments on leading actors in the drama, dipped in vitriol. Tavakoli is a name we will be hearing about frequently in the near future. (Business Standard)

"Dear Buffett is must reading . . . in a way that only Tavakoli could provide. . . Tavakoli knows her stuff. She knows where the bodies are buried in the complex formulas. . . And, almost as a bonus, we get Buffett's views and insights into his derivatives trading. There's nothing more you could ask for in a financial book in this day and age of financial derivatives meltdown." (Economic Policy Journal)

"...full of anecdotes, details and character sketches that add depth...she knows her stuff, has strong opinions and turns a colourful quote." (Financial Times, February 21st 2009)

"A clear and pacy run through the multitude of sins and sinners in the modern financial world. . . full of anecdotes, details and character sketches that add depth and colour to even the best known episodes of the past two years. [Tavakoli] also covers events only a few years before the current crisis that should have been big warning signs. The correspondence between Buffett and Tavakoli over the past three years reinforced her existing views on the dangers of complex finance. And with Buffett's blessing, this book will find a ready-made fan base with little marketing effort. . . Tavakoli makes for an attractive pundit - she knows her stuff, has strong opinions and turns a colourful quote. . . There is a healthy dose of "I told you so" about this volume - but, to be fair, Tavakoli is one of the few who did." (Financial Times)

"[Tavakoli has] been railing against emperors wearing no clothes in the credit derivatives markets forever. If only people had listened." (AndrewTobias.com)

"Why is this not an ordinary Buffett book? Because it concerns how an expert on derivatives came to know Mr. Buffett, and how the current crises were seen in advance by both of them. This book’s greatest strength comes from its ability to explain the messes we are currently in. No solutions, mind you, and Mr. Buffett ain’t handing out any of those either, but understanding how we got to where we are is of value, and Janet Tavakoli is nothing if not a good writer on those points.
There is a second theme — how a derivatives expert came to appreciate value investing. After all, when short term investing is focused on a variety of arbitrage situations, why not think long, and look for long term capital appreciation?
I heartily recommend this book. One reading this will understand our current crisis very well, and will gain in his understanding of how our markets work. That said, the virtues of the book do not come from Mr. Buffett, but from one who intelligently admires his views on derivatives and other matters." (The Aleph Blog)

‘Dear Mr Buffett’ is, like its author, strongly, often harshly, and, more than rarely, tartly, opinionated. The attitude is, however, well-supported by the facts; should anyone ever display the slightest interest in criminalizing the criminals who led us down this path, a prosecutor could do worse than ordering up copies for the grand jury.
One thing the world is not going to run out any time soon is books on subprime credit-turned-global financial meltdown. But it’s doubtful that many, or any, will so closely match the ripping yarn of financial upset with concepts that any — and perhaps every — investor can apply to their own financial security. This book was already at the printer when the Madoff Maelstrom broke, but it’s highly doubtful that anybody who absorbs the message of ‘Dear Mr Buffett’ will ever need confront that kind of mayhem. (Seeking Alpha, Greg Newton)

Janet Tavakoli’s Dear Mr. Buffett is an unusual amalgam of a simple, personal story and a complex, public one…The promise of this tantalizing morsel will draw buyers in. But readers will find much more than another book on Warren Buffett…Tavakoli’s book chronicles the words and deeds of people who dealt in derivatives without knowing – and often without caring – what that relationship was. Some will call her book a morality tale. I call it a rationality tale. (Seeking Alpha, Geoff Gannon)

Ms. Tavakoli uses her letters and relationship with Warren Buffett as an homage to Buffett's ability to distill the basic essence of complex matters into simple facts of money and value…For Dear Mr. Buffett, she has opted for a simple approach to tell the tale of actors gone bad and trust abused at many levels. This book is an accessible popularization of the issues, and as such no heavy securitization math etc. to deal with. I agree with this approach as the story needs to get out to as many as possible. (Seeking Alpha, Nick Gogerty)

". . . isn't yet another book about Buffett's career. Rather it's Tavakoli's withering critique of just about anyone who had anything to do with inflating the housing bubble. . . Tavakoli contrasts that behavior with the way Buffett runs Berkshire Hathaway. . . an excellent summary of the factors that led to the historic boom and bust. . . easy to read at 224 pages. . . overall a good book that offers excellent insight into the recent fiasco." (The Free Lance-Star)

"If you want a primer into just how out of control the markets were...then this is an ideal starting point." (TheBookBag.co.uk, May 29th 2009)

"An intelligent analyst whose command of the arcane world of securitization mixed with a brutally honest analytical framework makes it a pleasure to hear and read her work." (Asia Times Online)

"[This] book is so good, I’m on my second reading of it. That’s how good it is." (Max Keiser, "On the Edge with Max Keiser)

"Zero Hedge joins in endorsing Mr. Keiser's glowing recommendation of . . . " "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street " a must read for anyone who wishes to get a deep understanding of the real severity of America's economic debacle. . . “(Zero Hedge)

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November 11, 2009
Book Goes Inside and In-Depth on the Nuclear Meltdown of Wall Street

Many experts like to point to August 2007 as the beginning of Wall Street’s most colossal meltdown since The Great Depression, but reality is that the death spiral began much earlier. In the new book, Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (John Wiley & Sons; January 2009; $24.95; Hardcover) author Janet Tavakoli, president of Tavakoli Structured Finance, takes us on a real-time trip inside the events leading up to the worst global financial crisis in the history of the world, outlining in startling detail how the complex and often corrupt web of interaction of collateralized debt obligations (CDOs), credit derivatives, mortgage loans, consumer loans, corporate debt, hedge funds, investment banks, rating agencies, and bond insurers led to the credit bubble bursting. There were voices shouting about the impending doom, long before disaster struck, and Tavakoli was a vocal one who could see that an investment in a country prone to terrorist attacks had a lower risk than an investment in the U.S. housing market.

Woven throughout the book are insights gleaned by Tavakoli from the “Oracle of Omaha” Warren Buffett. After reading her previous writings that got her dubbed “the Cassandra of Credit Derivatives” by Business Week, Buffett invited Tavakoli to Omaha for lunch; the beginning of a 3-year email and letter correspondence during which they discussed the looming crisis, Tavakoli’s experiences living in the Mideast, geopolitics, and much more. “Meeting Warren changed the way I look at global financial markets,” said Tavakoli.  Expert at decoding Wall Street’s often convoluted deals, Tavakoli found that Buffett’s approach to the markets and life encouraged her to speak out more forcefully and become an even better investor along the way.

 In Dear Mr. Buffett Tavakoli shines a bright spotlight on the dark corners of Wall Street and finance-land to expose the characters who inflicted such “malicious mischief” on the global economy, unmask the “Black Barts” who more resemble the famed Wells Fargo stage coach robber than black swans, and identifies the finance “meth labs” where Wall Street’s crack was manufactured.  Outliers are shown for what they really are: outright liars.

Through sprightly writing we learn how funny accounting led to make believe profits and see just how that ride on the leverage roller coaster works (straight down to a warm, uncomfortable place, taking us all with).  Dear Mr. Buffett makes clear that the bail out isn’t for you and me – it’s for investment banks – the financial “meth dealers”.  We get the skinny on regulation – the regs are there but the finance police were napping in the stagecoach. The rating agencies? – busy crafting astrological charts with old data to predict new risks. Washington? – writing blank checks instead of protecting our money.

Tavakoli foresaw the crisis, and discussed the worsening conditions with Buffett as early as 2006.  The more she saw, the more she also saw that Buffett’s investment and life philosophy avoids catastrophe by holding fast to core values.  Not simply a look back, Dear Mr. Buffett also takes the long view, peeking around the corner to see what the future offers – more real estate declines, a deepening recession, and impending inflation.

But all is not lost. There is hope for those who adopt Buffett’s approach to their investments and their life. Dear Mr. Buffett is a witty well-told account of what happened that would be funny, except as Tavakoli explains: “We invented money to enhance our probability of survival.” Most importantly, Tavakoli tells the story of how principle triumphs over greed and panic, and that wisdom will always beat the market – even when the bubble bursts.

Dear Mr. Buffett is a witty well-told account of how principle triumphs over greed and panic, and is a must-read for all those seeking the timeless wisdom that has beaten, and continues to beat, the market.

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