Dear Mr. Buffett

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.

Preface ix

Acknowledgments xv

Chapter 1: An Unanswered Invitation 1

Chapter 2: Lunch with Warren 9

Chapter 3: The Prairie Princes versus the Princes of Darkness 31

Chapter 4: The Insatiable Curiosity to Know Nothing Worth Knowing (Oscar Wilde Was Right) 41

Chapter 5: MAD Mortgages—The “Great” Against the Powerless 67

Chapter 6: Shell Games (Beware of Geeks Bearing Grifts) 97

Chapter 7: Financial Astrology—AAA Falling Stars 107

Chapter 8: Bear Market (I’d Like a Review of the Bidding) 123

Chapter 9: Dead Man’s Curve 143

Chapter 10: Bazooka Hank and Dread Reckoning (AIG, Fannie, Freddie, Lehman, Merrill, and Other Fluid Situations) 163

Chapter 11: Bond Insurance Burns Main Street 179

Chapter 12: Money, Money, Money (Warren and Washington) 191

Chapter 13: The Fogs of War, Religion, and Politics 209

Chapter 14: Finding Value 219

Notes 225

Bibliography 259

Index 267

Janet M. Tavakoli is the President of Tavakoli Structured Finance, a consulting firm to financial institutions, institutional investors, and hedge funds. She is frequently quoted in the business press, including the Wall Street Journal, the Financial Times, the New York Times, and was noted as "The Cassandra of Credit Derivatives" by BusinessWeek, identifying the impending crisis years before others. She has appeared on CNN, CNBC, CBS Evening News, Bloomberg TV, First Business Morning News, Fox News, Fox Business News, ABC, BBC, and 60 Minutes. Ms. Tavakoli is the author of several professional finance volumes, and was an adjunct associate professor at the University of Chicago's Graduate School of Business, where she taught derivatives. "Janet Tavakoli warned that the biggest credit bubble in world history was coming well in advance. Now she explains how the world could have avoided this disaster and how we can prevent it from happening the next time."
—JIM ROGERS, author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker

"Dear Mr. Buffett is 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."
—The late GREG NEWTON, Seeking Alpha

"[Tavakoli has] been railing against emperors wearing no clothes in the credit derivatives markets forever. If only people had listened."
—ANDREW TOBIAS, author of The Only Investment Guide You'll Ever Need

"A rousing tale of advice left unheeded . . . An excellent read, loaded with information about the goings-on in the financial sector."
—Business Standard

"Janet Tavakoli . . . writes in a clear, sprightly way. Contrasting the shenanigans of recent years against the good analysis and common sense of Warren Buffett is appropriate, and helps to illustrate the levels of irrational behavior."
—ADAM SMITH (George J. W. Goodman), author of The Money Game and Supermoney

"An insightful look at the global credit crisis. This book is a must-read."
—JOHN P. CALAMOS Sr., Chairman, CEO, and Co-CIO, Calamos Investments

"Read this compelling book [to] understand how name-brand institutions like Merrill Lynch, Citigroup, Wachovia, and UBS collectively lost hundreds of billions of dollars in ill-conceived products they invented and sold to investors who lost much more. Janet Tavakoli saw this coming and explains what happened clearly, logically, and persuasively."
—ERIC GLEACHER, Chairman, Gleacher Partners LLC

"[A] must-read. Tavakoli knows where the bodies are buried in the complex formulas . . . And as a bonus, we get Buffett's views and insights into his derivatives trading. There's nothing more you could ask for in this day and age of financial derivatives meltdown."
—Economic Policy Journal

"A clear and pacy run through the multitude of sins and sinners in the modern financial world . . . Tavakoli makes for an attractive pundit—she knows her stuff, has strong opinions, and turns a colorful quote."
—Financial Times