Brian Lamb, CEO of C-Span, interviewed Janet Tavakoli, president of Tavakoli Structured Finance and author of Dear Mr. Buffett, on the causes of the global financial meltdown and how to fix it. In the book, Ms. Tavakoli explains that the root cause of the global financial meltdown was a massive Ponzi scheme on the part of the former investment banks that are now part of our banking system.  Ms Tavakoli took on such topics as Tim Geithner's cozy relationship with bailees, Hank Paulson's role as an interested man, Robert Rubin as an interested man, financial meth labs, incompetence at the SEC, backdoor bailouts, and more.

FAQs: In the course of this interview Ms. Tavakoli asserts that Robert E. Rubin, former co-chair of Goldman Sachs, Treasury Secretary in the Clinton administration, and subsequently a director at Citigroup, said he did not know what a CDO was. The following is how she arrived at that opinion.

Rubin was hyped in the media as a "risk wizard" at Goldman Sachs and in his role as Clinton's Treasury Secretary. Rubin had said: "I knew what a CDO was" But when large write-downs due to collateralized debt obligations (CDOs) and the liquidity puts Citigroup had written (allowing investors to sell originally AAA rated tranches back to Citigroup at full price) were announced in the last quarter of 2007, Rubin said that he had never heard of liquidity puts until the CDOs containing them started causing problems for Citi in the summer of 2007.

In other words, Rubin said [perhaps unaware of the implications of what he said] he did not know what a CDO was. He was merely able to utter the words of the generic label. The fact that CDOs can contain many varieties of hidden toxic risks is essential to understand if one really "knew what a CDO was," and the hidden risks had been written about in financial literature. This is like a man saying he knows what a "clear liquid" is, but is unaware that it is unsafe to drink bleach. He really doesn't know his clear liquids much less the risk they can pose.

Ms. Tavakoli said that bank depositors' money is safe, if it is below the current FDIC deposit insurance limits. But because we are printing so much money, depositors should worry about inflation, which destroys investment gains. However, she was trying to make the point that banks did not need to be bailed out to protect depositors. Rather, the bailouts protected the banks' creditors (Citigroup, for example). We bailed out creditors with public money.

We also bailed out AIG's creditors (Goldman Sachs among them), and unlike deposit-taking banks, there was no mechanism at the time to put AIG (or Lehman, Bear Stearns, Merrill) into receivership. Instead we weakened stronger banks like JPMorgan Chase (with the Bear Stearns merger) and Bank of America (with the Merrill merger). Congress acted quickly by passing TARP, and it could have passed legislation to allow receivership of non-bank investment banks, bank holding companies, and an entity like AIG.

Inflation is the great destroyer, and Ms. Tavakoli's position is that Treasury and The Fed underestimate the effects of potential inflation. Inflation will wipe out investment gains (and more) much more quickly than taxes. As Warren Buffet might say, if you earn, say, 5% on your deposits, 5% inflation will wipe out your gains. That is worse than any current or proposed tax rate, since that would translate to a 100% tax rate.

Whether through higher taxes or inflation (which has great potential to be even worse) or both, the U.S. taxpayer will end up footing the bill, because interested men chose to protect creditors of major financial institutions with public money.

When asked whether or not certain individuals had done anything illegal, Ms. Tavakoli responded that she did not think anyone did anything illegal, because Congress did not pass laws to make it so. She feels that the better answer is: "That is up to the Department of Justice to determine"