If you want to know why relying on information supplied on the internet by anonymous strangers is a bad idea, look no further than Wikipedia's articles on finance. When I first put up my website in 2003, I included a (hard to find) page of a few reference links. I didn't provide a link to Wikipedia. Instead, I issued a warning:
Wikipedia -- There is no link, since this is a public service announcement. If you do a word search on Google, Wikipedia will usually be the first thing that pops up. Yet from behavioral finance to structured finance, your financial IQ will almost certainly drop for having read it.
That warning goes double today. We've experienced a financial crisis that nearly brought the global market to its knees, but you won't find resources on Wikipedia that will give you the goods. In fact, you will often be misled with misinformation.
One of my colleagues looked at the page for "collateralized debt obligations" today. He called me up and said "Hey! There's no mention of you or of your articles and books warning about bad ratings and corrupt structures." He said the same thing about its page on credit derivatives. He was right, so I dashed off a paragraph or two to Wikipedia. I didn't even bother looking at the page for the rating agencies.
This would be funny if the omission of relevant information weren't so tragic. This could be deemed a mere oversight, except that I wrote the first eponymous trade book on credit derivatives in 1998 warning about documentation risk and information asymmetry that created economic distortions that could swamp the credit risk of the underlying products. Over the years, I've also been a huge critic of the derivatives trade organization, ISDA, for claiming documentation for credit derivatives wasn't hugely flawed, when it was.
My work is well-known in the finance industry. When my book on credit derivatives was first published in 1998, risks in credit derivatives were like sex in Victorian England. No one spoke of it in public. Deutsche Bank immediately ordered 600 copies of my credit derivatives porn, and several other banks and investment banks made large bulk orders.
In 2003, I wrote a book warning about misrated collateralized debt obligations, the unreported risks of synthetic structures that used credit derivatives technology, and flawed CDO structures that posed risks to investors. Those structures are the type that blew up on AIG and a number of other investors. Due to control fraud, CDOs also blew up on a number of investment banks that underwrote them. U.S. taxpayers bailed them out. I updated the CDO book in 2008 and named deals and culprits.
If you look at the early Amazon reviews of my 2003 book on CDOs, they are hilarious. Industry professionals tried to discredit my warnings. One structured finance "professional" from London wrote a couple of the reviews. This was revealed by an Amazon glitch a few years back. He was an industry cheerleader for CDOs. But facts don't change just because one has an economic incentive to ignore them. The reviews of the 2008 second edition were vastly different, even though the message was the same, albeit updated.
I've also been an ongoing critic of the rating agencies and the SEC. My firm issued a report revoking the designation of "Nationally Recognized Statistical Rating Agency" for Moody's, Standard & Poors, and Fitch. The SEC has failed to do it, but it is less qualified than I am in this specialized area, so I did it for them. The SEC may be charged with authority over the rating agencies, but it doesn't have the credibility to exercise that authority when it comes to structured products.
My website has links to articles going back to 2003, when I formed my own firm and was able to speak out even more forcefully in public. I warned of flawed ratings, flawed CDOs (and other flawed structured financial products) and of hidden risks in the credit derivatives markets. Long-time readers of the Huffington Post are well aware that I've been issuing ongoing commentaries of these structures and of so-called regulators, since Arianna Huffington invited me to blog here in December 2009.
Wikipedia somehow missed all of the above. It relies on volunteers to write its articles. If you are an information consumer, be warned that Wikipedia won't do your research for you.
Update: After my post, Wikipedia scurried to make some changes to those pages. It also removed my additions. It didn't avail itself of mainstream media reports that contradict its narrative.
Why is that a problem? For example, Robert Rubin and Charles Prince, former Citibank executives, told a Congressional investigative committee that they couldn't have known about problems with credit derivatives and CDOs prior to the fall of 2007. By ignoring peer reviewed information, Wikipedia's narrative helps that narrative. The reality is the information was in the public domain from credible analysts and recognized (but not by Wikipedia) experts.
It's no wonder that Wikipedia is not recognized as a credible source by courts. Among others, a Texas court ruled: "Wikipedia entries are inherently unreliable because they can be written and edited anonymously by anyone."
My work isn't only in my publications referenced above, but it is also in peer reviewed financial journals including seminal work in Risk Professional and The Journal of Structured Finance, and many more financial publications. It's well-documented. I've also been widely quoted in mainstream financial media.
Yet Wikipedia's editors have no idea who did seminal work and who are industry outsiders reading and then trying to interpret--or misinterpret--that work.
Problems with credit derivatives and CDOs were public information and well-reported. Wikipedia didn't have useful information in real time, and now after the fact, its narrative is also distorted.
For example, Wikipedia's "expose" of Magnetar ignores the front page Wall Street Journal articles that broke the Magnetar story and other CDO stories in 2007. (I was quoted in them, since I had been pushing for more attention to these problems for years.) Here's just one front page example: "Wall Street Wizardry Amplified Credit Crisis," by Serena Ng and Carrick Mollenkamp, December 2007. (Wikipedia references the 2010 report of a self-acknowledged industry outsider who is not an expert in this field.) More references can be found for free here.
There are many useful resources for financial research, but Wikipedia isn't a very good one. In my opinion it is unfixable, because it is arbitrarily edited without peer review.
Update March 6, 2013: Some time ago, Wikipedia posted an unsolicited profile of me. Right after I wrote the above commentary, Wikipedia posted what seems to me to be a retaliatory note:
"The topic of this article may not meet Wikipedia's general notability guideline. Please help to establish notability by adding reliable, secondary sources about the topic. If notability cannot be established, the article is likely to be merged, redirected, or deleted. (February 2013)."
This simply illustrates why I believe Wikipedia is a failed experiment. In the note I just left on Wikipedia, I ask that it remove its unauthorized profile of me. I posted a note of my own on the unauthorized Wikipedia profile:
"This note is from Janet Tavakoli. I did not seek the Wikipedia profile shown below, and I have nothing to do with the posting of the content other than this note. After I wrote a Huffington Post commentary about Wikipedia being an unreliable resource,"Warning! Wikipedia Will Make Your Financial IQ Drop," especially for finance, this note about "Notability" appeared on this unsolicited profile of me. This seems retaliatory on the part of Wikipedia's so-called editors. Please remove this unauthorized biography of me. This epitomized why, in my opinion, Wikipedia is a failed experiment."
Update March 7, 2013: Wikipedia removed my note requesting it remove the unauthorized profile of me, and it also removed the comment it added (shown in the March 6 update) after my original February 20 Huffington Post commentary. Apparently, I embarrassed the anonymous editor/s into taking down the comment. Wikipedia did not, however, remove the unauthorized profile of me. This is just another illustration of the arbitrary and unprofessional editing at Wikipedia. I'm certain I've done nothing to deserve any association with Wikipedia, and I'd be delighted if its unauthorized profile of me disappeared.