Last night on PBS' Frontline we saw "The Warning" wherein we meet Brooksley Born, Chair of the obscure and powerless Commodity Futures Trading Commission (CFTC) under President Clinton. Stanford Law graduate of the 1960s, powerhouse DC securities lawyer, Ms. Born faced down likes of Larry Summers, Robert Rubin and the ultimate financial rock star, Alan Greenspan, without blinking when she testified before Congress about regulating over-the-counter derivatives (OTC) waaaayyyyy back in the 1990s -- when we could have headed off the current financial meltdown.
It was like my worst nightmare coming true. I had had enormous concerns about the OTC market, including credit default swaps, for a number of years. The market was totally opaque; we now call it the dark market. So nobody really knew what was going on in the market.
Here's who Born was dealing with: Rich white men in suits who saw nothing wrong with an unregulated financial market in the heady days of the 1990s Wall Street -- the tech bubble, the housing bubble. Fraud? The self-correcting Almighty Market will take care of it. The Dude will abide.
[Born] had this lunch with Alan Greenspan, and he had said to her probably that she and he were going to have a disagreement about something, and the subject was fraud. And he didn't believe that fraud was something that needed to be enforced or was something that regulators should worry about...
Ms. Born was ultimately out-gunned by Greenspan and his posse of Ayn Rand groupies -- Rubin, Summers, a young Geitner -- who shrieked that her proposals would cause worldwide financial calamity, that she didn't have jurisdiction over these matters, anything that would SHUT HER UP.
Legislation was introduced to block us for one year from doing anything in the concept release. Hearings were held on it; Brooksley testified. She had no support anywhere. The people who had previously said, "This makes sense," or, "Let's look at it," or, "These are only questions," were now of the view that we were causing serious problems that would lead to a systemic break in the economy. And she started receiving hostile communications from every direction. ...
Prevented from accomplishing her charge, Born ultimately resigned.
Summers, characterized here as "tough and officious and dictatorial and unreasonable" and his buddies, the SAME GUYS WHO SHUT DOWN BORN, are in key positions in the Obama administration. They say they're in favor of regulation now. Oh really? How so?
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
Somebody send President Obama a DVD of this program.