The would-have-been hero of this story is Brooksley Born
, first female president of the Stanford Law Review
, friend of Hillary, and one of Bill Clinton’s appointments to the Commodities Futures Trading Commission (CFTC) in 1994. When she became head of this small federal regulatory agency in 1996, Born became aware of the “dark market” of over-the-counter derivatives. These unregulated contracts are not traded on exchanges, and leave behind no records or reports. Thus functioning beyond “all forms of control,”
Born saw in derivatives the possibility for fraud, that is, the precise domain of the CFTC. When she instructed her staff to look into such activities, however, she was instructed to back down. The edict came from on high, namely the President’s Working Group, a committee that discussed and essentially set financial policy called at the discretion of Secretary of the Treasury, at the time, Rubin. With a membership that included Larry Summers, Arthur Levitt (SEC Chairman from 1993-‘01), and the “wizard” Greenspan, this group was “not welcoming of someone who looked at the world differently,” says David Wessel, author of In Fed We Trust. A special meeting of the Working Group was called, the “clear mission” of which was to keep the CFTC from issuing its report, recalls Michael Greenberger, director of CFTC after Born
Born might have known what was coming as she and Greenspan were famously at odds. The Warning
lays out their opposing ideologies, noting as well the “odd” circumstance that Greenspan was Fed Chair, the most powerful “central banker,” given that, as Joseph Stiglitz of the Council of Economic Advisors (1993-‘97) says, “central banking is a massive intervention in the market, setting interest rates.” The program recounts one particular meeting between Greenspan and Born in 1997, when she took over the CFTC. Though Greenspan (and Rubin and Summers, et. al.) declined to speak with Frontline
and Born won’t speak about “the Alan Greenspan
lunch” on camera, the program floats the story—via the New York Times
’ Joe Nocera, among others—that Greenspan told Born that her agency was not supposed to pursue fraud, that the “market would figure it out.” This laissez faire approach didn’t hold up, as Born read it, when Procter & Gamble sued Bankers Trust over fraudulent derivatives trading.
But even this exposure didn’t lead to new regulatory legislation. As The Warning has it, Born’s refusal to drink the free-market kool-aid resulted in a series of difficulties for her and her office, not least being some hostile congressional hearings during the summer of 1998. Born recalls now, the Working Group and other financial players in the administration “were totally opposed to [the CFTC report]. That puzzled me. Why did it have to be a completely dark market? So it made me very suspicious and troubled.” As the New York Times’ Tim O’Brien describes the ordeal, she was “stepping into the maw of the most well oiled and highly financed lobby in the history of Washington, DC, the financial lobby.” That these dark markets have not been made completely transparent and that this lobby is currently resisting efforts to regulate Wall Street now
Allan Greenspan said he didn't believe in policing fraud,
the market would take care of it.
Greenspan lead the way for the scam of all time, toxic subprime paper.
Derivatives had just come on the scene and I as
a stock broker couldn't understand them.
I even had a series 13 license for commodities
The Federal Reserve , and Rubben and Somers
were of the thought there should be separation of
economy and state, no regulation.
Derivatives are not regulated,
they operate from within a black box.
And one bank fraudulently took Procter and Gamble
to the cleaners to the tune of several millions.
As a broker at this time I refused to sell any
investment that contained any Derivatives.
At the time I was an avid reader of prospectii.
Even as a broker I recognized a pig in a poke.
With Derivatives one had NO idea what they were buying
or what the risk was.
Brooksley Born said her investigation was trying to protect the American public.
By investigating the derivative market.
USA had an unregulated hedge fund selling unregulated
investments. Black boxes that produced huge returns,
LTCM debacle was the foreshadow of what the
criminal banks would do in the future on a really huge
And Greenspan didn't want it regulated.
He said it was important not to regulate this.
Congress declared a regulatory freeze on the only
agency trying to investigate the fraud.
Greenspan let the Banks run wild, virtual no
regulation , no transparency.
The economic leader of the worlds greatest super power
reduced regulation, blocked regulation and let the banks
run wild, Allen Greenspan.
Rubben and Somers now Obamas advisers,
Had fought hammer and thong to avoid regulation
of banks, and banks still have no more regulation
now than before the toxic paper debacle.
Obama is getting advice from those that lead
the no regulation idiocy that lead to a melt down
of the worlds economys.
And the Banking lobbyists still control congress.
And the criminal banks still run FREE.
Capitalism without regulation is a breeding
ground for criminals.
Series 7 & 13