Brooksley Born, American hero

  • Share
  • Read Later

I like the reading suggestions I get from readers, so I clicked through on bryanfromhouston’s link to this piece by Glenn Greenwald. Greenwald made his name exposing the Bush administration’s disdain for the Constitution and the media’s lame coverage of the Bush administration, and apparently plans to stick with that theme for the rest of his career. Here he is on the bank bailouts:

[W]hat is happening here is an exact analog to what is happening in the realm of Bush war crimes — the Obama administration’s first priority is to protect the wrongdoers and criminals by ensuring that the criminality remains secret.

The “first priority”? Really? But I digress. The reason I’m writing this post is because Greenwald links to an excellent Stanford Magazine article that I had not seen before about former Commodity Futures Trading Commission chairman Brooksley Born’s failed late-1990s effort to regulate over-the-counter derivatives. A snippet:

Born says she takes no pleasure from the turn of events. She says she was just doing her job based on the evidence in front of her. Looking back, she laments what she says was the outsized influence of Wall Street lobbyists on the process, and the refusal of her fellow regulators, especially Greenspan, to discuss even modest reforms. “Recognizing the dangers . . . was not rocket science, but it was contrary to the conventional wisdom and certainly contrary to the economic interests of Wall Street at the moment,” she says.

“I certainly am not pleased with the results,” she adds. “I think the market grew so enormously, with so little oversight and regulation, that it made the financial crisis much deeper and more pervasive than it otherwise would have been.”

The article says it was a mix of anti-regulatory fervor and turf warfare that thwarted Born. Even members of the Clinton administration not ideologically opposed to giving derivatives more oversight were opposed to letting some little futures regulatory agency do it. So no oversight was forthcoming. When it came to the interest-rate and currency swaps that were the main subject of the 1990s debate, the lack of regulation doesn’t seem to have been big disaster. But I would agree with Born’s assessment that the credit default swaps that began to hit the big-time in the next decade served to amplify both the credit bubble and subsequent crash..

Anyway, at least it’s all worked out okay for Born. She got a Profile in Courage Award for her efforts!