Spent this past Friday night watching PBS’s “The Warning,” and all the other video available online at the PBS site. Just goes to show how exciting my Friday nights are these days…
But - block out a few hours and watch it. All of it. To say it’s enlightening is an understatement; anyone with a soul will come away enraged. But enraged at whom? That’s the question.
“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”
Born’s battle behind closed doors was epic, Kirk finds. The members of the President’s Working Group vehemently opposed regulation — especially when proposed by a Washington outsider like Born.
“I walk into Brooksley’s office one day; the blood has drained from her face,” says Michael Greenberger, a former top official at the CFTC who worked closely with Born. “She’s hanging up the telephone; she says to me: ‘That was [former Assistant Treasury Secretary] Larry Summers. He says, “You’re going to cause the worst financial crisis since the end of World War II.”… [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.’”
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. “Born faced a formidable struggle pushing for regulation at a time when the stock market was booming,” Kirk says. “Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.”
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
Clearly, this is a story about the failure of government.
So the operative question if: If government failed, why did it fail?
And the answer is, government failed because it was acting in the interest of those who wanted no restrictions; it was acting in the service of the free market.
Profitability and thus growth had worked up a head of steam specifically because there were no regulations. Regulation would have slowed the gravy train - that was absolutely the view of Greenspan/Summers/Rubin, and it reflected the view on Wall Street as a mirror.
But understand - the Republican party opposes new regulations on derivatives.
The House Financial Services Committee voted earlier this month 43-27 to regulate over-the-counter derivatives - with only one Republican voting yes.
Republicans, even now, oppose measures to make the derivatives market more transparent. Even now, they would prevent the type of oversight that might have prevented the meltdown in the first place.
It boggles the mind.
Even Alan Greenspan has admitted that markets cannot regulate themselves. But it’s a memo the winger crowd hasn’t gotten and is prepared, even now, to toss in the trash unread.
