I’ve just watched the PBS Frontline documentary called The Warning and its revelation is ugly, once again pulling the mask off the boy’s club in Washington and Wall Street (and the hypocrisy is staggering but, as always, utterly predictable). By the way, much of this, if not all of it, is under the Clinton administration.
By 2007, the derivatives market had expanded to 595 trillion dollars—yes, $595 trillion, twice what I made last year—”a creaking time bomb.”
The film’s about one woman—Brooksley Born—and her agency, who saw the disaster of certain derivatives (OTC derivatives), and warned the Wizard, so-called, Alan Greenspan, and his guys (Rubin, Summers), only to be shut down and shut out.
Figures, to me, a woman knew what was going on, and wanted to protect the American people. To quote Born (in 1998!) when asked condescendingly by some politician—who surely couldn’t explain a derivative (nor can I)—why she keeps pushing this policy line of regulation, she replies:
“We’re trying to protect the money of the American people.”
And no surprise she wasn’t listened to where short term gains were concerned. It’s like trying to raise a child in a weekend.
In short, when the unbelievably fair (and utterly unsupported) Brooksley wanted to regulate Over the Counter (OTC) derivatives, Bob Rubin, Alan Greenspan and Arthur Levitt were dead set against it, pulled out all the guns and smeared her name (in part 4, “Earthquake” of the film). Why couldn’t they relate? Who can say? But at the time they couldn’t relate in any way.
I try to remember just how intoxicated they must have been with their own “genius”, their direct relationship with the great Market God, the infinite money being made, the vulturous effect of other bankers and lobbyists whispering at every second how great they all were—greater than anything in history. The orgies of Caligula come to mind—which will always eventually destroy a man.
That Bob Rubin is still sitting shoulder to shoulder with Obama, as is Larry Summers, seems to verge on the criminal—or at least criminally negligent. Doesn’t it?
In fairness, Arthur Levitt has had some courage to admit how smart Brooksley Born was, and how she should have been listened to—and regrets that he hadn’t acted that way. But he also suggests that if only she had made herself more of a friend, when in fact they froze her out because she wasn’t willing to agree with them—in short, to play ball.
Greenspan also has said that his core belief in deregulated everything was “wrong.” Summers says he now supports regulation of OTC derivatives, but the financial lobby remains dead set against it.
So to what effect? Any loss of personal riches? Any big changes worth mentioning? Any push towards sanity and things that are slightly more real—like the real economy? Not yet.
I think we will have continuing danger from these markets and that we will have repeats of the financial crisis. It may differ in details, but there will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.
Here’s an excerpt of the transcript from the documentary:
NARRATOR: An experienced financial litigator who’d seen the worst of the markets, Born was a believer in government regulation. Given the political climate in Washington at the time, clashes with Greenspan, Rubin and Summers were inevitable. Almost right away, she had one. It began after she received an invitation to lunch at the Federal Reserve with the chairman himself.
MANUEL ROIG-FRANZIA: How could you not have a little bit of butterflies in your stomach when you’re going to see Alan Greenspan at that moment in time?
NARRATOR: It didn’t take long for Born to learn that she and the chairman were not going to see eye to eye.
JOE NOCERA: [Greenspan] said something to the effect that, “Well, Brooksley, we’re never going to agree on fraud.” And she said, “Well, what do you mean?” And he said, “`You probably think there should be rules against it.” And she said, “Well, yes, I do.” He said, you know, “I think the market will figure it out and take care of the fraudsters.”
INTERVIEWER: The Alan Greenspan lunch did it actually happen? Where he says
BROOKSLEY BORN: I’m not going to talk about it. I’m not going to talk about it on camera.
NARRATOR: Born is reluctant to speak about her meetings with Greenspan or others in the Clinton administration. Greenspan refused to speak to FRONTLINE at all. But Born’s advisers did.
MICHAEL GREENBERGER: Greenspan didn’t believe that fraud was something that needed to be enforced, and he assumed she probably did. And of course, she did. I’ve never met a financial regulator who didn’t feel that fraud was part of their mission.
MANUEL ROIG-FRANZIA: And this is an absolute stunner for the new head of this tiny agency who is charged with making sure people don’t commit fraud.
Gosh, I think it would have stunned most all of us—at least in the old days.
The Warning documentary is here, and can be watched in its entirety (60 min).