The Born Warning
I watched a very disturbing story called “The Warning” on Frontline last night. I urge you to take an hour and watch it yourself. You can watch it on Frontline’s website now.
It is the story of a courageous woman named Brooksley Born and how, way back in 1998, she warned Congress and the American people that the over the counter derivatives market needed to be regulated. Alan Greenspan, Larry Summers, Robert Rubin and Phil Gramm all fought hard against regulation. They won. The Amercian people lost. It is just shameful. I did not know who Brooksley Born was until I saw the story on Frontline.
Even after the hedge fund Long Term Capital Management collapsed in 1998, nothing was done. Greenspan still didn’t think regulation was needed. I didn’t know until I watched this that Greenspan was a huge follower of Ayn Rand. She didn’t believe in regulation of the markets either.
We still don’t have any regulation over the derivative market. It is a $595 trillion market that operates in the dark. Even now, after the economic collapse of last year and the government bailout of the banks, Wall Street is fighting against regulation.
What horrible thing is hiding under that rock? Someone needs to shine a light on it. I have more questions.
Why isn’t there an investigation of exactly why the economy collapsed so the guilty parties can be punished?
Is Bernie Madoff the only person going to prison?
Why hasn’t anyone given Brooksley Born a medal for what she did? Alan Greenspan should take off his Presidential Medal of Freedom and give it to her.
Why hasn’t anyone turned this story into a movie?
At the end of the show, I sadly concluded that our government is either totally incompetent, horribly corrupt, or both. There is just no other conclusion to be reached. It’s disgusting.
As Paul Krugman says, “We need a better government than we’ve got.”
Watch “The Warning” on Frontline.
Tags: alan greenspan, ayn rand, bernie madoff, brooksley born, courageous woman, frontline pbs, frontline the warning, larry summers, long term capital management, ltcm, Paul Krugman, Phil Gramm, presidential medal of freedom, Robert Rubin, the warning, we need a better government than we've got
General, Politics | John Tedder | 
October 21, 2009 2:00 pm
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This whole business of regulation is appalling. Where exactly are the watchdogs? The country nearly lost its shirt yet there are those who still see no need for regulation. By the way, my husband is reading Ayn Rand’s Atlas Shrugged this week. I’ll be anxious to get his take.
Ayn Rand didn’t believe in regulation of any kind. I read Atlas Shrugged and The Fountainhead many years ago. In the Frontline program they show a short clip of her being interviewed by Mike Wallace. The ideas she presents are very seductive, but I do not want to live in Ayn Rand’s world. Thanks for commenting. I appreciate it.
Another excellent post JT.
I too watched “The Warning” (unsolicited) and found it fascinating. I concur that Ms. Born is a true Patriot and devoted public servant. It is very unfortunate that the Higher Ups in the Administration didn’t heed her advice and allow her proposed oversight regulations to go forward. While it may not have stopped the finanical collapse of LTCM it MAY have mitigated the meltdown in 2008-09.
A couple of notes;
“Derivatives” cover a very complex segment of the investment and CREDIT world. The concepts behind derivatives aren’t “sinister” nor are the actual derivatives themselves; they are an extremely complex (at least to the laymen) form of twisting and sometimes packaging spreads and credit issues. There’s nothing illegal about them – it’s just another method of “selling” paper that represents money somewhere else. Some brilliant economists came up with the ideas. There is little “regulation” but the problem with that is less about the deivatives themselves and much more about the loopholes that encourage the creation of more derivatives AND how they are purchased, held, sold and used as collateral for other financial hedging. I STRONGLY urge you and anyone else that is interested in this to read “When Genius Failed” by Roger Lowenstein – who himself was interviewed in “The Warning”. the book covers the entire, detailed history of Long Term Capital Management from its founding to the (inevitable with 20-20- hindsight) failure and near-metldown of the entire investment banking world.
As to Bernie Madoff; his crimes had little – or nothing – to do with derivatives nor anything so much related to the issues outlined in “The Warning”. His was a rather straightforward “Ponzi Scheme” where he took money from later investors to provide big returns to earlier investors – which them encouraged those investors to re-invest their returns and even MORE Of their money, which Madoff in turn used to pay phony, large returns to the later investors, on-and-on, ad infinitum…until the unavoidable “tipping point”. In fact there is reason to believe that Madoff didn’t do much speculating in the Market at all – he just “robbed Peter to pay Paul” and it eventually caught up with him.
Finally, even in the light of Mr. Greenspans’s ultimate miscalculation of the Market vis-a-vis regulation, there is no denying his Economic genius; it was good enough for three Presidents to have him serve as Chairman of the Fed (and not even counting the decades of service to the Public trust in other roles). And he deserves some kudos for his forthright admission to Congress that he was wrong when he could have done what most officials do; posture and defend his positions in the spite of the evidence to the contrary. That said, I’d wholly endorse his handing over his Medal to Ms. Born…
Once again, great work JT.