Financial reform warrior Brooksley Born warns of more crises to come
Friday, 11/27/2009 - 10:35 am by Henry Liu | 3 Comments
Henry C.K Liu is one of the great chroniclers of finance and economics in our times. His writings, which I have followed for years at Asia Times Online and on his website, go beyond the mechanical propensities of most economists and financiers. He writes with a deep understanding of finance, Asia, and as you can see in the piece that follows, U.S. politics. He also breathes an insightful and playful humanity into all of the subjects he explores. We are fortunate, as Henry expresses in the article below, to have had Brooksley Born acting on behalf of the American people in the 1990s. We can also be thankful that we have Henry C.K Liu to illuminate the pathway forward as we address the vital challenges that mankind faces around the world.–Robert Johnson, Director of Financial Reform at the Roosevelt Institute
The 2009 John F. Kennedy Profile in Courage Award was given to Brooksley Born for her former role as chair of the Commodity Futures Trading Commission (CFTC) and her efforts to bring OTC (over the counter) financial derivatives.
The award citation read: “In the booming economic climate of the 1990’s, Born battled other regulators in the Clinton Administration, skeptical members of Congress and lobbyists over the regulation of derivatives, warning that unregulated financial contracts such as credit default swaps could pose grave dangers to the economy. Her efforts brought fierce opposition from Wall Street and from Administration officials who believed deregulation was essential to the extraordinary economic growth that was then in full bloom. Her adversaries eventually passed legislation prohibiting the CFTC from any oversight of financial derivatives during her term.”
Born, an attorney, was nominated as CFTC chair by President Clinton in 1996. She served from 1996 to the end of her term in April, 1999, after which she stayed on to serve as acting chair until her resignation on June 1, 1999.
At CFTC, Brooksley Born conducted a financial analysis which led her to anticipate a serious financial crisis due to growth in the trade of unregulated derivatives. Born was particularly concerned about swaps, financial instruments that are traded over-the-counter on the dark market. Swaps are traded on a cross network Alternative Trading System (ATS) that matches buy and sell orders electronically for execution without first routing the order to an exchange or other market which shows a public quote. Instead, the order is either anonymously placed into a black box or flagged to other participants of the crossing network. The advantage of the crossing network to the transaction parties is the ability to execute a large block order without impacting the public quote. Swaps thus have no transparency except to the two counter-parties. The disadvantage to the market is that material information is hidden from market participants.
On May 7, 1998, the CFTC, under Brooksley Born, issued a “Concept Release Concerning OTC Derivatives Market” requesting comments on whether the OTC derivatives market was properly regulated under the existing exemptions of the Commodity Exchange Act (CEA), passed during the New Deal era, and on whether market developments required regulatory changes.
Financial regulation, even against fraud, was strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretary Robert Rubin and Undersecretary Larry Summers, who is now the top economic policymaker in the Obama White House. On May 7, 1998, SEC Chairman Arthur Levitt joined Rubin and Greenspan in objecting to the issuance of the CFTC’s Concept Release. Their response off-handedly dismissed Born’s concerns on inadequate regulation on the ground that discussing the regulation of swaps and other OTC derivative instruments would increase legal uncertainty of such instruments, potentially creating turmoil in the already adequately self-regulated markets, and reducing the market value of these instruments. Further concerns voiced were that the imposition of new regulatory constraints would stifle innovation and push coveted transactions offshore through cross-border regulatory arbitrage.
In the Senate Agriculture Committee hearing on July 30, 1998, Chairman Richard G. Lugar, Indiana Republican, attempted to extract a public promise from Born to cease her campaign for regulation on the OTC derivative market in exchange for warding off a move in Congress for a Treasury-backed bill to slap a moratorium on further CFTC action.
To her credit, Born stood her ground, portraying her agency as being under attack for carrying out its statutory mandate by anti-regulation agencies, namely, the Fed, the Treasury and the SEC. Fed chairman Greenspan shot back angrily that CFTC regulation was superfluous, and that existing laws were quite adequate. “Regulation of derivatives transactions that are privately negotiated by professionals is unnecessary,” Greenspan said, referring to OTC derivatives, adding, “Regulation that serves no useful purpose hinders the efficiency of markets to enlarge standards of living.”
According to Greenspan et al, the market can police itself even against fraud because it is run by honorable people who have strong incentives to protect the market from fraud. But the issue at the hearing was more than bureaucratic turf war. It was an ideological battle with the full power of the Federal government siding with Wall Street to suppress the dutiful carrying out of the statutory mandate of a small agency to protect the general public. Born was effectively silenced by a concerted effort by top officials in the Clinton administration after she responded to a challenge from a Committee member on what she was trying to protect by saying: “We’re trying to protect the money of American public.”
Larry Summers then as Treasury Undersecretary, now top economic policymaker in the Obama administration, was reportedly the Clinton administration’s hatchet man to shut up Born and shut down CFTC demand for regulation of the OTC derivatives market. Born resigned as head of CFTC on June 1, 1999 in frustration.
After the global financial crisis of 2008, Greenspan has since publicly confessed to Congress that he had erred in his judgment on the self regulating power of the market. It is not known if he has apologized to Ms Born personally privately.
An October 2009 PBS “Frontline” documentary described Born’s failed efforts to regulate and bring transparency to the secretive derivatives market, and noted the continuing resistance to reform. The program concluded with Born sounding another warning: “I think we will have continuing danger from these markets and that we will have repeats of the financial crisis — 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.”
*An extended version of this article is available on Henry Liu’s website.
Roosevelt Institute Braintruster Henry C.K. Liu is an independent commentator on culture, economics and politics.
Until the public is represented in Congress we will be under the collective thumb of banksters and broakers and big money deal makers. We have an opportunity to lighten the weight of this oppression.
Our system of government and constitution defines equality and opportunity for all people. Nowhere does in mention corporations. It is therefore incumbent, for all who share that dream and aspire to the fulfillment of the promise incorporate therein, to support HR 1826 and S 752; The House and Senate versions of the Fair Elections Now Act.
The bill will mute, to some extent, the voice of corporations in the electoral process and enable viable candidates to rise, even from poverty, to campaign on equal footing with the well healed, corporate funded, aristocrats . These bipartisan bills still reside in committee and won’t see the light of day unless we move our representatives to act.
Will it eliminate corporate influence on legislation? Of course not. Greed and avarice will always find a way to corrupt. But, it will put a speed bump in their path. Transparent lobbying is another battle.
Posted by G. L. Monahan | November 27th, 2009 at 10:51 pm
The women, it should be noted, are really in the forefront of reform — Born, Warren, Bair –all very impressive.
Posted by Nellie | November 28th, 2009 at 4:57 pm
Isn’t it interesting that it takes two intelligent goyin women to stand up to the corrupt banking “rentmes” and zionist globalist anti “tighten-our-belts” guys like Levitt, Rubin, Greenspan, Geitner…you get the drift. The usury-is-good “our crowd” has been global since Jefferson-Adams, Lincoln, William Jennings Bryan, Ezra Pound, Hemingway, Ford, Patton, Forrestal, JFK etc. all tried to announce and try to alert folks and thus stop the financial blood suckers and hucksters like Judah P Benjamin, Uriah P. Levy, Bernard Baruch, “Belmont” aka Rothschild”ren”, Morganthau, and all the ever-ready princes of plunder behind the war-profiteering banking lazy boyz. Aren’t they all what we can easily call “out of towners” who like Heinz Kissinger and his ilk were born into a bilk thy neighbor “cult”ure and moved or rather slid across various borders and “ponds” to entice dandy ivy league “cherry” and “lavender” boys and impress their daddiies with their language skills during our wars with Germany.
Motives are very easy to determine when one follows dots or studies the history of “our crowd”. As their purim jolly parties in Long Island/Montauk/rabbi schools with little boys morphed easily through the decades into a real global man-boy industry which grew and grew as their German/Prussian/Austrian/Naples-Blue Grotto orgies included members of the German High Command and their buddies across the Atlantic. This was all fun and games with the bisexual high level politicians, doctors, and military officers who loved those parties too and made the July outing in California a ritual. What fun it was to dress up in Hasty Pudding women’s clothes with the the guys just like the shellback day when all ship stewards really serviced the admirals. Ofcourse being a masonic owl-man with Harvard/ Yalie/Princeton secret society credentials and a job in a bank or political office made membership easy for “bottoms or tops” in the gentile ‘Purim copy cat’ Bohemian Club/Bohemian Grove. Never to be undone, the “elite” male SS ( secret society ) masonic cousins and German Clubs all over, with their “respectable” covers as debutante-sponsoring philanthropic “organ”izations…always in naval port cities like Savannah, Norfolk, New Orleans, Brooklyn, etc.. where fresh young boys could be recruited. Interesting history of these meat markets from the “civil war” gradually up to the 1890s prewar era interwoven in the “marine corps” pith helmet stage of ( “colonel” /commandant/ war deserters Jacob Zeitlln and his slavery group Wise, Benjamin who spent more time in France and Liverpool than in the US ). The ‘we love all things German elite ‘ was quite the rage until France pulled us reluctanly into the ‘world war’ aganist the Huns. Always, always the subtle banking and usury credit crowd hovered round and the polilticans who benefited from their gifts made it to the top, and knew if they didn’t go along as Ezra Pound indicated with the rope around the neck pantomime gesture, they were as in the current OSS/CIA/NSA/Sayeret Matkal/Gladio/ lingo, they were neutralized. Always the honorable courageous politicians who stood tall was targeted, given warnings, as was Harding’s Charlotte N.C. masonic “bureau” guy Gaston Means who did lots of German work for bankers in New York as did Clay Shaw. Sex was one way to handled Christians and the kikes behind the hold of holies kept all of the masonic secrets as a way to “control” presidents, generals, admirals, judges, politicans and the local bars. The rope around the neck and the masonic “oaths” were a reminder of what the masonically controlled ( jews began to take over control of Virginia freemasons in the mid 1800’s after a “move” to make their hierarchical and under a top down “committee”) state lodges>temples would and did do! If a mason didn’t cover up for corruption locally, nationally, and ofcourse internationally…then ooops…the rope “trick”. Murders were covered up, questionable deaths of the guys who spoke out were ignored and judges, all judges were bought and paid for using rabbinical ( not christian ofcourse ) FEAR tactics drummed into the heads of skinny rich white boys in high school and college “fraternities”). The Naval Academy, West Point ( Edgar Allen Poe was treated this way there ), VMI, the Citadel ( remember the Lord of Discimpline by Pat Conroy telling of General Mark-zionist jew- Clark’s basement treatment of blacks there?)…etc..
So, why all this fear of honest white intelligent women like Elizabeth Warren, Brooksley Brorn, Maggie Thatcher, Queen Victoria, Alma Powell, Kay Griggs, or miltary moms/wives who have had it with little boy lies…? …Perhaps these bankers and their “crowd” due to the global gossip channels now on automatic are telling all women,all mothers TRUTH. Truth and light is a very Christian thing, even a Muslim thing, a Buddhist thing, a MOM thing. Bankers steal and those who are lazy and live off of the poor, the widows, the elderly as Christ said the rabbbis, sadducese did are “vipers”. Christ had a few other juicy words to call them and their pawns and puppets ( He called them lawyers and judges…right on ) like , well look it up yourselves. Might learn a little history in the gospels as Jefferson and Priestley and Martin Luther did. Ever wonder how Jesus Christ’s message got twisted so badly by the cross-dressing pope like Leo and Innocent III? who murdered pure Kathari christians?? in their “crusades”? History is important even when studying the banking mess. Jesus Christ had another law of physics…Where two or three are gathered together there is truth and the power of God almighty.
K
Posted by veritas | September 2nd, 2010 at 6:28 pm