Blog on the Run: Reloaded

Thursday, May 28, 2009 6:49 pm

Another member of the Cassandra Club

Filed under: I want my money back. — Lex @ 6:49 pm
Tags: ,

Brooksley Born apparently is too polite to say “I told you so.” But, frankly, Ms. Born, we find ourselves in a situation in which rudeness is called for (not, unfortunately, that it will do much good at this point):

A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America. Her efforts to stop that from happening ran afoul of some of the most influential men in Washington, men with names like Greenspan and Levitt and Rubin and Summers — the same Larry Summers who is now a key economic adviser to President Obama.

She was the head of a tiny government agency who wanted to regulate the derivatives. They* were the men who stopped her.

The same class of derivatives that preoccupied Born — including the now-infamous “credit-default swaps” — have been blamed for accelerating last fall’s financial implosion. But from 1996 to 1999, when Born was the chairman of the Commodity Futures Trading Commission, the U.S. economy was roaring and she was getting nowhere with predictions of doom.

So, upstairs in the big house in Kalorama, Born tossed and turned. She woke repeatedly “in a cold sweat,” agonizing that a financial calamity was coming, she recalled one recent afternoon.

Of all the depressing, enraging items in this profile, this might be my favorite:

Born’s baptism as a new agency head in 1996 came in the form of an invitation. Federal Reserve Chairman Alan Greenspan — routinely hailed as a “genius,” the “maestro,” the “Oracle” — wanted her to come over for lunch.

Greenspan had an unusual take on market fraud, Born recounted: “He explained there wasn’t a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him.”

Well, thank goodness that’s true, otherwise those Hunt brothers and Mike Milken and Bernie Madoff and all those other guys could have made off with a lot of people’s money. I guess in some dimension, somewhere in some parallel universe, “genius,” “maestro” and “the Oracle” mean “dumber than a box of floor tiles.”

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