I’ve written about the financial meltdown from a couple of different angles. I even talked about Brooksley Born, who was the canary in the financial coal mine. She tried to warn us against unfettered greed and scant, if any, regulation. My friend, Linda Monk, has picked up on this association and has an interesting twist on why Brooksley was not listen to by the financial bigwigs.
On the day of the dead, Nov. 1, the news media reported the story of CIT’s* impending bankruptcy. Cassandra, take a bow. This time, her name is Brooksley Born. She saw it all coming almost 20 years ago.
Born was the lone woman in a group of powerful men when she tried to persuade Congress to regulate the novel financial instruments known as over-the-counter derivatives during the 1990s. She served as head of the Commodities Futures Trading Commission, and legally had jurisdiction over the side bets that banks and insurance companies made with each other to hedge their risky investments. Except nobody was keeping score, and nobody was required to actually have money on hand to pay up. Born thought that should change, because too much of the American people’s money was at risk.
She was defeated by the financial titans of Robert Rubin, Larry Summers, and Alan Greenspan — at the time Secretary of the Treasury, assistant secretary, and chairman of the Federal Reserve. The triumvirate portrayed her as that worst of all possible beasts in Washington officialdom, a “difficult” woman.
Greenspan believed “The Market” would police itself of fraud because he was a devoted acolyte of Ayn Rand, the radical individualist and author of Atlas Shrugged. Not exactly an inspiring metaphor for a Fed Chairman during a global economic meltdown.
But as Born knew, fraud is the mortal enemy of any supposedly free market. Unless investors can be confident that their money is safe from fraud, capitalism cannot survive. A system rife with fraud is a death star, imploding upon itself. Derivatives, houses, tulips–the object of the exchange does not matter if the information it is based on is knowingly false. Such a system is based on patsies, not investors. (more… )