"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
http://www.pbs.org/wgbh/pages/frontline/warning/view/
My comments are simple. Firstly this is a MUST WATCH video...please follow the link above, as the embed version is not working.
Frontline did an excellent job, but they still reflect the essential illusion that free markets caused the problem and regulation could have solved it. The reality is that the reason Greenspan, Rubin, Summers and Geithner supported the regulations and legislation that fostered and allowed these markets and their transactions to exist in the first place, is that the policies were specifically designed to attempt to coverup the total failure of the Bretton Woods and Federal reserve systems of theft and currency devaluation.
The only way to mask the failures was to specifically endorse the creation and implementations of facilities that enabled the perception of ultimate risk insurance and foster the illusion of significantly greater amounts of unencumbered cash in the financial system. The act of writing, buying or speculating with derivative products creates significant leverage but also vis-a-vie that leverage miraculously large amounts of theoretical cash with only minimal real collateral requirements and almost infinite flexibility since the price movements of synthetic securities are not governed solely by underlying prices. Theoretical models that can support a much more flexible interpretation of the valuations, which is a required to propagate a ponzi scheme that is its last stages.
The disaster was NOT created by freemarkets. The fed and these band of thieves deliberately implemented schemes to foster a pyramiding process to try to cover up their failed ponzi schemes.
What is truely disturbing is that Mr. Greenspan could only say he "...had discovered a Flaw" - yes, a single flaw in his model. I am afraid to say his arrogance knows no bounds and his knowledge of financial products and economics is about as capable as his successor Mr. Bernake. The conditions we are currently in could not exist, would not exist and would not have been incepted without manipulation by the Fed, crony capitalism and socialized markets. Mr. Greenspan presided over the whole operation...I wonder if he is proud of himself? However, in my opinion, Mr. Greenspan is a disgrace, as are most of the officials in this documentary.
