The Woman Greenspan, Rubin & Summers Silenced
http://www.thenation.com/blogs/edcut/370925/the_woman_greenspan_rubin_summers_silenced?rel=hpbox"...But more than a decade ago, a woman you're likely never to have heard of, Brooksley Born, head of the Commodity Futures Trading Commission-- a federal agency that regulates options and futures trading--was the oracle whose warnings about the dangerous boom in derivatives trading just might have averted the calamitous bust now engulfing the US and global markets. Instead she was met with scorn, condescension and outright anger by former Federal Reserve Chair Alan Greenspan, former Treasury Secretary Robert Rubin and his deputy Lawrence Summers. In fact, Greenspan, the man some affectionately called "The Oracle," spent his political capital cheerleading these disastrous financial instruments.
On Thursday, the New York Times ran a masterful and revealing front page article exposing the culpability of Greenspan, Rubin and Summers for the era of dangerous turbulence we live in.
What these "three marketeers" --as they were called in a 1999 Time magazine cover story--were adept at was peddling the timebombs at the heart of this complex crisis: exotic and opaque financial instruments known as derivatives--contracts intended to hedge against risk and whose values are derived from underlying assets. To cut to the quick, Greenspan, Rubin and Summers opposed regulating them. "Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury," recalls Alan Blinder, a former Federal Reserve board member and economist at Princeton University, in the Times article.
In 1997, Brooksley Born warned in congressional testimony that unregulated trading in derivatives could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it." Born called for greater transparency--disclosure of trades and reserves as a buffer against losses..."
http://www.motherjones.com/mojo/2008/11/obama-taps-larry-summers-recalling-summers-days-regulation-foe"....Even "small regulatory changes," Summers cautioned, could throw the whole system out of whack. Determined to slap down the CFTC, his Treasury Department, the Fed, and the Securities and Exchange Commission crafted a proposal that would prohibit the CFTC from issuing new rules regulating any swap or "hybrid instrument."
Summers told the Senate he and his fellow economic bigfoots were not slamming Born and the CFTC cavalierly:
We understood the seriousness of making this proposal. To question an independent agency's concept of its jurisdiction and then to propose legislation that would temporarily curtail that agency's ability to act is not something we do lightly. We concluded, however, that such legislation was necessary to avoid disruption and dislocation in the market while the underlying issues were being considered by Congress.
Congress in late 2000 did end up implementing the Summers approach, when Senator Phil Gramm, then the head of the Senate banking committee, used a back-room maneuver to slip into a must-pass spending bill a measure that prevented the CFTC or the SEC from regulating derivatives.
During that 1998 Senate appearance, Summers did acknowledge that there could be problems with derivatives:..."