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Monday, December 6, 2010

A Look At One Regulator's Failure To Rein In Derivatives

Brooksley Born, appearing on the PBS Frontline episode "The Warning." (K-ideas, Flickr)

Brooksley Born, appearing on the PBS Frontline episode "The Warning." (K-ideas, Flickr)

Twelve years ago, Brooksley Born headed an obscure government agency in the Clinton administration, where she tried to regulate risky financial instruments like derivatives.

Wall Street was able to stand in the way and stop the regulations from going through, and derivatives ended up at the heart of the 2008 financial crisis that almost sank the world economy. We speak to Born’s former colleague, Michael Greenberger, about what lessons can be learned from Born’s work in the ’90s.

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  • Jim Cook

    America is the land of opportunity. But, for those who are willing to “assist” those who make and enforce the laws, there are many more opportunties. Assistance to legislators that allows them to expand and maintain their sphere of influence has resulted in a significant increase in the concentration of wealth over that last ten years and, with that wealth, influence.

    Many lobbyists understand and embrace this character flaw in our legislators. How much money has Phil Gramm made in the financial sector since he left his role as a legislator? How much money did UBS make from legislation that he supported? How many former legislators are benefiting from the tradeoff between regulations to control greed and the use of market forces?

    The repeal of Glass-Steagal during the Clinton Administration and our national focus on “market-driven principles” have led our move into new heights in engineering. The sad reality is that our engineering expertise is on financial engineering that “market makers” leverage for personal gain. Bear Stearns is one example of a firm that respects the financial well-being of the partners more than their investors or the public good.

    We need more people to step forward like Brooksley Born. Of course, doing what is right quite often has an inverse impact on our financial well-being. A very high balance in an individual’s ethics account is quite often offset by a very low balance in their investment account. For America to succeed, we need to establish an environment where high ethics are rewarded and poor ethics are punished harshly.

  • http://OPBPortlandOR Marilyn Tyrrell

    Brooksley Born is a heroine. Michael Greenberger says she will not tell her story because she is shy and retiring. I can understand that, but in my opinion, she needs to do that. She is a shining example of a woman who had brains and ability but was put down when the old boys gathered to-gether against her. Had she been a man they would have paid attention to what she was saying.

    Al of us who have worked in the big corporations have been through this to some extent or another but not many of us have been as tough as she in holding her ground.

    Americans need to be able to clearly identify those piggies because they are all still in government and probably still making self-serving decisions.

    On another note, congratulations on the award and the birthday. You sure do a good job.

    Marilyn – she of the five radios.

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