Last week, PBS “Frontline” produced a story that describes how Bob Rubin, Easy Al, Larry Summers and others prevented Brooksley Born of the CFTC from instituting controls on the OTC derivative market in the late nineties.
“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…
Why would Summers believe that regulating derivatives would “cause the worst financial crisis since the end of World War II”? The only explanation is that he knew or believed that disclosure of what was occurring in banks would precipitate a panic. So he and the other clowns opted for cover up.
If bankers were warning Summers that regulation of the OTC derivative market could precipitate “the worst financial crisis since the end of World War II”, a reasonable person can conclude that banks were doing something very unhealthy with those derivatives.
Born’s story and Summers alleged retort is proof that US solons knew that there was a massive fraud in the derivative market and US financial institutions for at least a decade.
It also explains why Easy Al and Benito have been serial bubble blowers. They knew the US financial system was fragile if not busted, again for at least a decade.