I look forward to herding the cattle of ideas with you once more! Thanks for riding along side.
Let's start with Brooksley Born's controversial idea that when it comes to large financial institutions handling billions of dollars belonging to millions of trusting, hard-working Americans, doing so with open books and accountability to a governmental agency is a necessity.
Brooksley Born was the Chair of the Commodity Futures Trading Commission from 1996-99. At that time, a decade before the economic meltdown of 2008, Born testified before Congress four times, warning of the dangers of allowing complex financial instruments known as "derivatives" to be bought and sold with absolutely no accountability. It was a multi-trillion dollar "dark market." Very few people even understood how derivatives worked.
Born went up against Alan Greenspan, Chairman of the Federal Reserve Board, and other powerful voices in Washington who were vehemently opposed to her call for open books. She got pounded.
A decade later, the derivatives that Born and Greenspan were arguing about formed a lion’s share of toxic assets that poisoned our economy, brought us to the brink of financial ruin, and produced the greatest recession since the Great Depression, which may get far worse before it gets better.
Brooksley Born’s story is chronicled in Frontline’s 2009 production, The Warning. It is must viewing. I have posted the trailer as the video of the month (http://www.youtube.com/watch?v=ACkiKVtF3nU). I urge you to view the full story at http://video.pbs.org/video/1302794657/.
I do not believe Greenspan had fraudulent motives. He was opposed to the regulation of financial markets on ideological grounds. He sincerely believed markets totally regulate themselves. That is, those who do well prosper, and those who do poorly fail. The market itself would “clear the transactions.”
After eighteen years leading the Federal Reserve, Greenspan retired in 2006. (Amazing timing.) But he appeared once again before Congress in October of 2008, after the house of cards came tumbling down on all of our heads. At the hearing, the world was stunned to hear Greenspan say he “found a flaw.”
“…I was shocked,” Greenspan said, “because I’ve been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
What was the "flaw," and why did "it" stop working exceptionally well?
Stay tuned...
