The warning Greenspan the wizard nobody understood what he said but everybody bought it 5 presidents appointed as financial consultant starting in the 1970 s He made himself rich in Wall Street Libertarian philosophy government is a distracting force that gets in the way separation of state and economics Government is not a solution for our problems government is the problem 1987 Reagan made him the most powerful man in the world making him a Chairman of the Federal Reserve 1992 Clinton took the house He was forced into the Reagan ideology and appointed Robert Rubin as assistant for economic policy most important financier cause he ran the Goldman sax Large credibility from democrats because of Rubin success he populated the administration with a network of free markets true believers Rubin found an ally Greenspan they had similar views on Wall Street the less regulation the better Larry Summers was the enforcer Summers Greenspan and Rubin found their pro business anti regulation support group everybody trusted them because the economy seemed to be doing ok Mid to late 1990 s was a boom period tech boom financial market was zooming Commodity Futures Trading Commission CFTC looked at the boom with skepticism They saw the CFTC in the way when Brooksly Born stepped in she was a female attorney first female president of Stanford Loan she was friends with Hilary Clinton she was invited to the White House by Clinton to become Attorney General she went in from an interview but Clinton said she was boring and it just didn t happen so she ran the CFTC She was a believer of government regulation so she had several crashes with Greenspan and Rubin she did not want to talk about her conversations with the Clinton administration She wasn t intimidated she wanted her agency to investigate fraud starting with the derivatives market Proctor and Gamble discovered secret recordings of private phone calls among bankers state brokers people inside bankers trust making jokes about how they fooled people into thinking it is their best interest of customers but is not they will end up cleaning their bank accounts They found all kind of fraud within the banks There was no way to know information about the banks and contracts lawyers etc if it wasn t for Proctor and Gamble If something went wrong with a big institution bank it can crumble the global economy as market grew Born felt her agency would have to get involved and confront Greenspan Rubin and Summers she saw the crisis kept building up 1998 the idea of strict regulation felt unnecessary because the economy seemed to be fine companies were doubling every week or day Idea that market capitalism was invincible Born was contemplating the regulation of OTC derivatives this was a job for Summers who told her that she did not get it you will cause a worse financial crisis than WWII so stop Greenspan could not stop her because she did not work for the government banks and the team wanted her out of their backs Rubin called in a meeting to convince Born that there shouldn t be issued Rubin and Greenspan said you can t do that the deregulated market brought us to the boom regulation is counter productive Rubin told her you don t have the legal authority to do that but she said they have the legal jurisdiction to do it two weeks later Born took her staff to publish the concept release this created a big earthquake the response of the working group was fast to put out a statement attacking the legal status of CFTC and attacking Born saying she did not have the power or knowledge to do this Hearing was immediate in the house and senate this was an embarrassment to the executive brand because of their lack of coordination they said the CFTC is trying to jeopardize the economy Born had no support of chance of winning but her warning became a prophesy the head funds were melting down and a panic began John Merry Weather was running the LTCM invented math formulas and used derivatives to place their bets it was a secret process nobody knew how it worked they did business with 15 Wall Street banks but their complicated computer models started to fail and created a financial crisis globally Many banks invested in LTCM derivatives so they were losing it was close to collapse and Washington heard about the problem so they called Born all treasury could do was watch and wait 14 banks agreed to put 3 5 billion to save it and the crisis passed Greenspan had no intention of doing anything about regulation on counter derivatives and congress agreed but congress stopped Born by regulating and freezing everything her company could do in the market and it worked she resigned With Born out the last 2 years of Clinton administration OTC derivatives were off limit and banks were free to make risky investments and Wall Street was regulating itself it was a time bomb which exploded 10 years after this Rubin left the government for a management position in Citi Bank Summers and Gainer became Obama s chief financial advisors Gainsler is Born s position at CFTC still lack authority to regulate derivatives Greenspan retired before the 2006 crisis he said that the idea of market regulating itself was wrong Obama said we will not go back to reckless behavior and there is a need for regulation but the financial lobbies are against this idea Born is offering another warning continue danger from this markets and a repeat of the financial crisis over and over because of the regulatory gaps until we learn
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