« Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom? | Main | FDIC CALLS FOR PAPERS: Derivatives Securities and Risk Management Conference »
November 16, 2008
Brooksley Born `Vindicated' as Swap Rules Take Shape
In Bloomberg News last week, there was a very important article talking about the role played by Larry Summers, Alan Greenspan et al. in blocking greater disclosure from and regulation of the OTC derivatives markets. The key voice for greater oversight was Brooksley Born, then chairwoman of the CFTC.
The behavior of Summers and Greenspan over a decade ago in attacking and smearing Born when she dared to suggest that OTC derivatives might pose a systemic threat to the global economy enabled the explosive growth of the OTC derivatives markets. Today there are over $50 trillion in outstanding credit default contracts, for example, contracts which must be funded as default rates rise and recovery rates fall.
A number of observers from all sides of the political spectrum have suggested that his actions disqualify Summers to serve as Treasury Secretary in an Obama Administration. The link to the November 13, 2008, Bloomberg News story by Matthew Leising and Roger Runningen is below:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aXcq.r6xLf4g&refer=news
Excerpt:
" Nov. 13 (Bloomberg) -- The acting chairman of the Commodity Futures Trading Commission is among U.S. officials now seeking regulation of private derivative contracts, echoing an unheeded warning a decade ago by a predecessor, Brooksley Born.
While leading the CFTC in 1998, Born declared that the unregulated contracts could ``pose grave dangers to our economy.'' Born, a lawyer who according to futures attorney Dan Roth battled fellow regulators with the ferocity of a courtroom litigator, lost a turf fight with Alan Greenspan and Robert Rubin over policing the deals.
After Congress exempted the contracts from U.S. oversight in 2000, the market swelled from about $100 trillion to $684 trillion by June 30. The growth included credit-default swaps and collateralized debt obligations, custom-made products barely in use under Born's reign. They played a part in almost $1 trillion of global bank losses and are prompting lawmakers to seek controls on the complex deals.
``Brooksley has been vindicated,'' said John Tull, a CFTC commissioner from 1993 to 1999. ``Had they listened to her, I think this catastrophe could have been averted.''
Now retired in Washington, Born, 68, declined to be interviewed for this story. "
Posted by whalenc at November 16, 2008 02:55 PM