Skip to main content

Smart Women during the Financial Crisis

In 1997, Brooksley Born, now retired, directed a small federal office, the Commodity Futures Trading Commission, the federal agency which oversees the futures and commodity options markets. However, she was blocked from overseeing off-exchange markets for derivatives.(Derivatives are so-named because they derive their value from something else, such as currency or bond rates.)

She wanted to release a “concept paper” — essentially a set of questions — that explored whether there should be regulation of over-the-counter derivatives. President Clinton’s economic advisors were furious with her.
CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers.

Simon Johnson and James Kwak in their new book, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, stated: ” Larry Summers, Deputy Treasury Secretary for President Clinton called her and said: ‘I have thirteen bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.’” Unintimated, Born released a concept paper the following year much to the chargin of Clinton’s economic team.

A year later,following the suggestion of Clinton’s economic team, Congress enacted the Commodity Futures Modernization Act, which effectively gutted the ability of the CFTC to regulate OTC derivatives. With no other agency picking up the slack, the market grew, unchecked.

Years later she was proven right. The failure to regulate derivatives helped bring on the greatest recession since the Great Depression. In 2009, she was awarded the John F. Kennedy Profiles in Courage Award in recognition of the “political courage she demonstrated in sounding early warnings about conditions that contributed to the current global financial crisis”.

Although Democrats try to trace the causes of the financial crisis back to the Bush administration, clearly, President Bush and Clinton both contributed to the current financial crisis as did Congress. The next time you see a Congressional hearing and the Congressmen and women are chastising the bankers, remember the legislation that Congress passed.


Popular posts from this blog

Free Trade?

What is free trade? Free trade means that nations agree to trade goods and services without government interference – no tariffs, no underlying government regulation. The concept of free trade is supported by mainstream economics (neoclassical) which assumes that there is a level playing field worldwide; that free trade means governments do not help the private sector.

However, we know that is not the case. China’s government has put enormous investment in certain of its industries. One example is solar energy. China’s government has invested in this industry with the result that China now leads the world in the production of solar panels. There are dozens of examples of governments investing in private companies to help them in the tough worldwide competition that has developed.

America companies who put their manufacturing plants in China benefit enormous. It is called the “free rider.”  American companies with manufacturing plants keep reaping all the rewards of selling…

Mayor de Blasio admits homelessness cannot be eliminated immediately.

After three years of blaming his predecessor, Mayor Bloomberg, for moving so slowly on housing the homeless, Mayor de Blasio finally admitted that it will take years to house so many homeless people. Perhaps it isn't all Mayor Bloomberg's fault.
   To add a different perspective, let us take a look at New York State and its inability to commit resources to the city's problem. During the Bloomberg administration, the state cut funding to the homeless from $164 million in FY2002 to $110 million in FY2012, a 33 percent cut.  In addition, the state cut the funding to one of the few programs to permanently house the homeless, the Advantage Program. Not only did the state cut the program, but the state also passed legislation that the city could not use other state funds for the program.
   Then of course there is the federal government that has cut millions of dollars out of the public housing budget that houses so many of people in poverty. Thanks to the federal government, t…