Brooksley Born

I love this picture of Brooksley Born.

Brooksley Born  (center) in 1964, when she was the first woman president of the Stanford Law School Law Review

Who would have guessed that  30 some years later she would be scorned as “irascible, difficult, stubborn, unreasonable “?

Her crime?  Suggesting that derivatives traded over the counter were not transparent enough and needed oversight.

Time Magazine’s 1999 Committee to Save the World disagreed.

In a now-infamous quote, Larry Summers (the guy on the right) reportedly told her:  “I have 13 bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II.”   She was head of the Commodities Futures Trading Commission at the time, with 20 years of private practice experience in derivative markets.

The Wall Street Journal said “the nation’s top financial regulators wish Brooksley Born would just shut up.”

Meanwhile, Long Term Capital Management used derivatives to leverage $5 billion into more than $1 trillion, and in 1998 imploded, threatening the entire financial system.

The federal reserve galloped to the rescue, organizing a bailout. Sound familiar?

Born warned the LTCM crash  “should serve as a wake-up call about the unknown risks in the over-the-counter derivatives market.” Unperturbed, Congress passed a law prohibiting the Brooksley’s agency, the CFTC, from regulating over-the-counter derivatives.

Brooksley resigned and in April 1999 went back to private practice.

What has she done since?  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”.

She’s retired, goes sailing with her husband, dotes on four grandchildren, enjoys birdwatching.  “I’m very happily retired,” she says. “I’ve really enjoyed getting older. You don’t have ambition. You know who you are.”

Born is on the 10-member Financial Crisis Inquiry Commission, which is examining the causes of the 2008 financial crisis. Wonder if anyone will listen this time?

18 comments

  • Thanks for reminding us! A great blog, Julie. We are in the hands of greedy blood suckers. I, too, love that photo of her. Keep up the good work!

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  • The Trojans refused to listen to Cassandra when she warned them about the grave danger of that great horse the Greeks left outside their city. They couldn’t see what was inside and they didn’t bother to look, despite all of Cassandra’s warnings.Then they made the worst choice of all by bringing the horse inside their city gates, and bringing down the destruction of Troy when the the fatal attack came from within their city.

    Greenspan, Rubin & Summers refused to listen to Brooksley Born when she warned them about the grave danger of derivatives. And like the Trojans with the horse, they also couldn’t see what was inside the derivative market and they didn’t bother to look.

    Instead they attacked the messenger for delivering a message they didn’t want to hear, because the big banks loved all that money they were making from derivatives and hated Brooksley Born for trying to warn Congress of the grave danger hidden inside the derivative market. But Congress did what it always does and listened to the bankers’ lobbyists while lusting for all that lobbyist money they could get, if they refused to listen to Brooksley Born.

    Greenspan, Rubin & Summers silenced their 20th century Cassandra because Greenspan said the market is always right – just like Ayn Rand had always taught him – so Brooksley Born had to be wrong, and she was upsetting those big bankers, so she had to be stopped. They also thought she was a really annoying woman who didn’t really know anything, and even worse, she didn’t know her place; as an inferior female who should be subservient to the greatness of great men… Men convinced of their own greatness when their hubris told them all about it.

    But the market wasn’t right – only just right wing instead, and like Cassandra before her, Brooksley Born was right, but all her warnings were in vain. Once again the hidden enemy was let inside, from where again it attacked and almost sacked the entire global economy.

    But unlike Troy, it barely survived after massive transfusions of Federal money to the banks. The patient went from critical condition to being somewhat healthy again – except for being insanely suicidal, because there’s still a derivative market, and the same financial market that was almost killed by it, still loves to play with derivatives.

    And to this day no one really knows what’s inside the derivative market, and any effort to look inside and control what’s in there, to avoid mass financial destruction… gets blocked by Congressional gridlock caused mainly by the GOP but also assisted by some Dems too. Because on both sides of the aisle money not only talks, it can yell louder than Krakatoa exploding when those pols see all those financial lobbyists coming to spend mega-bucks to buy votes, or even better, to prevent any vote from being taken.

    And they say that Homer was blind…

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    • Yeah. There was a raft of women Cassandras: Elizabeth Warren, Sheila Bair, Susan Bies and probably others. It’s frustrating to witness the relative stability of the past 70 years degrade to wild volatility. From the 1700’s to the 1930’s, it was one boom and bust after another, and it seems like speculators are itching for a return round.

      Is it blindness? Well, maybe intentional blindness.

      You certainly know your Illiad. Thanks for the thoughtful response, which drives home the point. Some things never change.

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      • I’ve been a fan of Greek Mythology since I was a kid. There are so many great stories, and I’m interested in the differences and similarities of the ways in which the people in ancient Western civilization were thinking, feeling, and dealing with each other 3,000 years ago, compared to the people of Western civilization today.

        Here where I live in MA, we are trying hard to get Elizabeth Warren elected to the US Senate, but it’s an uphill fight and the race too close to call right now. I don’t think we’ll know who won until the morning after the election.

        The wild volatility that you mention was bound to come back after the Reagan Deregulation Revolution began in 1980, and was advanced by a GOP right wing takeover of Congress in 1994. Then a huge mistake in 1999, when Bill Clinton (why Bill? why?!) signed into law the Gramm–Leach–Bliley Act, which repealed part of the Glass-Steagall Act of 1933, and allowed commercial banks, investment banks, securities firms, and insurance companies all to consolidate. – A huge factor contributing to the conditions that eventually caused the global financial meltdown of 2008.

        Then 8 years of Bush and Cheney continued virtually non existent regulation of the investment and financial industries, as the rise of high technology enabled electronic trading in greater volume than ever before, with billions of transactions being made at lightning speed.

        The new electronic trading capabilities were like a great flood of gasoline thrown on the fire already burning in the 100% unregulated and opaque derivative market, as the volume of CDOs, CDSs and other weapons of mass financial destruction grew to massive proportions, as the big banks were allowed to leverage 10-1 bets on the amount of capital they risked in high risk investments, compared to the capital they had available to pay if they lost their bets.

        AIG collected premiums paid by those same banks and many others, promising to insure billions of dollars of risk far beyond what AIG was capable of paying out in claims if those billions were lost. But that could never happen, right? The housing market was booming and Wall St was absolutely giddy from the great profits being made, and also blinded by greed enough to believe that housing prices would keep going up and never come down.

        But it was all just a giant bubble blown up to massive proportions, and driven by an insatiable demand from big investors to invest in high risk sub prime debt disguised beyond recognition by derivatives. Debt without any solid foundation when massively accumulated by predatory lenders who made big commissions by fooling millions of people into signing mortgages they could never repay.

        The bubble inevitably burst when the great house of cards built by artificially inflated housing prices fell in a thundering avalanche of mass default of loan payments. Suddenly nobody could pay anybody, and soon some of the biggest financial Goliaths fell down dead, except for the ones rescued by the Fed, fearing they were too big to fail, and if they fell, the whole world would fall with them. They called it systemic risk, as they saw the nightmare vision of an interconnected global financial system on the edge of an economic abyss of destruction.

        The lenders of credit who still had any money to lend, were too scared to lend credit to anyone, because nobody could tell who was solvent and who was the next financial giant to fall. Or which ones the Fed would decide to rescue, or choose to let drown in their own sea of toxic assets. The credit markets were freezing up, and threatening to stop the flow of the very life blood of the global economy, bringing the world to the brink of Economic Armageddon. Until the great bailout by Uncle Sam and also government intervention in Europe stopped the worst from happening.

        Yes, I know… you probably saw it all on Frontline too. Lol 🙂

        Intentional blindness? Maybe… But if so, I think it is an intentional blindness caused by the irrational intentions of a mass insanity blinded by collective greed. Sane and rational people don’t do the same things that came so close to bringing down their own destruction as recently as 4 years ago. But many of the same people who are still in the financial and investment industries are doing those same things again right now, while fighting for their freedom to keep on doing it.

        Personally, I believe that a capitalist free market armed with the tools of 21st century high technology, and mostly free of any government regulation and oversight strong enough to reign in and stop the worst excesses of capitalism, will ultimately express its freedom by destroying itself and destroying our civilization along with it.

        The very survival of our civilization may depend upon our political will to take decisive action powerful enough to reign in the free market beast enough to prevent it from causing another even greater financial and economic holocaust from which there will be no salvation for the global economy.

        Do we have that kind of political will? I guess that we are going to find out, one way or the other…

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        • (Chris, you wouldn’t be drinking coffee right now would you?) I’m a big fan of Elizabeth Warren. Good luck with getting her elected. Probably like you, I went on a jag reading books about the 2008 meltdown, and it made my hair stand on end. Still, I’m probably more optimistic than most because I see the global economy as multidimensional, involving everything, not just money and people. We humans might indeed do ourselves in before our time. What a boon for the next evolving species. Probably some form of pink slime!

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        • Well no, no coffee right now. But when I wrote that last reply, well that was an entirely different story! Still don’t know how you guessed… I guess you must be psychic. Yeah, that must be it, I’m sure. 🙂

          I’m mostly an optimistic person in my day to day life, and not a chronic doomsday scenario believer. But I get irritated when I see so many people who are otherwise intelligent and well educated, allow themselves to lapse into apathy and willful ignorance, as they get too self absorbed in their own lives.

          They pay very little attention to what is going on in the larger world around them and they don’t make an effort to be well informed about what is happening, or why it’s happening, and what may happen next.

          They are unaware of the serious consequences that can occur as a result of what they didn’t know was going on, while they weren’t paying attention. They have no idea how bad the damage can be, until the consequences strike close to home, with a harmful impact upon them and on their families, along with many others.

          Then when bad things happen and they are hurting as a result, they get angry and upset, and they react emotionally instead of acting rationally.

          In their angry and uninformed emotional state of ignorance, they become easy prey for professional deceivers, who convince many of them to only make things worse, by voting for the very same people who are responsible for hurting them.

          They are fooled into empowering those with an agenda to continue doing the things that will hurt them again, and with an even worse degree of pain than before.

          I guess that my emotional reaction to theirs, is to pay attention to what’s happening, and stay informed enough to have some understanding of what is really going on, and who is responsible for causing it.

          So why am I here, preaching to the choir? I dunno… Maybe I’m rehearsing for a tougher crowd. In any case, I’ll be moving on now, and checking out some of your other posts.

          Thanks for your patient replies here to what should have been replies of a more appropriate length from me, but instead mine got mutated and extremely elongated way out of proportion. I’ll try for brevity in my comments the next time I’m here, just to show you I can actually do it. Lol 🙂

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  • You do a fine job of describing the human condition. I’ll tweak your thoughts with this: when people react too late and badly to a situation that could have been prevented, they are, yes, reacting emotionally. We react emotionally to everything, all the time. Emotions give us a “feel” for what to do and how to act. People who are deprived of emotions can’t make decisions, literally. They can’t throw away newspapers or pick a date for a meeting, but endlessly dither, weighing the pros and cons.

    What you’re describing is people making decisions based on the emotions of fear and panic. Too late! Batten down the hatches! Take care of your own! When we’re in a panic, we’re often vulnerable to dog-whistle politics.

    May I speculate here that you are a generalist, someone with many interests in many areas? A rarity, I might add, and not much valued in our culture which pays specialists highly, and then worships them because they are rich.

    As you indirectly point out when you refer to Homer, many, many rich nation states have gone through this. The process you’re describing just reinforces the point that we haven’t evolved very much. The smarter and the more right we think we are, the more likely we are to end up as mysterious archeological curiosities. That’s no comfort, I know, in the short run.

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    • Thanks for your compliment on my description of the human condition. I’ve been a human for almost 56 years now, while in the company of many other humans, so I do have some experience with this condition.

      But we must never give up hope, because with all the effort being made by so many people these days, there may be a permanent cure for the human condition coming soon, and life on Earth will be saved!

      The human condition will not only be cured, but completely eradicated! The pink slime will rejoice in a great pink slime celebration, and I wonder what pink slime looks like while doing some major pink slime partying?

      Never mind… cause the visuals I’m now getting aren’t the kind that I enjoy entertaining in my mind, so I’m pressing the eject button right now! Whew! That’s MUCH better!

      Hey, a little dark humor helps to lighten my mood. 🙂 But seriously, I appreciate your reply here, and I also genuinely appreciate your compliment. And thanks for tweaking my thoughts, even though it tickles a little bit when you do that. Lol

      I see your point about how human beings need to be emotional beings, and that without our emotions, we’d be lost – and also very boring! I also understand all too well the danger of decisions based on the emotions of fear and panic, and the resulting vulnerability to “dog-whistle politics”.

      Hey, cool turn of a phrase there, with “dog-whistle politics”. I like it! Can I use it, or is it copyrighted and trademarked intellectual property? But if you let me borrow it, I promise to give it back. Really I will! Cause you might have other cool stuff around here that I might want to borrow, so I’d be a fool to ruin your trust in me so soon! Ahem… or ever! 🙂

      You can go much farther than just speculation about me being a generalist with many interests in many areas because it’s absolutely true. I watch documentaries like a junk food junkie puts away a family sized bag of chips in one sitting, and I’m a voracious reader of books and magazines on subjects far too varied to recount here. I’m also fascinated by history because it can often predict the future.

      I know for certain that I am not a specialist, because I’m not highly paid or worshiped by any culture that I’m aware of, (bacterial cultures might be worshiping me, but I can’t see them so I wouldn’t know.) and I’m not in any danger of the heartbreak of becoming rich. I’m the guy who is a Jack of all trades and master of fun, and no that’s not a typo.

      Lol – Here’s a real typo, and one that I’ll always regret: I was away on business and lonely for my wife, but it was too late to call her, so I sent her a romantic poem via e-mail. My poem was all that I hoped to express to her and I was very glad… until shortly after I hit “send” I reread my romantic poem to my wife and I was greatly dismayed, when I saw that spell check had betrayed me worse than any Judas, by not warning me when I typed “your perfectly formed “beasts” entrance and enchant me…”

      Damn you spell check!!! Where was your red underline then, when I needed it the most?! But at least my wife still liked my poem – because it made her laugh a lot… Which was NOT the reaction that I was hoping for!

      Yeah, many rich nation states have gone through all that we are going through now, and they did it long before us. And where are they now? I think you pegged it with “mysterious archeological curiosities.” when you implied that we could end up the same way. It makes me laugh sometimes when people in their so typically predictable egocentric way, act as though the “American Empire” is invincible and will last forever.

      How long have we been around now? All of 236 years… The Roman Empire lasted over 2,200 years, and I seriously doubt that our empire will surpass their longevity, or even come close. Because you are right – as people, we haven’t evolved very much beyond the Greeks and Romans, and often we choose to follow their collective inclination to choose the selfishness and cruelty that eventually leads to self destruction – instead of recognizing and embracing the salvation of shared compassion for each other, near and far.

      During the last 150 years our technology has evolved at warp speed compared to the snails pace of our moral comprehension. We now face a grave danger unparalleled in all of previous human history, because our technology has become more powerful and far reaching than ever before. The technology of today must be used in a positive way for the greater benefit of all, instead of being used to bring down mass death and destruction when misused in the most horrible ways, for the worst of reasons.

      Similar to the story told in Genesis, we have eaten the fruit from The Tree of the knowledge of good and evil, and we can see both states of being, but we often can’t tell or refuse to recognize the difference between the two, and with disastrous consequences. The apple we have picked and eaten from (and NO blaming the woman in MY version, cause Eve was framed when Adam used her to cover his own guilty ass!) That apple, or today, the i Fruit, has heightened our collective awareness into a knowledge that can morph into nuclear energy or super computers, and both have the power to create or destroy, depending upon how we choose to use them.

      But instead of being thrown out of The Garden of Eden like Adam and Eve were, we might face a future in which the only planet we can reach, that is capable of sustaining human life, can no longer sustain us after the ravages of dysfunctional government, overpopulation, pollution and climate change make the Earth uninhabitable for humans. I wonder where those CEOs will try to land their Golden Parachutes if that happens?

      Or maybe our future will be a lesser apocalypse that destroys human civilization as we know it, but the human race still survives… with the same quality of life people had during The Dark Ages. Anybody feeling nostalgic about a return to life in The Dark Ages? Please raise your hands.

      And those of you who ARE raising your hands, because you think I’m talking about The Great Northeastern US Blackout of 2003, when you had lots of fun lighting candles and made lots of babies, or just had fun with similar acts made safe from causing kids, please leave the room right now – because YOU are part of the problem! (said with a smile)

      But there I go again… sounding like a prophet of doom, when I’m really an optimistic and happy guy most of the time. But once again I let myself think too much, while drinking too much coffee, and then I wrote WAY too much here again, because I’m overcaffeinated!!!

      Maybe tomorrow I’ll try again for that short reply… At this point I know you probably no longer believe that I can do it, and I don’t blame you in the least. But I WILL do it! Even I have to undergo the heartbreak and horror of… DECAF!!! (shiver!) 😀

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    • I don’t think it’s stolen – just borrowed. Yep, that’s the way I’m gonna see it. But thanks for the link, because I read the article and found it interesting, even though not surprising. Republicans manipulating the racism in southern states to lock in their electoral votes is not very surprising, and I was thinking “George Bush Sr – Willie Horton 1988” early in the article, before the author mentioned the same at a point a lot further into the article.

      But I also understood the author’s point that journalists shouldn’t hold back, and report as fact and not opinion, that the Republican party is a neo-racist organization that inflames the preexisting racism in southern whites as a strategy to win presidential elections.

      I have no problem calling the Republican party lots of things, and calling the GOP a neo-racist organization is okay with me. But I’m not sure that encouraging journalists to declare as a fact that the GOP is a racist entity improves the chances for a Democrat to win the Presidency, and I think that it could hurt the Democratic candidate instead.

      Why? Because even if it is a fact, and becomes a fact frequently repeated, a large part of the US voting population throughout the country, including moderates, independents and the undecided, will see this as an extreme liberal position, and they will have a negative reaction to it, which they will then associate with Democratic Party, and be less likely to vote for the Democratic candidate.

      And Republican strategists would love the chance to promote and reinforce this negative reaction as much as they possibly can. They’d just love to use this declaration of fact, and they wouldn’t even need to lie about it, like they usually do, when they try to accuse the Dems of being liberal extremists – just maybe exaggerate what has actually been said, and then constantly repeat their own version of it.

      Such a declaration of fact will also infuriate all Republican voters everywhere in the country, and most of all, the Republican voters who honestly are not racists. This will just guarantee that more Republicans will be all the more determined to not skip voting, as they might do, if not motivated by anger, and produce a greater turnout of Republican voters at the polls. It will also drive some of them to go from being just Republican voters, to becoming Republican volunteers and activists.

      I guess I don’t see the sense in encouraging journalists to publicly declare a fact, however true it is, that will be inevitably produce a very inflammatory and negative reaction, and possibly help that very same neo-racist GOP to win a close presidential election. We don’t want to do anything to help them, that plays right into their hands by enhancing the propaganda they use to turn the political center against us and lose voters that might otherwise vote with us. I also don’t think it’s wise to cause an outrage throughout the Republican party that will make them even more determined to try harder to beat us.

      There are other more subtle but very effective ways to expose the most damning truths about who and what the Republican party really is, and what it does and doesn’t do, while keeping a majority of the political center on your side. Bill Clinton’s recent speech at the DNC is a textbook example.

      It’s very hard to make the changes needed to save this country when you have almost no political power at all, because your choice for a leader who shares your vision can’t win an election. I’d rather be politically smart enough to win the power needed to make this a far better country, than be ideologically pure and powerless. I’m suddenly reminded of a guy named Ralph Nader, and an election that went horribly wrong for America in 2000. It went wrong in large part because of Ralph’s ideological purity combined with his total blindness for political reality.

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  • Interesting post and comments. Loved the example of the Trojan Horse “whispers” being ignored from another comment here. So much of that really does exist to a deaf ear and blind eye. Also interesting is the photo and what is on the podium because as I read your post I thought of “Profiles in Courage” (JFKs book) about the “talkers” in government like our lady here who dared to speak, the heroes who went against the grain despite personal loss of job, liberty, and even life. And, so the masses look at the cross but are too blind to see. What does it take to give a loud enough wake up call? Paulette

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  • Sometimes it takes a lifetime, or the loss of many fortunes, or a death, or many, don’t you think? Many of us Americans live comfortably, and shy away from jeopardizing our comforts. That’s enough to instill a little blindness and deafness

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