In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”
Take the time to watch it all and take special note of who the key characters are.
I am just astounded! The continued lack of regulation of OTC derivatives threatens the entire democratic form of government. This multi-trillion dollar market can collapse the currency overnight…with all that that entails to a society. That anyone would gamble with such stakes is just astounding. One would think that self preservation would lead to corrective behavior, but what is continuing is actually insanity!
Buy gold, bullets, and guns folks.
Thanks for posting this. I saw somewhere that when government regulatory attorneys would show up on Wall Street demonstrating an understanding of derivatives, Wall Street would simply offer them cushy jobs that they couldn’t refuse.
I missed it when it aired, but someone notified me of it so watched the whole thing online. It was an amazing piece of journalism, and a black indictment on our government. It gives little hope for the country.
Another must watch companion to this is “The Crash of 1929”
[url=http://www.pbs.org/wgbh/americanexperience/crash/]The Crash of 1929[/url]
NW Bob thinks there is hope for the country if we can just recall and reinstitute the remedies of the past. This goes particularly for financial regulation. Even Alan Greenspan has admitted he was wrong about unfettered markets being able to reign in fraud. You may note in “The Crash” that the collective public memory of financial scandals is 20-30 years. Then we forget and get sucked in again. Just as in 1929, smooth operators were at work in the events leading up to the 2008 decline and are still working today.
As a case in point try writing your representatives to demand the reinstatement of the “up-tick rule”. You will get a hem-haw response. Too many smooth operator’s lobbyists campaigning to keep off the books this neat little device to prevent runs on stocks.
Financial interests are busy delaying and watering down financial reform legislation as we speak. Instead of buying gold and a gun, how about buying a pen and using it. Nothing like the threat of losing a job to bring a representative to heel. You can’t collect future “campaign contributions” if you don’t get elected.
Grace and peace,
NW Bob
[blockquote] I saw somewhere that when government regulatory attornies(sic) would show up on Wall Street demonstating an understanding of derivatives, Wall Street would simply offer them cushy jobs that they couldn’t refuse. [/blockquote]
The simple view of derivatives is they are side bets on financial results of almost any sort. Unfortunately, the other parties to these bets forgot, or were too naive, to demand that a third party hold the bet money. When the likes of AIG lost their “sure-thing” bets, they couldn’t pay up. It is almost (but not quite) depressingly that simple.
“Credit default swaps” (Think bets! “I’ll bet you that these bond issuers won’t default on their interest payments.”) were illegal in most states as gambling until the above mentioned smooth perators got Congress to pass pre-emptive legislation allowing the “swaps”. They are still legal with no one holding the money. Dumb! Dumb! Dumb!
Whenever your hear “derivative” think “wager” and you will be far ahead of the game and most people.
Fool us twice, shame on us.
With sorrow,
NW Bob
Don’t forget that they wouldn’t be making the bets if they didn’t think they could beat (or [i]be[/i]) the house. Believing there was a reliable way to establish the value of derivatives through computer models was central to the delusion that they were safe investments. Take a look at [url=http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all]this article from Wired[/url] for a look behind the scenes.
#6 Don R:
Excellent article. Some of Mr. Li’s colleagues were the “quants” behind Long Term Capital. LTC almost stopped the music 10 years ago with a great computer model with a fatal flaw. The government covered up the catastrophic results by calling in the money center banks and forcing each one to write a check to purchase a part of the bankrupt entity.
Whew! Dodged another bullet. Okay boys, back to business as usual. Almost ten years later to the day, the phony AAA mortgage backed securities and the completely non-regulated credit default wagers, er, I mean, swaps brought our country to its knees.
The Psalm for this Sunday is Psalm 146. Verse 3 is especially poignant.
Trust and obey ’cause there is no other way…
NW Bob