The Nation’s Worst Financial Crisis
By Jim Carey
Front and center is Brooksley Born, first in her class, the first female editor of the Stanford Law Review. She speaks now about her failed campaign during the Clinton Administration to regulate the secretive, multi-trillion-dollar derivatives market and its crash which helped trigger the 2008 meltdown. Then former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful working group on financial markets, is told by Alan Greenspan and Robert Rubin that “Born is irascible, difficult, stubborn, and unreasonable.” They convince Levitt that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was clearly a mistake. Larry Summers told Born, “You’re going to cause the worst financial crisis since the end of World War II. Stop, right away. No more.” Greenspan, Rubin, and Summers ultimately prevailed. Greenspan, the maestro, and both parties in Washington, were united in a belief that the markets would take care of themselves.
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The Obama administration continues the charade. They continue to roll the dice. In June 1998, the face value of all global OTC derivatives was US$70 trillion. The figure skyrocketed nearly 10-fold to US$684 trillion by June 2008 (source: Bank for International Settlements). This figure has continued to rise, reaching US$710 trillion by 2013. Now the OTC derivatives comprise roughly 90 percent of the total market, which includes exchange-traded derivatives, such as futures and options contracts. In 2008, the taxpayers bailed out the banks. Under the new rules, we are told that the depositors will bear the brunt of the next crash. The Warning gives us a glimpse into the complicated politics that led to the last economic crisis. It’s a riveting story, which would awaken every taxpayer if they really knew what is happening in the DC/Wall Street Gambling House.
Born gets the last word: “It’ll happen again if we don’t take the appropriate steps. There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”