Brooksley Born Had Made Noises About Impending Foreclosure Related Crisis

As far back as 1998 Brooksley E. Born, the head of Commodity Futures Trading Commission had made loud noises about the impending foreclosure-related crisis being experienced today. She had sent out alarm bells sensing trouble with the debut of new tools known as derivates. The latter began to be traded vigorously bypassing the regular channels. But Federal Reserve chairperson Alan Greenspan, Treasury Secretary Robert Rubin and the chairperson of Securities and Exchange Commission, Arthur Levitt had intentionally or otherwise ignored her warnings. Being the only woman in the powwow Born was pushed around but a formidable litigate of her stature did not like it.

Born wanted to focus some light on these ‘dark waters’ of trading that were giving out the wrong signals to her. But the Wall Street bigwigs – Greenspan, Rubin and Levitt were up in arms against her. Questions were raised about the authority of Born’s agency to regulate these ‘swaps’ or the new trading tools, the derivatives. But her asking for a discussion on these opened up a Pandora’s Box of doubts when the issue at stake was the rights and wrongs of trading in trillions of dollars that was bound to have an impact on the market. In no uncertain terms the trio asked the sole protestor, Born, to back off!

Born remained non-committal. Her adversaries saw it as a sign that she had started to cool off but those who knew her saw in her attitude no change – she had neither been deterred nor chastened. Geoffrey Aronow of CFTC said, “Once she took a position she would defend that position and go down fighting. That’s what happened here. When someone pushed her, she was inclined to stand there and push back.”

Even today despite the rage of the foreclosure crisis, Greenspan and Rubin stick took their view that Born was toeing the wrong line. Greenspan who gave up his federal job in 2006 after a record span of three terms insists that regulating the derivatives would not have prevented the present crisis.

But old issues are being raked up. Recently a Senate committee has started hearings focusing solely on the role of these derivatives.

Born quitted in 1999 and no one wanted to take up her baton. When Bush took over power the mood was for more deregulation and definitely not for more. The preferred approach was voluntary oversight.