Without Digging Up the Deep Roots of Foreclosure the Problem Cannot be Uprooted
As with any malaise, without finding and digging up the deep roots of foreclosure the problem cannot be uprooted.
As far back as April 1998 in a meeting in the Treasury with Wall Street bigwigs, Brooksley E. Born, heading the Commodity Futures Commission had warned to no avail Alan Greenspan (Federal Reserve chairperson), Robert E. Rubin (Treasury Secretary) and Arthur Levitt Jr. (chairperson of Securities and Exchange Commission) of the dangers of introducing new tools of trading like derivatives outside the pale of regulations and control. This zone came to be termed ‘dark markets’ and she made some noises and tried to focus light on it.
Greenspan vociferously advocated for free-market arguing that self-regulation would operate better without governmental interference. It appealed to the profit making instincts of investors because soon the market in derivatives had become huge. If restrictions had been imposed there was the fear that the market would be driven overseas.
Michale Greenberger, who was at that time part of Born’s team and present at the standoff, said, “We knew it was a big deal (to attempt regulation) but the feeling was that something needed to be done. The industry had been fighting regulation for years, and in the meantime, you saw them accumulate a huge amount of stuff and it was already causing dislocations in the economy. The government was being kept blind to it.”
In an interview when Rubin was asked about the views of Born he said that regulations was “a deterrent to moving forward.” He opined that it was counter productive and added, “If you want to move forward … you engage with parties in a constructive way. My recollection was, though I truly do not remember the specifics of the meeting, this was done in a more strident way.”
The aborted efforts of Born were only part of a bigger story of the reason behind the foreclosure crisis of today. Both the political parties missed opportunities and the principles and ideals of Washington stood impotent against the innovations of Wall Street. It was not just the introduction of derivatives that spread the cancer but the spreading of it to tsunami proportions that did the damage. All were unsure of the real value of the securities. This magnified the panic that has gripped not only America but also the entire global financial system.
