The Woman Who Cried Wolf

Writers for the Bloomberg Businessweek Magazine recently discovered a few pages

of handwritten notes at the Bill Clinton Library. They are a bombshell. Those cryptic

notes revealed a drama that unfolded between a little known woman and the

financial leaders of our nation. She foresaw the coming of the financial meltdown

and tried to forestall its occurrence. Our nation’s leaders of financial and political

power acted quickly to silence her alarms and thereby set in motion the greatest

financial collapse in the country since the Great Depression. Her cries of “Wolf” went

unheeded and we all paid a terrible price.

This is the story:

The woman was Brooksley Born, the Chairwoman of the Commodity Futures

Trading Commission (CFTC). The CFTC is a federal agency charged with regulation

of futures and options contract trading in the United States.

The time was in the spring of 1998. Ms. Born was a lawyer who had specialized in

derivatives before her appointment by President Clinton to head the CFTC. He had

considered her for his attorney general, but chose Zoe Baird instead, which turned

out to be a disaster.

Unlike most of the political appointees of the Clinton administration, Ms. Born was

an expert in derivative contracts and knew they could be used for good or evil. She

had observed that Long-Term Capital Management had leverage four billion dollars

of their financial assets into more than one trillion dollars in derivative contracts.

They became insolvent overnight when the markets turned negative. The Federal

Reserve Bank raced to force them into a merger to avoid a national calamity.

Ms. Born realized that what happened to Long-Term Capital Management would

happen again unless the free-wheeling and unregulated derivatives marketplace

was regulated, or at least forced to reveal who owed what to whom.

Her agency issued a request to the financial marketplace for information about

whether derivatives should be regulated by her agency. It was the shot heard

around the world of Wall Street and Washington.

The Four Horsemen of the Apocalypse soon appeared on the scene – Robert Rubin -

Treasury Secretary; Larry Summers – Deputy Secretary; Alan Greenspan – Chairman

of the Federal Reserve; Arthur Levitt – Chairman of the Securities and Exchange

Commission (SEC).

The notes discovered of that meeting in April 1998 revealed a heavy-handed rebuke

of Ms. Born for her activities to regulate derivatives and she was silenced. But, the

cat was out of the bag. Ms. Born had sounded the alarm and the Walls of Jericho

were shaking on Wall Street and the lobbyist’s offices of Washington.

The Four Horsemen encouraged their partners in congress to act quickly to silence

the CFTC and congress obliged by passing into into law the Commodity Futures

Modernization Act of 2000, which “exempted” derivatives from regulation.

President Clinton signed it into law.

As Ms. Born predicted, the unregulated derivatives market exploded into the

mortgage- backed securities market and a feeding frenzy occurred until the bubble

burst in 2006 and financial chaos rained down on the American middle classes and

their home values vanished.

The fat cats of Wall Street and the “too big to fail” banks quietly accepted their multi-

million dollar retirement packages and faded away to their golf courses.

Bill Clinton would later announce, “His economic team was wrong, and he was

wrong in taking their advice.” He never mentioned Ms. Born, who had resigned in

1999 as Chairwoman of the CFTC and returned to her law practice.

Ms. Born sounded the alarm in plenty of time to avert our national calamity – but

our so-called leaders sold their souls for a few pieces of gold and derivatives remain

unregulated to this day

I, for one, thank her for her efforts to protect the average American.

Bobby Wilson, J.D. – Sahuarita, AZ

Author of “‘State of Mind “- A novel about avenging the USA financial meltdown.