I hope everyone watched The Warning on Frontline last night.

Brooksley Born tried valiantly to save us from the predations of the financial sector, but was beaten down by the conniving of Greenspan, Rubin, Summers, and Levitt.

Born was hauled before Congressional committees to explain why she wanted to regulate derivatives, and she answered that the unregulated derivative market posed a danger to our economy, people's jobs and their homes. For her efforts she was cast as the fool who intended to foul up the free market with needless regulation, in Greenspan's words, "... regulation for regulations sake."

Born resigned as head of the CFTC when it became clear that the old boys club would not permit her to do her job.

I'd say the rest is history except for the fact that we face an ever growing shit-storm of misery rooted in the greed and depraved indifference of that old boys club.

One of the highlights for me was Arthur Levitt's clear statement that he was wrong to join the rest of the boys in pillorying Born, he says he didn't know her, but that if he had helped instead of hindered her, they may have saved us a great deal of sorrow.

The very first thing Greenspin did when she was appointed head of the CFTC, was to call her in and explain to her that they were not going to see eye-to-eye on the topic of fraud because, as he explained, she probably thought fraud should be prosecuted and he thought the market would take care of fraudsters by itself.

What more needs saying about the origin of our economic woes, than that person who was considered our infallible financial wizard not only thought it wasn't important to prosecute fraud, but would actively interfere with anyone who did?

Greenspan, Rubin, Summers, and Levitt, with the help of Congressional accomplices like Phil Gramm nailed Born's feet to the floor and yanked the telephone wires just as the house was about to burn down.

So guess who's still in charge?

This isn't going to lead to another damned Silkwood movie is it? Cause the name Brooksley Born was clearly invented by a bad screenwriter.

I hope everyone watched The Warning on Frontline last night.

Hope in one hand ...

"unregulated deriviatives" didn't cause the crisis.

bad lending, and bad risk rating did.

i'm not saying derfvatives don't need regulation - they probably do, but i'm not qualified to say how much regulartion.

the current economic crisis is the outcome of two colliding activities, none of which is related to "unregulated derivatives"

1 - the private sector, responsible for risk rating individual and pooled mortgages, pushed forth the theory that zero down loans to subprime borrowers were no different in risk than regular loans which call for 20% down, adequate income, and a demonstrated history of timely debt repayment in the past - in other words, deadbeats don't default any worse than conscientious people. that notion of course is absurd.

2 - congress encouraged Fannie Mae and Freddie Mac to dive into the subprime and zero down and liar loan market - which those lenders did with a vengeance. Just before the crash, 80% of fannie mae and freddie mac loans were "non conforming".

again, derivatives do need to be regulated, probably.

but does anyone really believe that Brookesly Born with her magnifying glass on the derivatives market was positioned to change risk rating for subprime borrowers, and the absurd instructions congress gave to fannie mae and freddie mac to make easy money loans available to marginal borrowers (voters, constituents) who wanted a piece of the american dream?

congress is ALL about making things better for the "have nots" - thats why they empowered fannie mae and freddie mac to "generate prosperity" for risky renters who wanted to become homeowners

... be my guest.

Thanks for stopping by.

The problem with unregulated derivatives is that they greatly magnified the subprime crash that you correctly identify. In other words, it would have been bad anyway but not nearly so bad.

... and many will believe it to be true.

You've been properly corrected for this lie error often enough that your continuing insistence on repeating it must be considered as evidence of your basic lack of character.

The following is the conclusion from an analysis by economists of the Federal Reserve Bank of Minneapolis:

"Two basic points emerge from our analysis of the available data. First, only a small portion of subprime mortgage originations is related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together, the available evidence seems to run counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis."

W4B;

Further, 80% of subprime lending during the period in question originated with private lenders who are not subject to CRA regulation.

Some main points from the linked article;

"... The first point is a matter of timing. The current crisis is rooted in the poor performance of mortgage loans made between 2005 and 2007. If the CRA did indeed spur the recent expansion of the subprime mortgage market and subsequent turmoil, it would be reasonable to assume that some change in the enforcement regime in 2004 or 2005 triggered a relaxation of underwriting standards by CRA-covered lenders for loans originated in the past few years. However, the CRA rules and enforcement process have not changed substantively since 1995.2/ This fact weakens the potential link between the CRA and the current mortgage crisis.

Our second point is a matter of the originating entity. When considering the potential role of the CRA in the current mortgage crisis, it is important to account for the originating party. In particular, independent nonbank lenders, such as mortgage and finance companies and credit unions, originate a substantial share of subprime mortgages, but they are not subject to CRA regulation and, hence, are not directly influenced by CRA obligations. (We explore subprime mortgage originations in further detail below.)..."

"... Another way to measure the relationship between the CRA and the subprime crisis is to examine foreclosure activity across neighborhoods that are classified by income. Data made available by RealtyTrac on foreclosure filings from January 2006 through August 2008 indicate that most foreclosure filings (e.g., about 70 percent in 2006) have taken place in middle- or higher-income neighborhoods. More important, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.9/ (See Table 7.)"

Of course I don't expect these facts to get in the way of your continued dissembling.

Credit default swaps enabled and then pushed the sub-prime market to expand risk into unreasonable territory. Investors couldn't get enough of them and Fannie and Freddie were late arrivers in the game. Never let the drug dealer be responsible for telling you when you've had enough.

Congress earned a fair share of the blame, but that much is really our fault. The simple truth is, most of them just aren't that bright and the ones that are find very special friends. Congress is a leaf pile stirred by the wind.

3 - Fraud on the part of some home buyers

4- Fraud on the part of some mortgage writers

5 - Failure of the Fed to understand basic economics and housing inflation which should have led them take steps to raise interest rates and other actions.

6 - Gross mismamagement and greed by some major financial institutions in believing that housing prices could never go down. Also a belief that they were protected from major bond payers defaulting becasue of the derivative market credit default swap instruments they were purchasing.

7- A belief that manufacturing is no longer significant and we could all get rich by swaping houses and selling each other financial funds. It might work for Switzerland but not for a large country such as the USA.

credit default swap market. But she can't really be blamed for that, neither did Bear Stearns, Lehman Brothers, or AIG.

but be prepared for opprobrium by the liberals on this site . . .

in some people's minds every loan should be a "liar loan" with no money down and no verification of income - that inherently appeals to people with sketchy credit histories, minimal wage jobs, and no savings.

people like to borrow - but they never budget to pay back

Sounds like the Obama, Bush43, Bush41, Reagan, and Ford administrations.

I see several "first responders" have already touched on this sort of marginally, but: lots of people who actually understand this stuff have pointed out the obvious role of derivatives (through bundling the risk and shoving it down the road into their buyers' hands) in enabling the crisis by insulating the frontline lenders from any accountability for their bad practices that you correctly identify (but incorrectly seem to think were the whole, or even the main, problem).

Uhh....just who is it do you think that those originating lenders sell their loans to? You might even say who is it that created the market.

"The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership...the federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories...Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low- and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets."

David Glenn
President and CEO
Freddie Mac, 1999

You go out of your way to forget that it was White House pressure in the 90's that leveraged Fannie Mae up to 50% in subprime loans; and that it was Clinton's old budget director Franklin Raines, then Fannie's CEO, that just looked the other way while busily cooking Fannie's books for loyalty and profit; or that Jamie Gorelick, of keep-the-FBI-from-talking-to-t­­­he-CIA-and vice-versa-fame, was shipped over to Fannie in 1997 to collect her $26 million payoff without the word finance on her resume; or that Fannie bundled their half toxic paper for sale globally; and that it was Chris Dodd and Barney Frank who pooh-poohed the Republican notion that Fannie needed some oversight.

"Home mortgages have been a political piñata for many decades," ...in an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s...the decline in mortgage underwriting standards was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists...although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise...as homeownership rates increased there as self-congratulation all around...the community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership...after the warm fuzzy glow of 'flexible underwriting standards' has worn off we may discover that they are nothing more than standards that led to bad loans...it will be ironic and unfortunate if minority applicants wind up paying a very heavy price for a misguided policy based on a badly mangled idea.""

Stan J. Liebowitz
Economics professor
University of Texas

...[homeownership among minorities is] one of the hidden success stories of the Clinton era.

Los Angeles Times

In moving, even tentatively, into this new area of lending [expanding mortgage loans among low and moderate income people], Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.

New York Times, 1999

Summers could still be occupying her rightful seat in light of that.

Highlighting what I fear may yet be at the core of our eventual (inevitable?) downfall: the divorce of competence and performance, as indicated by one's actual record, from reputation, influence, and advancement in the "upper" (in terms of influence on policy) reaches of our society. Whereby the Wrong About Everything experience no negative career consequences, but rather continue to be regarded as Very Serious and Wise and paraded as such all over the Establishment media; while those who got critical junctures right remain marginalized by the Poo-Bahs of the establishment -- e.g. treated as "dirty fucking hippies" in the vernacular of the blogosphere -- despite their consistent record of getting it right.

A recent glaring example being the finding in a National Journal(?) survey of some influential national establishment figures that Thomas Fucking Suck.On.This. Friedman was voted most influential on their thinking (the runnersup were all nearly as frightening in a Wrong About Everything sense). I mean, really, just shoot me now.

Barney Frank says, "I am the gweat and poweful Oz. I can give away homes to all my swubjects and anyone who twies to stop me wiwll be cwushed!" after they foreclose on the beachhouse who gets it?