In 2009, Brooksley Born warned about the financial problem in America. Click onto the site and scroll to the documentary. Lack of regulation has led to extremities of the derivatives. Fortunately, in Canada, only a few banks purchased the subprime derivatives but were/are regulated. I believe in freedom... to a point.
The Warning: Brooksley Born's Battle With Alan Greenspan, Robert Rubin And Larry Summers
Here's how Frontline describes the documentary.
"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"
In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.
"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"
Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."
Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.
"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."
Brooksley Born of the FCIC: “We may well still be in a financial crisis - David Dayen, January 27, 2011
Here is the commission conclusion on this aspect of the going-forward crisis:
- The Commission concludes the unchecked increase in the complexity of mortgages and securitization has made it more difficult to solve problems in the mortgage market. This complexity has created powerful competing interests, including those of the holders of first and second mortgages and of mortgage servicers; has reduced transparency for policy makers, regulators, financial institutions, and homeowners; and has impeded mortgage modifications. The resulting disputes and inaction have caused pain largely borne by individual homeowners and created further uncertainty about the health of the housing market and financial institutions.
What that conclusion doesn’t come out and state is the evidence shows clear criminal fraud on the part of major banks and loan servicers. They have little problem agreeing to the incidences of mortgage fraud – which became such a large industry that losses on fraudulent mortgages reached $112 billion between 2005 and 2007. But that’s a well-known problem which does not take in the accounting fraud of major banks which many, like Bill Black, say drove the crisis. When asked on the call if they agreed that criminal fraud was responsible for the crisis, they fell back on mortgage fraud, a common technique. Angelides countered that you’ll see numerous places in the report where fraud and crime are referred to. And that’s generally correct. But their official statements fall much more along the lines of “imprudent” or “misjugded,” the kind of words not normally used in court.
So... how come few have been touched by this, I mean charged and arrested? Or was this just a flaw of an ideology — "q dark market" of over the counter derivatives — that remains dark, not transparent because too many key players were involved.
This went back to homes for everyone as planned by Jimmy Carter, Bill Clinton, overlooked by George W. Bush, until too late. President Obama, a.k.a Obomination, has done little about it and has bailed out conspirators.
Fascinating. Only In America.
Obama's Two Financial Crises - Stanley Kurtz, National Review
Mortgage paperwork mess: Next housing shock?
America’s road to discredit - Nicole Gelinas
The Fed keeps tens of billions of toxic mortgage-related securities on its books. This keeps markets from pushing these securities down to their real levels, which would force lenders to admit that trillions in bad housing debt will never be repaid. Meanwhile, the administration lets regulators look the other way when it comes to banks’ incompetence in handling foreclosures -- which also delays recognition of bad debt...
...We’re digging deeper, too. Obama (via Fannie, Freddie and the Federal Housing Administration) has enticed new homebuyers to buy with just 3.5 percent down. As house prices slide, these buyers join those trapped under housing debt. It’s all an effort to prevent old homebuyers and lenders from having to to take their losses -- but it just locks more victims into the mess.It’s not just housing. The Dodd-Frank financial-regulation law makes it clear that big financial firms will never have to play by free-market rules: It just makes “too big to fail” official, while relying on regulators to somehow be smarter about seeing the next bubble coming.
Fannie and Freddie live on in limbo, too -- running up new (bad) obligations that the taxpayers will have to eat. But housing prices can't reach their “bottom,” and start recovering, until the fate of the two housing-finance giants is resolved.
Politicians have ignored this mess for three years now, because they fear the sharp short-term pain of confronting it. But getting past that pain is the only way to a real recovery; putting it off just adds to the eventual price (in pain and in cash).
As long as we don’t make borrowers and lenders accept the consequences of bad decisions, we can’t grow. Shielding people from accountability sucks up all of our extra economic resources, public and private.
And growth is critical to deal with the problems S&P cites. People with jobs and savings could accept entitlement changes. People terrified of where they will be in a year, not so much.