Posted on 04/07/2010 5:53:20 PM PDT by dangthis
"At today’s Financial Crisis Inquiry Commission hearing, Brooksley Born, the former head of the Commodity Futures Trading Commission, declared Alan Greenspan’s tenure at the Federal Reserve an unmitigated failure – to his face. Greenspan accords a certain degree of respect on Capitol Hill, despite Born’s accurate take on his many failures, and so this outburst was highly unusual – and gratifying.
Born, who pushed to strictly regulate derivatives under the Clinton Administration, but lost the battle to, among other people, Alan Greenspan, told the former Federal Reserve chair that his agency “failed to prevent housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse.”
“You failed to prevent many of our banks from consolidating and growing to a size that are now too big or too interconnected to fail,” Born added. She added that Greenspan’s views on deregulation, which he took as an article of faith, contributed to the Federal Reserve’s failure in delivering on its mandate."
(Excerpt) Read more at news.firedoglake.com ...
Whatever you call him, I submit he was acting just like certain kinds of capitalists. The kind that think all regulation is bad and the markets will just hum along merrily without them.
Hey, he pulled a King Lear, and got what Lear got. A big friggin mess.
parsy, who figures (regrettably) that this particular mess put us over the edge
He wasn’t rejecting regulation. Just the opposite. He was responding to the dictates of his political masters like George “ownership society” Bush.
The ownership society wasn’t what sunk us. It was the bets piled up on the ownership society’s richer cousins. Pretend for a second, that strangers could buy insurance on your house. People who had nothing to gain, unless your house burned down. Think about all the interesting situations that could arise from that.
The government has it share of blame, but the out of control fat cats on Wall Street are the real villains here. Read that link I put up above. It’ll p*ss you off.
parsy, who says its just the reality of the situation
Brooksley Born is one of the very few heros to come out of all of this.
Actually you’re the idiot. Born spotted the rising problem in derivatives and attempted to do something about it.
The current mess is the result of scrapping Glass-Steagall in the late 90s and allowing a huge highly leveraged shadow banking system to develop.
I’m with Born on this one.
Yes - the dems in DC own Fannie/Freddie.
But the swaps caused trillions to get sucked into a black hole.
You’re correct except for the Fannie and Freddie part. OTC derivatives were the province of investment banks and similar firms that had created a huge market in their own securitized debt paper. This is all described by Gillian Tett.
There was a struggle between Born and Greenspan over the expanding CDS market.
She correctly foresaw the devastating dominoe effect they could have.
But Greenspan, Geitner, and Sumners got their way.
Now O still has Geitner and Sumners working their wonderful bailout ways.
Well said.
This calls for an explanation of the speculative market in housing. What drove the prolonged bubble was the easy access to buyers. The loan requirements were deliberately manipulated by government mandate. They lowered the requirements and that allowed the number of people that could qualify to increase. That made the number of houses still sought by buyers to increase. That caused the prolonged extension. The bubble collapsing was artificially propped up for a time.
Actually I agree with you.
But this I don’t: “The current attack on Greenspan by Obama’s minions is just part of the overall assault on capitalism by the communist in chief.”
Brooksley Born is not a Obama plant. She is not an anti capitalist. She’s the one that takes the red herring off the trail. She’s the government worker with the credibility to show where the truth exists. You are still following the red herring. They want you to not see this. They want you to think it’s an Obama plot so you wont look at it. It wont kill you to look past your suspicions. The liberals took a government enterprise and turned it into their cash cow. Then they sent us a bill when it fell apart. Killing off capitalism is tangential and is what makes them tick. They were only in this for the money. It was pure greed. They used government to set themselves up as capitalists. That’s what they are afraid of coming out. You are only helping them do that. It was a planned rip off from the start. They new that it was too big to fail. The bail out money came back. The stimulus money became deficit spending that would never be paid back.
Amazing: “He wasn’t rejecting regulation. Just the opposite. He was responding to the dictates of his political masters like George “ownership society” Bush.”
The problem with that is that George Bush was not president when all this went down and became law. I guess Clinton was channeling the hatred of George Bush while punching notches in the White House. This is just another case of an inconvenient truth.
What made this scam blow up was that the loans were taken out by those that would bail out as soon as the value was gone. They had zero in equity so they walked away from it. This was a scam to make money off of a market heading for a cliff. Answer this. Where was anyone saying that a bubble would be very dangerous to everyone if the housing bubble were to collapse? Our government did not see this coming. The government enterprises did not see this coming. In other words they were stupid. They were so stupid that they should never be trusted to run the dog pound. The story is that they never saw this coming. It was their business to know what a housing turn around would do. But they never warned anyone. They just kept doing it until it came to an end. They got caught just like a Ponzy Scheme.
“You’re correct except for the Fannie and Freddie part. OTC derivatives were the province of investment banks and similar firms that had created a huge market in their own securitized debt paper. This is all described by Gillian Tett.”
That’s right. They purchased the potentially bad loans from Fannie and Freddie. The issue is that government oversite over government sponsored programs and mandates made the choice to allow it to happen. They were hot potatoes. When full mortgages were chopped up into parts in order to minimize risk they didn’t bother to remember that markets like real estate go up and down rapidly. They were used to buying and selling paper and turning it over like day traders. The paper took on a life of its own. The only thing that went wrong was that people would default on the loans in mass. That was warned about back in the 1990’s. That is why the Brooksley Born story is so important here now. The government sponsored worthless paper.
“That’s right. They purchased the potentially bad loans from Fannie and Freddie.”
No, this was entirely independent of Fannie and Freddie, whose conforming loans offered a paltry rate of return and was of no interest to investors looking for yield. This market was created by the investment banks and it was generating high risk, high yield paper. At its peak it dwarfed Fannie and Freddie.
The investment banks were providing warehouse loans to the storefront subprime brokers who wrote the loans. The IBs then securitized these loans, tranched them, and sold them to investors all over the world as CDOs, CMOs, CDOs squared and so on. This market was essentially entirely unregulated and in many ways invisible to everyone except the immediate actors. It measured in the trillions of dollars. Many of the investors involved believed that they had protected themselves from risk by employing credit default swaps but they were very badly mistaken. In fact the credit default swap market was operating more like a rigged casino than an insurance operation.
“Now O still has Geitner and Sumners working their wonderful bailout ways.”
True. And Rubin, too. It would be one thing to keep these guys on if they had learned their lesson because sometimes there is no saint like a reformed sinner. But these guys don’t seem to have repented. This is a huge opening the GOP could take advantage of, but sadly they are too enamored of the Libertarian view.
parsy, who may wind up in the durn Green Party before this is all over...
No, I don't want to be sent off on a wild goose chase by someone too stupid to explain the issue themselves. And if you can't explain it, you probably don't understand it.
Reminds me of a Ron Paul supporter who links you to a 20-minute long treatise of his about gold.
Ron Paul? Ugh!
Why did Fannie and Freddie need derivatives? They had a government guarantee.
Not true at all. The Fed was slashing the discount rate below market rates throughout most of the Bush administration. One of the goals was to keep the artificial housing boom on track.
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