Skip to comments.Brooksley Born Excoriates Alan Greenspan: “You Failed”
Posted on 04/07/2010 5:53:20 PM PDT by dangthis
"At todays Financial Crisis Inquiry Commission hearing, Brooksley Born, the former head of the Commodity Futures Trading Commission, declared Alan Greenspans tenure at the Federal Reserve an unmitigated failure to his face. Greenspan accords a certain degree of respect on Capitol Hill, despite Borns 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 Greenspans views on deregulation, which he took as an article of faith, contributed to the Federal Reserves failure in delivering on its mandate."
(Excerpt) Read more at news.firedoglake.com ...
I can't believe Greenspan attempted to white wash this.
Remember who he's married to.....a profession whitewasher.
"..Born was particularly concerned about swaps, financial instruments that are traded over the counter between banks, insurance companies or other funds or companies, and thus have no transparency except to the two counterparties and the counterparties' regulators, if any. CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers. On May 7, 1998, former SEC Chairman Arthur Levitt joined Rubin and Greenspan in objecting to the issuance of the CFTCs concept release. Their response dismissed Born's concerns off-hand and focused on the possibility that CFTC regulation of swaps and other OTC derivative instruments would increase legal uncertainty of such instruments, potentially creating turmoil in the markets, and reducing the value of the instruments. Further concerns voiced were that the imposition of new regulatory costs would stifle innovation and push transactions offshore..."
Credit Default Swaps were huge in the meltdown.
Anyone who marries Andrea Mitchell is a failure.
Greenspan left the Fed at the beginning of 2006. He is the favorite scapegoat of the Democrats because he advocated deregulation. The current financial mess is not a result of deregulation, but of government meddling in the economy. The Democrats want an excuse to meddle even more, hence their toadies are attacking anyone that they can brand as market oriented. Greenspan was not omniscient, and there is a limit to how much the Fed chairman can do to compensate for the fraud and thievery committed by the Democrat gang.
He pretended that he did not stand in the way of regulating the over the counter derivatives market when it was first suggested. In fact he killed it during the Clinton administration. He attempted to rewrite history. Trust me on this story. Greenspan just put blood in the water today. The true story of what happened will continue to come out. It was the over the counter derivatives that gave Freddie Mac & Fannie Mae their power.
Try history, facts, and honesty for useful characteristics when forming an opinion.
“Government itself, especially Barney Frank, were more to blame than Alan Greenspan”
You can be brought along for the ride.
It failed during the Clinton Administration first. That was that moment in history when the mold was cast to bring everything down. The warning was clear, published in fact, and the congress created a bill that killed regulation once and for all ack then. In fact it’s still the law today. Don’t you find it funny that Chris Dodd and Barney Frank went around blaming the Republicans for not regulating it? I find that very funny. That takes a real set of them to hang their own failings on the opposition. But that’s typical.
Sorry but you are just following a party line opinion from somewhere.
“The current financial mess is not a result of deregulation, but of government meddling in the economy.”
No, that’s the red herring.
It’s the over the counter derivatives and the housing bubble. The derivative trading allowed the creation of tradeable financial instruments that held mortgages in split risk forms of speculative market trading. Everyone was getting rich off the rising values of speculative real estate ownership. While it was going up it was OK. As soon as there were more properties for sale than buyers to buy them then the balloon burst. It always happens that way. All you have to do is to honestly look at the history of the housing market. BTW, I got the Greenspan memo that the housing bubble was about to burst. I knew there was going to be a collapse back in 2005. I’m a builder. I know things.
Watch the Frontline piece. I guarantee it will be worth your time and bandwidth.
No. If you can’t summarize it, then I assure you it will be not.
You’re just lazy and want to be spoon-fed then.
“The derivative market was the bottom line that gave the government enterprises the capability to sell off the bad loans after they purchased them from the banks. Its really a funny kind of Ponzi scheme. They put blinders on the watchdogs and then went into business selling bad paper. All it took was a breathing bag of skin that could successfully sign a loan application. If dogs and cats could have signed the loans they would have done that too. If they could not have transfered those bad loans somewhere then they could not have screwed us. But they had that covered. They made a law preventing any government agency from monitoring that market. That was a Clinton administration & congress that did that. Remember how home ownership was the big achievement? You have to love our government when it does what it does the best. It took suckers to take out the loans and lending institutions like the two government enterprises to create this freight train disaster.”
The regulation that caused this was making sure that the over the counter derivatives market remained in the dark. As long as a house could be purchased and then sold six months to a year later everyone was riding that gravy train.
If you dump a truck full of gold nuggets in a stream and then tell anyone that could crawl that they only needed to go down and jump in then guess what happens. It was a Ponzi Scheme. The government makes Bernie Madoff look like a saint compared to this.
Just look at those jack asses telling the world it was because of deregulation. It was their deregulation and Greenspan just met his own Waterloo.
Frankly, this particular capitalist needs castigation. This is where the overblown Libertarian economic nonsense meets the real world. The government isn’t the source of all of our problems. Sometimes it’s us.
The world isn’t that simplistic. Ayn Rand’s heroic kids playing pirates is a fun fantasy. When it leaves the bedroom, though, it ceases to be cute. You might want to try this on. This is a real good site for separating the truth from the myths. Another good one is the Market Ticker.
parsy, who wishes things really were that simple
Greenspan, as head of the government central bank Fed, was not acting like a “capitalist.” He was acting like a politician and motivate by political considerations.
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.
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 wasnt 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.
“Youre 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.
“Thats 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.
That theory doesn't work. Western European countries has far fewer restrictions have far fewer restrictions on investment and commercial banks yet the bubble did not happen there first. Besides, Glass Steagall was repealed nearly two decades ago. If you want the culprit, you need to look at more recent events such as the Fed's unsustainable rapid cuts in the discount rate during the Bush administration.
Fannie and Freddie played too: “What are Freddie Mac’s principal businesses?”
“Freddie Mac supports liquidity and stability in the secondary mortgage market through two principal lines of business. Our credit guarantee business purchases residential mortgages and mortgage-related securities in the secondary mortgage market, securitizes these mortgages and subsequently sells them to investors as mortgage-backed securities. We also have a portfolio investment business that purchases mortgages for our mortgage-related investments portfolio.”
The government guaranteed that the market was kept in the dark and they got on board too. But they made sure that the market was unregulated. The cats out of the bag. The government gave the green light to this potentially dangerous market. It allowed these frivolous loans to happen. In fact it mandated it to these independent bankers. It was a bunch of liberal social engineering programs, the independent banking scheme, the potentially dangerous financial instruments, the credit default swaps, Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market. Politicians were getting their money too. So why not just go along with Greenspan. They all gambled and they all lost. Only they put the tax payer on the hook for everything. There is no way it was just the banks.
More convenient information: “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.”
That is not why the rates were slashed. Clinton had put almost all of America’s debt in short term loans. Bush set out to get those loans converted into more long term loans. The purpose of rate reduction was to prevent inflation from causing a rate hike in the short term lending markets. Bush got us out of the short term markets and saved this country from the disaster that crashed the housing market. All short term lending dried up. I wonder what type of loans Obama is backing all this wild spending with now? Government always goes for the dumbest move possible. That’s right, Obama has gobbled up all the short term credit available. Here we go again. And you might have wanted a job. You silly fellow.
To pass the buck and claim it was to prop up a housing bubble is almost delusionary in thinking. It sounds like you have bought into one of the excuses passed down by politicians. If I understand this, Bush was the co-founder of the social engineering experiment in housing. Yeah, that makes sense. LOL
Thanks. Would you like to direct your comment to the poster that began with the personal attacks?
Waah, must call waaambulance!
Why have unregulated Canadian banks been so successful? I believe our love of small banks is one of our problems. I’m no authority, but as I understand it, our mini-banks fell like dominoes back during the Great Depression. I heard Mark Stein talk about the success of Canadian banks as well — less government control.
Bubbles very often come from government manipulation, such as coercing banks into accepting higher credit risks, or tempting them with artificial safety nets.
“Brooksley Born is not a Obama plant. She is not an anti capitalist.”
But even anti-leftists are useful to the left if they turn against an enemy of the left. They use people that way.