Go watch Frontline’s episode on “The Warning.”

It will piss you off to no end, but it is worth watching. It details the story of Brooksley Born who was the one person who foresaw the coming trouble in the financial markets due to the lack of regulation for Over the Counter Derivatives. When she tried to do something about it they shut her down. Here’s Frontline’s summary of the show:

In The Warning, veteran FRONTLINE producer Michael Kirk 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.”

And here’s a sneak peeks: Turns out you can watch the whole episode right here:

Watch the whole episode above, but be prepared for some chin bruising from it hitting the floor repeatedly. One of the most amazing aspects of the story is the fact that most of it takes place during the Clinton administration. One of the more frightening aspects of the story is the fact that at least two of the people involved are currently employed as President Obama’s financial advisers.

4 thoughts on “Go watch Frontline’s episode on “The Warning.”

  1. There were others who saw it coming, too. Meredith Whitney, Nouriel Roubini, Steve Eisman… heck, Eisman’s company FrontPoint Partners made a lot of money by essentially predicting that the banks would hit a brick wall.

  2. I suppose this just becomes another case of people who should have known better having to have reality slammed into their faces before they could figure it out.

    Only problem with that is it wasn’t the greedy idiots who got hurt, it was everybody else.

  3. The greedy idiots, a.k.a. gravy-sucking pigs, are never the ones to get hurt. When the wheel hits double-zero, it’s not the house’s chips getting scraped off the table.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.