Brooksley Born: Profile in Financial Courage
While public intellectuals like Richard Posner assure us that “no one could have foreseen” today’s financial crisis, many voices called for the types of sensible regulation that may well have prevented it. Today one of them, Brooksley Born, is being honored at the John F. Kennedy Presidential Library with a Profile in Courage Award. It is given to “to one or more public officials who took a stand that took a lot of integrity and nerve.” Here is Born’s citation:
In 1998, as chair of the Commodity Futures Trading Commission (CFTC), Brooksley Born unsuccessfully tried to bring over-the-counter financial derivatives under the regulatory control of the CFTC. The government’s failure to regulate such financial deals has been widely criticized as one of the causes of the current financial crisis. In the booming economic climate of the 1990’s, Born battled other regulators in the Clinton Administration, skeptical members of Congress and lobbyists over the regulation of derivatives, warning that unregulated financial contracts such as credit default swaps could pose grave dangers to the economy.
Her efforts brought fierce opposition from Wall Street and from Administration officials who believed deregulation was essential to the extraordinary economic growth that was then in full bloom. Her adversaries eventually passed legislation prohibiting the CFTC from any oversight of financial derivatives during her term. She stepped down from the CFTC in 1999 and returned to a distinguished career in public interest law.
The silencing of Born was just one more sad consequence of the Clinton administration–whose tilt to Wall Street lobbies was almost indistinguishable from that of Reagan and the Bushes. As Frank Partnoy has said,
History already has shown that [Alan] Greenspan was wrong about virtually everything, and Brooksley was right . . . I think she has been entirely vindicated. . . . If there is one person we should have listened to, it was Brooksley.
Born is the same person whom Larry Summers accused of “cast[ing] the shadow of regulatory uncertainty over an otherwise thriving market, raising risks for the stability and competitiveness of American derivative trading.” Would that our present director of the National Economic Council had a bit more concern about the shadow banking system back in the 90s, and a little less eagerness to make Born the Cassandra of American finance.
Photo Credit: From this site.