'Frontline's' Must-See Look At Woman Who Gave Early Wall Street Alarm

There are those who have fought the good fight on behalf of millions of people who will never know their names. Brooksley Born is one such.

Born, the one-time head of the Commodity Futures Trading Commission (CFTC) and a pioneering woman in the legal field (the first woman president of the Stanford Law Review) is the subject of a Frontline documentary which aired last week that's well worth seeing (It's available on the web.)

Called "The Warning" the documentary explains how Born sounded the alarm in the late 1990s about the risks that innovative but poorly understood financial products called over-the-counter derivatives were creating for the world's financial markets.

They were among the "toxic assets" that nearly destroyed financial giant American International Group (AIG) and created panic in so much of the financial sector last year.

While Born's role as a regulator who wanted to shed light on the so-called "dark market" has been known for some time, the documentary has the first extended public interview she has given on her experience trying to regulate the OTC derivatives market. There's also a small appearance by Adam Davidson of NPR's Planet Money blog and podcast.

 

As the documentary makes clear, Born was defeated in her effort to regulate OTC derivatives market during the late 1990s by then Federal Reserve Chair Alan Greenspan; Treasury Secretary Robert Rubin, Assistant Treasury Secretary Lawrence Summers and Securities and Exchange Commission Chair Arthur Levitt. They argued regulation would cause financial turmoil.

The ferocious Washington counterattack these men, at the time some of most powerful in the world, launched against Born laid the groundwork for the Commodity Futures Modernization Act which prevented regulators from strongly overseeing some of the riskiest financial instruments ever created.

Summers, of course, is now a top adviser to President Barack Obama; Summers' top assistant then, Timothy Geithner, is the Treasury Secretary. And they have gotten religion on regulation with the Obama Administration, making their own proposal to oversee the derivatives market.

Born's old law firm, Arnold & Porter, has an analysis of the Obama proposal to regulate OTC derivatives.

There are still major doubts as to whether Congress will significantly improve regulators ability to police these products. Born, in her Frontline interview, offers another warning about what could happen if regulators aren't given the power and resources to oversee these financial products.

I think we will have continuing danger from these markets and that we will have repeats of the financial crisis. It may differ in details, but there will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.

Born was awarded the John F. Kennedy Profile in Courage award earlier this year for bravely challenging her fellow regulators, Congress and the financial-services industry ten years ago.

Again, the documentary is well worth watching.