Even the suggestion of checking these problems bought a firestorm of resistance by Federal Reserve chairman Alan Greenspan, and by 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 CFTC's concept release. Their response dismissed Born's analysis and focused on the hypothetical possibility that CFTC regulation of swaps and other OTC derivative instruments could create a "legal uncertainty" regarding such financial instruments, hypothetically reducing the value of the instruments. They argued that the imposition of regulatory costs would "stifle financial innovation" and encourage financial capital to transfer its transactions offshore.
Get it? They argued it would cost wall street and the banks money if they were held accountable and made transparent! And the favorite excuse... they will do business offshore, much like the current straw man argument that jobs will go offshore if there is regulation or any taxation on wall street or corporations.
Six weeks after blocking Ms. Born's attempt to investigate what she saw as a looming problem, Long Term Capitol Mgmt. began to melt down due to over leveraging. They had about 4 billion in assest and had leveraged 1.25 trillion. 14 banks agreed to bail them out and it temporarily put a band aid on the problem. However new calls for regulation began being sounded.
Of course we all know the rest, the house of cards collapsed and our economy was nearly destroyed... although we managed to narrowly avert a complete meltdown, savings, 401's, jobs and savings were wiped out for many average Americans.
So in summation, as wall street and the banks lobby hard once again to block any regulation, remember that it was the ignorance and or greed of people in both parties that allowed the recent meltdown. Now however, since the problems are clearer, it is simple greed that motivates elected officials to block regulation of these wild west free market games that threaten to completely destroy our economy and turn us into a third world society, where a few super wealthy sit on top of the remains of our economy.
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