Still, the stock markets were soaring, the Internet bubble had yet to burst, and the bankers had flooded Washington with lobbyists. Even with the crash of LTCM, no one wanted to listen. Congress declared a regulatory freeze on anything Born's agency could do, ruled OTC derivatives beyond regulation, and raced ahead with the repeal of the Glass-Steagall Act, which had separated commercial banks from the riskier investment banks.
Like a lady, Brooksley Born resigned, and 10 years later the global financial system came tumbling down, just as she said it would. "It was my worst nightmare coming true," she said. "Nobody really knew what was going on in the market. The toxic assets of many of our biggest banks are over-the-counter derivatives and caused the economic downturn that made us lose our savings, lose our jobs, lose our homes. It was very frightening."
Worse, the country still won't listen to her. With Larry Summers as one of Obama's top economic advisers, the bankers were allowed to gut almost every effort at reform. They still call the shots. Larry Summers says that he now favors strong regulation of over-the-counter derivatives, but the new regulations are still not in place.
"I think we will have continuing danger from these markets and we will have repeats of the financial crisis," warns Born. "It may differ in detail, but there will be significant financial downturns and disasters attributed to the regulatory gap over and over until we learn from experience."
From that experience, Larry Summers hardly seems the right man to become the nation's top financial regulator. We can only hope that President Obama comes to the same conclusion.
*A veteran of the Berkeley Free Speech Movement and the New Left monthly Ramparts, Steve Weissman lived for many years in London, working as a magazine writer and television producer. He now lives and works in France, where he is researching a new book, "Big Money: How Global Banks, Corporations, and Speculators Rule and How To Break Their Hold."
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