Ok, reviewed the Frontline story again. As I remembered, a great piece. I watch Frontline regularly. The last episode was good too and was about the anthrax killer mailings, but there was so much the government lied about in that case and so much they screwed up I don't know what to believe, even from that Frontline story. They drove one guy to commit suicide, but that's another topic.
Back to the Frontline DMV brought up. Here is the transcript:
http://www.pbs.org/wgbh/pages/frontline/warning/etc/script.html
And it shows that I pretty much remembered it correctly and what I wrote about the situation here was spot on.
Here is some text from that show.
http://www.pbs.org/wgbh/pages/frontline/warning/etc/script.html
Pres. GEORGE W. BUSH: Alan Greenspan is one of the most admired and influential economists in our nation's history.
NARRATOR: The nation's highest civilian honor was bestowed on the man many called "the wizard."
NARRATOR: Five presidents had watched Alan Greenspan work his magic. it started back in the Ford administration.
ROGER LOWENSTEIN, Author, When Genius Failed: Alan Greenspan was a financial consultant who was hired by Gerry Ford, first to be head of his Council of Economic Advisers in the '70s.
NARRATOR: Greenspan talked about Rand in his autobiography.
[Alan Greenspan, The Age of Turbulence: "Ayn Rand became a stabilizing force in my life. It hadn't taken long for us to have a meeting of the minds mostly my mind meeting hers."]
NARRATOR: Rand stood in the Oval Office as her star pupil was sworn in.
NARRATOR: And by the time Bill Clinton took the White House, the anti-government rhetoric had become so fashionable that even some Democrats embraced it.
DAVID WESSEL: Ronald Reagan had won. Government was seen as the problem. And even though Bill Clinton was someone who believed in government and wanted to use it, he was kind of forced into that Reaganesque ideology because that was what people wanted to hear.
NARRATOR: At the White House, and as Treasury secretary, Rubin found an unlikely ally. Clinton had asked Alan Greenspan to stay on.
TIMOTHY O'BRIEN: Bob Rubin and Alan Greenspan were very much in lockstep. They had very similar views on Wall Street. It boiled down to the less regulation, the better.
NARRATOR: And Rubin populated the Clinton administration with a network of free market true believers.
JOE NOCERA: It wasn't just Rubin and Greenspan who were these free market acolytes. That thinking pervaded the Treasury and the White House.
NARRATOR: Among Rubin's acolytes, 35-year-old Timothy Geithner and Rubin's top deputy, the outspoken Harvard economist Larry Summers.
ROGER LOWENSTEIN: Summers was tough. Summers is very blunt-spoken, doesn't suffer fools lightly, or anyone else, as the saying goes.
TIMOTHY O'BRIEN: Bob Rubin is not a guy who likes confrontation. He's confrontation-averse. But he understands that you need someone in there who can swing a heavy axe, and that person was Larry Summers. He was the enforcer.
NARRATOR: Together, Greenspan, Rubin and Summers formed their own pro-business, anti-regulation support group.
NARRATOR: And that's how Brooksley Born ended up running the obscure CFTC.
MICHAEL GREENBERGER: I think to some extent, you could view this as a consolation prize. To the general world, people who knew Brooksley, the circle she traveled, the American Bar Association, the DC Bar, all the prestigious boards she served on, people were probably scratching their heads.
NARRATOR: An experienced financial litigator who'd seen the worst of the markets, Born was a believer in government regulation. Given the political climate in Washington at the time, clashes with Greenspan, Rubin and Summers were inevitable. Almost right away, she had one. It began after she received an invitation to lunch at the Federal Reserve with the chairman himself.
MANUEL ROIG-FRANZIA: How could you not have a little bit of butterflies in your stomach when you're going to see Alan Greenspan at that moment in time?
NARRATOR: It didn't take long for Born to learn that she and the chairman were not going to see eye to eye.
JOE NOCERA: He said something to the effect that, "Well, Brooksley, we're never going to agree on fraud." And she said, "Well, what do you mean?" And he said, "`You probably think there should be rules against it." And she said, "Well, yes, I do." He said, you know, "I think the market will figure it out and take care of the fraudsters."
INTERVIEWER: The Alan Greenspan lunch did it actually happen? Where he says
BROOKSLEY BORN: I'm not going to talk about it. I'm not going to talk about it on camera.
NARRATOR: Born is reluctant to speak about her meetings with Greenspan or others in the Clinton administration. Greenspan refused to speak to FRONTLINE at all. But Born's advisers did.
MICHAEL GREENBERGER: Greenspan didn't believe that fraud was something that needed to be enforced, and he assumed she probably did. And of course, she did. I've never met a financial regulator who didn't feel that fraud was part of their mission.
MANUEL ROIG-FRANZIA: And this is an absolute stunner for the new head of this tiny agency who is charged with making sure people don't commit fraud.
NANCY DUFF CAMPBELL: Well, I think she was taken aback about how far he would go towards deregulation, that even the notion that we should police fraudulent activity he didn't think was something that was a given.
MICHAEL GREENBERGER: That was her introduction to Alan Greenspan.
NARRATOR: In 1993, Bankers Trust, one of the largest banks in the country at the time, had sold derivatives to Procter & Gamble.
JOE NOCERA: Procter & Gamble sued Bankers Trust, claiming that they had been sold products that they didn't really understand and that blew up in their face.
NARRATOR: The lawsuit set the stage for a stunning revelation. Bankers Trust employees took advantage of the fact that derivatives were too complicated to understand.
TIMOTHY O'BRIEN: It opened a window onto what was really going on in the derivatives market.
NARRATOR: As part of the case, Procter & Gamble discovered secret audiotape recordings of telephone calls among Bankers Trust brokers.
KELLY HOLLAND: There was one employee who described the business as a "wet dream." A Bankers Trust employee said, "We set them up."
TIMOTHY O'BRIEN: They had taped phone calls from people inside Bankers Trust who were sort of chuckling, saying, "Ha, ha, these idiots really think that this is in their best interests, but ha, ha, it's not. We're probably going to end up cleaning their clocks on these contracts."
NARRATOR: It had all happened in secret. Even this blatant scam might never have been discovered by the government.
BROOKSLEY BORN: The only way the CFTC found out about the Bankers Trust fraud was because Procter & Gamble and others filed suit.
NARRATOR: Looking inside Wall Street's black box was impossible for Born, or indeed any other government regulator.
TIMOTHY O'BRIEN: They're unregulated. The contracts aren't traded on exchanges. They're entered into between private parties.
BROOKSLEY BORN: There was no record-keeping requirement imposed on participants in the market. There was no reporting. We had no information.
NARRATOR: As the market grew and morphed, Born felt her agency would have to get involved, but that would mean confronting Greenspan, Rubin and Summers.
MICHAEL GREENBERGER: She used to say she would lay awake at night, turning in her bed, because she could see coming down the road, the crises kept building and building.
NEWSCASTER: Federal Reserve chairman Alan Greenspan told Congress today, the economy is the best he's ever seen.
NARRATOR: By spring of 1998, the idea of tougher regulation seemed out of step with all the good news.
NARRATOR: But at Treasury, things were about to change. The carefully calibrated inner tranquility was being disturbed by a small tremor. It quickly made its way up to Robert Rubin. Brooksley Born was contemplating the regulation of OTC derivatives.
JOE NOCERA: The pushback is visceral and immediate, and that's one of the striking things about this.
NARRATOR: This was a job for Larry Summers.
MICHAEL GREENBERGER: I walk into Brooksley's office one day, the blood has drained from her face. She's hanging up the telephone. She says to me, "That was Larry Summers."
RON SUSKIND: Larry basically reads her the riot act. He more or less tells her, my understanding, is that, "You don't get it."
MICHAEL GREENBERGER: He says, "You're going to cause the worst financial crisis since the end of World War II," that he has, my memory is, 13 bankers in his office who informed him of this. Stop right away. No more.
JOE NOCERA: What's amazing is that Rubin and Greenspan said, "No, no, no. You can't do that. We just can't have this." And it got pretty nasty pretty quickly.
NANCY DUFF CAMPBELL: Those on the other side were saying, "Look, this deregulated market is part of what's brought us the boom times. And so we don't we can't we don't want to change that. You know, the market will take care of everything. And we really don't need regulation of these, and in fact, it would be counterproductive."
MICHAEL GREENBERGER: Each of the principals in turn that is to say, Rubin, Greenspan and Levitt take their shot at telling Brooksley that she shouldn't do what she's doing.
JOE NOCERA: Rubin says to her, "You don't have the legal authority to do this."
MICHAEL GREENBERGER: And Brooksley said, "Well, that's interesting. That's the first time I've ever heard that. All my lawyers at the CFTC have assured me that we have the exclusive jurisdiction to do this."
ROGER LOWENSTEIN: Rubin was condescending toward her. He said he would get his lawyer in the department to help her understand the laws better, or something like that.
NARRATOR: SEC chairman Arthur Levitt had been personally lobbied to join the effort to shut Born down.
Sen. PHIL GRAMM (R), Texas (1975-'02): I see no evidence whatsoever to suggest that this is a troubled market, that fraud is rampant in this market.
LARRY SUMMERS, Dep. Treasury Secretary: The release has cast a shadow of regulatory uncertainty over a thriving market.
ARTHUR LEVITT: The CFTC's action has and will bring, I believe, significant disruption to this important global market.
ALAN GREENSPAN: Regulation that serves no useful purpose hinders the efficiency of markets to enlarge
JOE NOCERA: All the regulators there testifying, and you know, all of them say, "This is a bad idea. This is a bad idea. This is a bad idea. This is a bad idea.' Then she says, "This is a good idea," and the senators and congressmen just just, you know, beat her over the head.
Sen. PHIL GRAMM: I feel very strongly that we should not have one agency innovate in this area and in doing so create very substantial financial problems.
DAVID WESSEL: Ninety percent of the members of Congress couldn't have told you what a derivative was. So all they knew was that these guys on Wall Street, some of whom make big campaign contributions, many of whom seem very smart, say, "If we do this, it'll screw up the economy."
Rep. SPENCER BACHUS: My question again is what are you trying to protect?
BROOKSLEY BORN: We're trying to protect the money of the American public, which is at risk in these markets.
NARRATOR: That summer of 1998, Born testified four times before hostile congressional committees.
BROOKSLEY BORN: They were hearing from very respectable sources that there was no problem, and they chose to rely on those people. And I think that was understandable. I think it was unfortunate, but I think it was very understandable.
AND WHO HAD CONGRESS IN 1998? REPUBLICANS, BOTH HOUSES.
NARRATOR: Some in Congress began to clamor for regulation.
Rep. JIM LEACH: The United States government is obligated to be on top of the issues.
Rep. RICHARD BAKER (R), Louisiana: When and how did the concept of market self-regulation fail us?
Rep. BERNIE SANDERS (I), Vermont: Americans should be worried about the gambling of Wall Street elites.
Rep. PAUL KANJORSKI (D), Pennsylvania: That puts at risk every American. It puts at risk democracy.
Rep. MAURICE HINCHEY (D), New York: How many more failures do you think we'd have to have before some regulation in this area might be appropriate?
JOSEPH STIGLITZ, Sr. Clinton economic Adviser, 1993-'97: There was a strong sense that we ought to do something about these derivatives, that they really were posing a risk to our national economy and to the global economy.
NARRATOR: But Alan Greenspan had no intention of yielding.
ALAN GREENSPAN: [October 1, 1998] I know of no set of supervisory action we can take that would prevent people from making dumb mistakes. I know of no piece of legislation that can be passed by the Congress which would require us to prevent them from making dumb mistakes.
BROOKSLEY BORN: Congress was told that this was an anomaly, this was not indicative of dangers in the market.
ALAN GREENSPAN: I think it's very important for us not to introduce regulation for regulation's sake.
NARRATOR: In the end, Congress agreed with Alan Greenspan. There would be no new regulations of over-the-counter derivatives.
MICHAEL GREENBERGER: So now this is an unregulated market, no transparency, no capital reserve requirements, no prohibition on fraud, no prohibition on manipulation, no regulation of intermediaries. All the fundamental templates that we learned from the Great Depression are needed to have markets function smoothly are gone.
NARRATOR: But within the next few weeks, Congress did decide to do something about Brooksley Born. They stopped her entirely.
NARRATOR: With Born out of the way, the last two years of the Clinton administration were a heyday of deregulation. OTC derivatives were off limits. Banks were freed to make riskier
investments. Wall Street was largely left to regulate itself.
JOE NOCERA: Again and again during the Clinton administration, you see these examples of the top regulators basically saying, "The market knows better than us, and we're going to let the market do it."
CLINTON, WITH THE HELP OF A REPUBLICAN HOUSE AND SENATE, WITH THE SUPPORT OF GREENSPAN PASSED ALL SORTS OF DEREGULATION.
NARRATOR: By 2007, the OTC derivatives market had grown to $595 trillion. That's $595 trillion.
JOSEPH STIGLITZ: I think to understand the crisis, you have to understand that it had many, many factors that contributed to it. But it's absolutely clear to me that if we had restricted the derivatives, some of the major problems would have been avoided.
TIMOTHY O'BRIEN: Had Brooksley Born been enfranchised, had Brooksley Born been listened to, had Brooksley Born been made part of the process, would that have had a different ending for
what subsequently happened in the derivatives market? Certainly.
NARRATOR: In the aftermath, one former member of the working group has had a change of heart about Brooksley Born.
ARTHUR LEVITT: I've come to know her as one of the most capable, dedicated, intelligent and committed public servants that I have ever come to know. I wish I knew her better in Washington. I could have done much better. I could have made a difference.
NARRATOR: And the others? Robert Rubin left government to join top management at CitiBank. The taxpayers have pledged more than $100 billion to keep Citi afloat. Rubin's former deputies,
Larry Summers and Timothy Geithner, have become President Barack Obama's chief financial advisers.
Rep. HENRY WAXMAN (D), California: [October 23, 2008] You have been a staunch advocate for letting markets regulate themselves. And my question for you is simple. Were you wrong?
ALAN GREENSPAN: Yes. I found a flaw, but I've been very distressed by that fact.
Rep. HENRY WAXMAN: You found a flaw in the reality.
ALAN GREENSPAN: Flaw flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
Rep. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right.
ALAN GREENSPAN: Precisely. No, that's precisely the reason I was shocked because I've been going for 40 years or more with very considerable evidence that it was working exceptionally well.
JOSEPH STIGLITZ: After almost two decades of public service, he realizes that the economic philosophy that he had pushed so hard, resisting regulation of derivatives he realized that there were some fundamental flaws in that whole philosophy.
JOE NOCERA: It was a pretty incredible moment that after a lifetime of faith in a certain way the world worked, that Greenspan would say, "I was wrong."
ROGER LOWENSTEIN: It struck me as someone admitting that the core belief that had animated, you know, basically, a 20-year, 18-year career as Fed chief was wrong. It's stunning, but it doesn't undo the damage.
