Brooksley Born

I watched the PBS Frontline special again last night on how Ms. Born attempted to investigate over-the-counter derivatives in I believe 1997, and how Greenspan, Rubin and Summers rather forcefully shot her down. Why were they so adamant that she not look into regulating these creations of Wall Street? Born is pretty impressive. I keep seeing her talking about "dark markets." Here is President Clinton's speech when they repealed Glass-Steagall in 1999.

Another really weird event was the fact that when the Fed rescued AIG they paid off AIG's credit default swap counterparties, Goldman Sachs and their cousins, 100% on the dollar. No haircut on the arguably worthless paper. Maybe one of my big business buddies will explain this to me soon.

Rereading some of Paul Krugmans' The Return of Depression Economics and the Crisis of 2008 a couple nights ago. He says CDO's were the crucial Wall Street creation to the meltdown (pp. 149-152), since this allowed the investment banks to carve up mortgage-backed securities into tranches, thus enabling them to pass the top tier on as AAA. Mortgage-backed securities had been ok when they were based on sound lending decisions. I am still in agreement with Cassidy and others that the primary source of instability was the irresponsible actions of bankers, traders and other financial types. But they were just being typical greedy humans of a particularly obnoxious type. We needed more rule of law here. Of course, fashioning a workable law is a big obstacle. I like the Volcker rule but how do we draw the lines? I think it could be done, but I don't think Congress will do it, which is a sad commentary on our government.

Krugman also supports the view that nobody really knew what they were doing (p. 152), so I'm not quite ready to become a conspiracy theorist. He also has some interesting things to say about the power of hedge funds (see e.g. the attack on Hong Kong at pp. 127-131). Also good stuff on the shadow banks. An interesting book. I may have to read the whole thing again.