Not many heroes emerged from the rubble of the global financial meltdown. Two are Sheila Bair, the chair of the FDIC, and Brooksley Born, the former head of the CFTC.
Both warned of the crisis. Both were ignored.
In a June 2008 column—written before things got really bad—Steven Pearlstein of the Washington Post described Bair as
one regulator who refused to be muscled by an industry that appeared to be generating lots of new jobs and new wealth, who never bought into the notion that bureaucrats should not substitute their judgments for those of the marketplace, who understood the magnitude of the mortgage crisis.
Born, meanwhile, called for the regulation of derivatives that magnified the mortgage market collapse. Again, here’s The Post, from last May:
A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America. Her efforts to stop that from happening ran afoul of some of the most influential men in Washington, men with names like Greenspan and Levitt and Rubin and Summers — the same Larry Summers who is now a key economic adviser to President Obama.
She was the head of a tiny government agency who wanted to regulate the derivatives. They were the men who stopped her.
Sheila Bair
Last night, Bair and Born made a joint appearance as they were honored at the annual dinner of the National Women’s Law Center. (My wife Karen Schneider is v.p. of communications at the center, which explains my presence.) They were interviewed by Judy Woodruff of PBS, and it was revealing to hear them talk about what went wrong and what, if anything, we’ve learned.
Brooksley Born
Agencies like the FDIC and CFTC are part of the alphabet soup of Washington regulatory agencies that ordinarily get no attention from anyone other than the industries that they regulate. That’s one reason that virtually no one, other than industry insiders, their family or friends, paid much attention Bair or Born until it was too late. With the downturn in Washington journalism, which continues unabated, you can be sure almost no one will be watching those agencies or others like them in the future.
Bair had worked as an aide to Sen. Bob Dole, and then at the treasury department before becoming head of the FDIC in 2006. “I was just horrified by what I saw,” she said. Banks and individuals were wildly overleveraged. [click to continue…]