Issue link: http://cp.revolio.com/i/24680
THE MESSENGER W THEY SHOT 7 8 9 7 89 X 9 8 7 9 7 8 BY NARDA ZACCHINO AND ROBERT SCHEER BROOKSLEY BORN BLEW THE WHISTLE ON RISKY FINANCIAL DERIVATIVES 11 YEARS AGO—BUT NO ONE IN THE BOYS’ CLUB OF U.S. ECONOMIC LEADERS LISTENED HAT IS IT ABOUT WOMEN WHO HAVE THE COURAGE TO BE whistleblowers, to stand alone and speak truth to power? Brooksley Born, whose prescient warning in 1998 about the finan- cial bubble was crushed by some of the most powerful men in Washington, epitomizes that truth-teller. “Part of it may be because women are not permitted to be totally insiders in these cultures—like the culture of financial regulators,” Born, who was then head of the Commodity Futures Trading Commission (CFTC), recently told Ms. “[Women] may be somewhat less invested in being supportive of their friends, or of the conventional wisdom, because they are not quite insiders. “I did feel to some extent as though I was the little boy saying, ‘The emper- or doesn’t have any clothes.’ The reason the little boy could say that was he wasn’t yet sufficiently part of the culture to know that it was unacceptable for the emperor not to have any clothes on.” If only Born’s voice had been heeded when she said that the unregulated over-the-counter (OTC) “derivatives” market needed oversight. Think of the banking meltdown that might have been avoided. Think of the homes, pen- sions and jobs lost, the millions impoverished. Yes, it is that simple: There was nothing inevitable about the current finan- cial meltdown other than the stupidity, greed and arrogance that enabled it. The price for not heeding Brooksley Born will be paid for generations to come. times the gross national product of all the world’s nations, according to Born. Derivatives are fancy financial instruments that enable investors to bet on the future value of virtually anything—from interest rates to exchange rates to com- modities. They include credit default swaps, which allow investors to hedge their risks by buying “insurance” that they’ll get their investment back even if the creditor defaults. Derivatives are the kind of instruments that falsely inflat- ed profits at Enron before its collapse; Enron even sold weather derivatives, which were bets against weather conditions! But derivatives came to be radical- ly disconnected from the original collateral, particularly home mortgages, from which they were derived. C 34 | FALL 2009 ONSIDER THE FINANCIAL LANDSCAPE IN 1998. THE DERIVATIVES market, for which Born had sought more transparency, was expanding rapidly. By June 2008 it had grown to $680 trillion in value, more than 10 A Washington, D.C., lawyer who was the first woman to graduate at the top of a Stanford Law School class in 1964, Born was appointed to head the CFTC in 1996 by President Bill Clinton. She was concerned about the newfangled financial gim- micks, believing (correctly, it turned out) that they had enormous destruc- tive potential—what she once called “a nightmare waiting to happen.” But politicians, regulators, credit agencies and bankers were content to look the other way as long as the well of deriv- atives was gushing cash. When Born took over the CFTC, it was an underpowered agency mon- itoring trading of traditional financial products and agricultural commodi- ties, such as wheat and pork bellies, on established, regulated exchanges. Born saw that new and unregulated futures markets were shooting up everywhere, from the energy and metals dealings pioneered by Enron to the mortgage and credit card debt- bundling aggressively undertaken by lenders. Not long after taking her post, she expressed concern about the lack of transparency in OTC deriva- tives trading, and in 1998 issued a “concept release” document seeking comment from industry representa- tives about the possible need for oversight and regulation of them. www.feminist.org