Malfactors are at it Again

The reason you want to get criminals off the street is to prevent them from repeating their crimes again and again. But Bush, and now Obama, show no real interest in going after the Wall Street bankers who created the economic meltdown.

The following Bloomberg news item talks about somebody who foresaw the catastrophe but was stopped from preventing it. She now is a whistleblower pointing out that the malfactors are at it again...

Brooksley Born, the former U.S. commodities regulator who lost the fight to police over-the- counter derivatives a decade ago, said the banks that caused the financial crisis are trying to stop the overhaul of the market.

“Special interests in the financial-services industry are beginning to advocate a return to business as usual and to argue against any need for serious reform,” Born said today as she accepted a Profile in Courage award from the John F. Kennedy Library. If changes aren’t made “we will be haunted by our failure for years to come,” she said.

As the chairwoman of the Commodity Futures Trading Commission in 1998, Born warned that the unregulated contracts posed a serious danger to the global financial system and moved to address changes in how swaps based on interest rates, commodities or currencies were traded. She was stopped by Alan Greenspan, Arthur Levitt and Robert Rubin, who all argued the market could regulate itself.

Lax oversight contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns amid the worst financial crisis since the Great Depression. Treasury Secretary Timothy Geithner has promised that the U.S. will for the first time regulate over-the-counter derivatives, which are a major source of bank profits.

The motivation for blocking her attempt to oversee over- the-counter derivatives was both ideological and financial, Born said in an interview today after the awards ceremony.

“It was an era where the markets were performing very well. Certainly Alan Greenspan believed they were self- regulating and didn’t need oversight,” she said. “The fact that it was a significant profit center for many of the largest investment banks meant that the financial-services industry was adamantly opposed to any inquiry into that market.”

After Congress exempted over-the-counter derivatives from U.S. oversight in 2000, the market swelled from about $100 trillion to $684 trillion by June 30, according to the Bank for International Settlements. The growth included credit-default swaps and collateralized debt obligations, custom-made products barely in use under Born’s reign.

“I was aware that powerful interests in the financial community were opposed to any examination of that market,” Born said in her first known public comments on the current financial crisis. “I spoke out because I felt a duty to let the public, the Congress and the other financial regulators know that that market endangered our financial stability.”