- James I. Clark III
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The Canary in the Mine Shaft
A decade before the financial meltdown, one woman was sounding the alarm that a catastrophe was coming. That woman is Brooksley Born, who correctly predicted that investments known as over-the-counter derivatives could cause a financial crisis. As Chairman of the Commodity Futures Trading Commission (CFTC) during the second Clinton administration, Born would wake up “in a cold sweat” fearing that derivatives like credit-default swaps might cause the economy to implode.
Ultimately, Born’s worst fears became reality despite the fact that former Federal Reserve chairman Alan Greenspan had dismissed her concerns. According to Born, Greenspan “explained there wasn’t a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him.” The comment made no sense to Born, a Stanford-educated lawyer who had spent most of the 1980s defending clients enmeshed in a conspiracy perpetrated by Nelson and William Hunt, the wealthy Texas brothers who had duped investors while trying to control the world silver market.
The CFTC was established in the 1970s, primarily to regulate futures contracts bought by farmers as a hedge against price fluctuations. By the time Born took the CFTC’s helm in 1996, the futures market had grown more sophisticated. Born believed that the mostly unregulated “dark markets” were showing signs of trouble. “I was very concerned about the dark nature of these markets,” Born said. “I didn’t think we knew enough about them. I was concerned about the lack of transparency and the lack of any tools for enforcement and the lack of prohibition against fraud and manipulation.”
Born has now been vindicated, and the Obama administration has introduced legislation to regulate the derivatives markets. Additionally, she was honored with a prestigious John F. Kennedy Profiles in Courage award last year.