Derivative Defenders: Rubin and Greenspan

Vox finds another nugget, and demonstrates that the Clinton Administration was anti-regulation.

(It's merely co-incidence that Rubin moved into commercial banking w/Citigroup, just as it's mere co-incidence that Paulson joined Treasury after being Chairman of Goldman, Sachs. NEVERMIND the men behind the curtain.)

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission.

Merely DISCUSSING regulating derivatives would 'cause a financial crisis'?

Anyhooo, Born was Chairman of the Commodities Futures Trading Commission at the time.

Not to worry. There were more geniuses-at-work than merely Rubin and Easy Al:

In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger.

Here's a real classic:

Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury.

“All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.”

....said Rubin. Note that HE did not 'mobilize public opinion,' something that as SecTreas he certainly could have done.

On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. ...In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms.

Congress (it was Republican at the time) decided that Easy Al was the greatest man since....Caesar? Jesus Christ?....or maybe greater than all of them combined, and let him continue pumping dollars into the economy.

Bubble, bubble, toil, and (2008) Trouble!!