The players in the decade-long prelude to the financial crisis
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By The Washington Post
Brooksley Born
Commodity Futures Trading Commission chairman, 1996-99
Arrived at the CFTC determined to get her arms around the risk posed by the rapid growth of derivatives, so called because they derive their value from something else such as bonds or currency rates. Soon after taking office, she warned, “The size and nature of this market create a potential for systemic risk to the nation’s financial markets that requires vigilance by federal regulatory authorities.’’
Alan Greenspan
Federal Reserve chairman, 1987-2006
Opposed regulation of derivatives on free market grounds. Thought the CFTC had no legal authority to do so, questioned whether derivatives were futures. Testified to Congress in 1998: “Regulation of derivatives transactions that are privately negotiated by professionals is unnecessary. Regulation that serves no useful purpose hinders the efficiency of markets to enlarge standards of living.’’
Robert Rubin
Secretary of the Treasury, 1995-99
Agreed with Greenspan that the CFTC had no legal authority to regulate derivatives. Voiced qualms about their risk and rapid growth, but saw no political will to take action. Wrote in a 2003 book, “Derivatives, with leverage limits that vary from little to none at all, should be subject to comprehensive and higher margin requirements,’’ requiring dealers to put up more capital to back the swaps. “But that will almost surely not happen, absent a crisis.’’
Arthur Levitt
Securities and Exchange Commission chairman, 1993-2001
Like Greenspan and Rubin, questioned CFTC jurisdiction over derivatives and feared a CFTC regulatory effort would cast doubt over the legality of existing derivatives contracts. Now says, “I guess if I had to do it over again, I certainly would have pushed for some way to give greater transparency to products which turned out to be injurious to our markets.
Lawrence Summers
Secretary of the Treasury, 1999-2001
Opposed regulation when he took over from Rubin. Earlier, as deputy, he decried Born’s efforts as “casting a shadow of regulatory uncertainty over an otherwise thriving market.’’
Sen. Phil Gramm
R-Texas, Senate Banking Committee chairman, 1999-2001
Pushed through several major bills to deregulate the banking and investment industries, including the 1999 Gramm-Leach-Bliley Act that brought down the walls separating the commercial banking, investment and insurance industries.
Rep. Jim Leach
R-Iowa, House Banking Committee chairman, 1993-2001
Tried to mediate in the regulatory rift, bringing Born, Greenspan and Rubin to his committee for a meeting.
Sen. Richard Lugar
R-Ind.,Senate Agriculture committee chairman, 1995-2001
Held a hearing in July 1998 to encourage Born to back away from attempts to regulate derivatives.
— The Washington Post
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