Open Left

As if it matters... (0.00 / 0)

Wouldn't it be great if a Democratic President appointed an honest reformer as Chairperson of the Commodities Futures Trading Commission?

It already happened, and it didn't matter at all!

In 1998, an obscure federal agency, the Commodity Futures Trading Commission, raised the prospect of regulating the burgeoning market in complex financial instruments, which then had a notional value of $28.7 trillion. Today the notional value is $531.2 trillion, according to the International Swaps and Derivatives Association.

The nation's leading financial officials - Levitt, Federal Reserve Chairman Alan Greenspan, Secretary of the Treasury Robert Rubin, and his deputy Lawrence Summers - pummeled the proposal, saying it was dangerous to even discuss the idea.  Led by Rubin, Levitt and Greenspan, the Clinton White House instead proposed a modest set of reforms. Months later, Clinton Administration officials walked away from their own recommendations, concluding the market could be best managed by the financial industry.

Led by Chairwoman Brooksley Born, the commodity commission began working on a document that raised the idea of possibly regulating derivatives. The document was framed as a beginning point to discuss what a rule might look like.

In the spring of 1998, the commission circulated a draft of the document before publishing it in the Federal Register. Born sent it to regulators, legislators, and members of the financial industry. Reaction was swift and overwhelmingly negative.

"I was in Brooksley Born's office when Larry Summers called and said, 'I've got 13 people in my office'," said Greenberger, to whom Born relayed the conversation. Summers told Born that the 13 were industry lobbyists, "and their view is that if you do this, just issue this release, it will cause the worst financial havoc since the end of World War II."

Larry Summers is still running the show, and even if Obama appointed a clairvoyant reformer like Brooksley Born as Chairperson of the Commodities Futures Trading Commission, it probably wouldn't matter at all.

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by: Jacob Freeze @ Thu May 21, 2009 at 12:08:02 PM CDT