RS Regulators Mount Up: The Warning

I think this story shows how foolish and careless we were being with our spending. The wall street elites were so confident in what they were doing that they felt they did not even need to consider the proposals and repeated warnings of lesser known players on Wall Street. The elite players and big spenders felt like they could trust without question, the opinions and predictions of people like Alan Greenspan, because he had been around for a while and was pretty successful. However, it was really foolish of them not to look into the warnings of Brooksley Born and her agency.

There were warnings before and after Born arrived to take on OTC derivatives. The OTCs were very complicated and not everyone understood what they were. This was evidenced when Banker's Trust pretty much scammed Proctor and Gamble with them and cost them millions of dollars. After Born starts to take on OTCs, she tries extremely hard to get them regulated and takes on all the heavy hitters of Wall Street and Washington at the time. They tore her apart in the media to try and take away her credibility and was defeated in Washington in her efforts to get OTCs regulated. I thought it was funny that one of the people being interviewed said that most people fighting against her couldn't explain what a derivative was but the powers that be in Washington trusted these people. Instead of just blindly trusting these people, the powers that be in Washington and Wall Street should have done more research because then they might have foreseen the danger that Born did.

After she was shot down it did not take long for her warnings to come true. A powerful hedge fund was melting down due to their use or misuse and lack of knowledge on OTCs. This was what she was warning about because, due to the OTCs and LTCM's position in the market, the whole economy was at risk. Although they were able to save LTCM, the should have acted there and moved to regulate OTCs. The powers that be deemed in an anomaly and the OTCs continued to go unregulated. This left the economy open to danger and financial crisis and that came ten years after the initial scare.

The financial crisis of 2008 was in large part because of the lack of regulation on Wall Street and because of this and Alan Greenspan's stubbornness with policies, the market fell and Greenspan's long standing reputation was disgraced. They should have acted years earlier to stop the inevitable fall but thanks to the cockiness and stubbornness of a few, they did not and we are still paying for it today.