The Warning

In the booming 1990s, few people cared to take on Federal Reserve Chairman Alan Greenspan (nicknamed the “wizard”), a charming man-about-Washington and a fervent believer in laissez-faire capitalism. As noted in this PBS-aired Frontline documentary written and directed by Michael Kirk, President Clinton certainly supported Greenspan (along with Treasury Secretary Robert Rubin, Clinton populated his administration with free market true-believers). The nation's prosperity seemed to justify this confidence, which encouraged some of Greenspan's more extreme ideas—notably that government litigation wasn't necessary to deal with Wall Street fraud. Enter Brooksley Born, the woman who headed the obscure Commodity Futures Trading Commission from 1996 to 1999. Born was concerned that the unregulated, little-understood product known as “over-the-counter derivatives” represented a “black box”—a $27 trillion market of bets and swaps between banks and investment firms operating out of public view. When Born proposed regulating these devices, Greenspan, Rubin, and others tried to make sure that she was “shut up and shut down,” with the result that proposed controls were derailed after a 1998 hearing. The lesson drawn here is clear: if officials had listened to Born's warning, the financial meltdown of 2008 might have been avoided (ironically, Greenspan now admits his lifelong trust in unregulated markets was perhaps misplaced). Featuring comments from Born, government officials, and journalists (the former Fed chair declined to be interviewed), The Warning also notes that current Wall Street resistance to new regulation may encourage a repeat of the crisis. Recommended. Aud: C, P. (S. Rees)