Let Us Now Praise Uppity Women

03/18/2010 05:12 am ET | Updated May 25, 2011

On the day of the dead, Nov. 1, the news media reported the story of CIT's* impending bankruptcy. Cassandra, take a bow. This time, her name is Brooksley Born. She saw it all coming almost 20 years ago.

Born was the lone woman in a group of powerful men when she tried to persuade Congress to regulate the novel financial instruments known as over-the-counter derivatives during the 1990s. She served as head of the Commodities Futures Trading Commission, and legally had jurisdiction over the side bets that banks and insurance companies made with each other to hedge their risky investments. Except nobody was keeping score, and nobody was required to actually have money on hand to pay up. Born thought that should change, because too much of the American people's money was at risk.

She was defeated by the financial titans of Robert Rubin, Larry Summers, and Alan Greenspan -- at the time Secretary of the Treasury, assistant secretary, and chairman of the Federal Reserve. The triumvirate portrayed her as that worst of all possible beasts in Washington officialdom, a "difficult" woman.

Greenspan believed "The Market" would police itself of fraud because he was a devoted acolyte of Ayn Rand, the radical individualist and author of Atlas Shrugged. Not exactly an inspiring metaphor for a Fed Chairman during a global economic meltdown.

But as Born knew, fraud is the mortal enemy of any supposedly free market. Unless investors can be confident that their money is safe from fraud, capitalism cannot survive. A system rife with fraud is a death star, imploding upon itself. Derivatives, houses, tulips--the object of the exchange does not matter if the information it is based on is knowingly false. Such a system is based on patsies, not investors.

Let's not forget that fraud is, after all, a crime. Saying the government should not regulate fraud is like saying it should not regulate murder. Sure, private means can redress the grievance, but in the end the whole society suffers. That is, assuming that suffering matters. It didn't to Ayn Rand.

All the New Deal securities regulations boil down to preventing fraud. Insider trading, churning, margin requirements--the premise is that traders cannot hold themselves out to be something they are not if they are soliciting, in Louis Brandeis' immortal phrase, "other people's money."

Ever late to the scene of a catastrophe, Congress is now considering new regulations for the financial markets, in the wake of the Great Recession.

Brooksley Born recently gave the PBS series Frontline her latest warning:

I think we will have continuing danger from these markets, and that we will have repeats of the financial criss--it may differ in details, but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over until we learn from experience.

Women have a long history of being whistleblowers in systems dominated by men. Perhaps this time Congress -- and the American people -- will listen.

*Correction note: This has been corrected from an original version that mistakenly said Citi rather than CIT.