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The Mines are Full of Canaries


In 1988, Muriel Siebert testified before the subcommittee on Telecommunications and Finance, in the wake of the 1987 market crash. The major problem with the market, she said, was derivatives. "Program trades and index arbitrage end up bringing the volatility and rampant speculation of the futures pits to the floor of the Big Board. Futures have become the tail wagging the dog."

In 1998, she was back before Congress after the Long Term Capital Management debacle. "Simply stated, regulation has not kept up with advancements in technology and new financial products." She went on to describe the products that made the LTCM implosion possible: derivatives.

In 2002, she testified before the Senate Subcommitte on Investigations; her topic: the lessons of Enron. "The current market crisis has parts of its genesis in the derivatives arena, that murky corner of the securities industry where futures, options, swaps, warrants and convertibles are the vehicles of choice. Yet, despite its size, the derivative market is largely opaque and unregulated, a fertile field for those looking to create the latest legal loophole."

She went on to ask what could be learned from these experiences about regulation. "We should note that regulatory responses to the first two downturns did nothing to stop the third. And I'm afraid nothing can prevent the next debacle unless we address the core problems, which are the lack of management accountability and the lack of transparency of these new financial tools. This financial engineering permitted the illusion of economic activity."

And now we learn in the Washington Post that Brooksley E. Born pushed for the regulation of derivatives, only to be resisted by Greenspan, Rubin and Levitt. Her failure to persuade them is explained by Rubin in typically patronizing terms: she was too strident. (This is how men always describe women they disagree with.) Instead we got Greenspan's favored course of self-regulation which, we now know, is no regulation at all.

For decades, women have warned us about the dangers we faced in financial markets. And for decades, they were ignored, excluded and patronized. What makes anyone believe that Paulson, Bernanke, Greenspan, Rubin and their ilk have any capacity, will or talent to change the environment they engineered so poorly in the first place? Won't they do what they and their cronies have always done - defend the system their own creations? We need a new guard, who know the system but didn't build it. Don't let anyone tell you they're not out there. They've been there for years.