Profiles in Financial Courage
Every year, the John F. Kennedy Presidential Library gives a Profile in Courage Award to one or more public officials who took a stand that took a lot of integrity and nerve.
Past winners have included Alberto Mora, then the general counsel of the United States Navy, who blew the whistle on unlawful interrogation practices on detainees at Guantanamo Bay (the 2006 winner); and Doris Voitier, school superintendent in St. Bernard Parish, Louisiana (2007) who did whatever it took to reopen public schools in her district in the face of federal and state bureaucratic indifference and hostility after Hurricane Katrina.
You get the idea. Another honoree was Viktor Yushchenko (2005), who narrowly survived a Russian-backed chemical assassination attempt that left him disfigured, to become the democratically elected president of Ukraine.
Two of the three laureates for 2009, who are being honored at a ceremony May 18, are, fittingly enough, Sheila Bair and Brooksley Born, two public servants, one still in office, whose courage has embarrassed three administrations including the incumbent one. The Kennedy Library deserves its own profile in courage award for providing the exclamation point.
Bair, a Republican appointed by George W. Bush, chairs the Federal Deposit Insurance Corporation. She has been an opponent of many aspects of the Paulson-Geithner financial bail-out program, and a supporter of a more direct approach to rescuing distressed mortgages and failed banks. The FDIC is more independent than most bank regulatory agencies, partly because its own insurance funds are at risk when a bank fails and partly because its appointees serve for fixed terms. Bair's term expires in 2011.
When Timothy Geithner, who had been crossing swords with Bair in his previous job as president of the Federal Reserve Bank of New York, became Obama's Treasury Secretary, Geithner reportedly sought to get Bair fired, according to credible accounts in the financial press.
He described her as not a good team player. But Bair's allies, who include her many fans on Capitol Hill, pointedly asked, exactly which team was that? The team Bair had been challenging was team Bush, including Republican Treasury Hank Paulson, Geithner's predecessor.
Today, Bair sits with President Obama, Geithner, Larry Summers, and the other senior economic officials debating the financial rescue. Obama has invoked Doris Goodwin's Team of Rivals as his model of how to seek a wide range of voices. But on economic matters, Sheila Bair is often the sole voice of dissent at the grown-ups' table. As such, she has had to walk a very delicate line offering different views without seeming disloyal.
How did a Republican come to embrace policies that are less captive to Wall Street and more supportive of public solutions? Bair is a Kansas Republican, who came to Washington with then Senator Bob Dole, and served as his senior staffer on the Senate Finance Committee. In an echo of the populist revolt, Kansas bankers complain that the bailout favors Wall Street over Main Street. On this score, there is nothing at all the matter with Kansas.
Bair's Profile in Courage citation reads:
"Sheila Bair has been called a "lone voice in the wilderness" for her early warnings about the sub-prime lending crisis and for her dogged criticism of both Wall Street's and the government's management of the subsequent financial meltdown. As early as 2001, Bair was urging sub-prime lenders to agree on a set of best practices to prevent abuses. Since the onset of the current crisis, she, more than any other government official, has pushed for direct assistance to distressed homeowners as part of the overall effort to stabilize the financial system, a move fiercely resisted by many leaders in both the public and the private sectors. Recently, however, the government has begun to implement many of her mortgage-modification proposals in an effort to slow the alarming increase in foreclosures."
Bair's co-honoree is another lonely voice of early warning in the current financial collapse. As President Clinton's chair of the Commodity Futures Trading Commission, Brooksley Born began raising warning that customized derivatives not traded on exchanges were a financial time bomb. Nobody knew how much risk their underwriters were taking, and there was no "price discovery" as there is on an open financial exchange where traders set prices minute to minute. Born distributed for comment a proposed regulation that would have required greater supervision of these so called over-the-counter derivatives. This was back in 1997, a full decade before the meltdown. She warned in congressional testimony that unmonitored trading in derivatives could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it." This, of course, is precisely what occurred with AIG and its writing of trillions of dollars of credit default swaps backed by no reserves.
For her prescience, Born was excoriated by Robert Rubin, Larry Summers, Alan Greenspan, as well as by the Clinton sub-cabinet official who has been nominated to chair the same CFTC, Gary Gensler, former Treasury Undersecretary. They directed her to stop making noises about regulating derivatives on grounds that this could destabilize markets. But Rubin, Summers and company did not just pressure Born, who eventually left office in 1999. Rubin, Greenspan and then SEC chair Arthur Levitt, Jr. expressly requested Congress to prevent Ms. Born from issuing such regulations. And in 2000, Sen. Phil Gramm of Texas, then the chair of the Senate Banking Committee, pushed through legislation not only shackling the CFTC when it came to derivatives regulation but also exempting energy trades as a favor to Enron.
Born's Profile in Courage citation reads:
"In 1998, as chair of the Commodity Futures Trading Commission (CFTC), Brooksley Born unsuccessfully tried to bring over-the-counter financial derivatives under the regulatory control of the CFTC. The government's failure to regulate such financial deals has been widely criticized as one of the causes of the current financial crisis. In the booming economic climate of the 1990's, Born battled other regulators in the Clinton Administration, skeptical members of Congress and lobbyists over the regulation of derivatives, warning that unregulated financial contracts such as credit default swaps could pose grave dangers to the economy. Her efforts brought fierce opposition from Wall Street and from Administration officials who believed deregulation was essential to the extraordinary economic growth that was then in full bloom. Her adversaries eventually passed legislation prohibiting the CFTC from any oversight of financial derivatives during her term. She stepped down from the CFTC in 1999 and returned to a distinguished career in public interest law."
This past week, Treasury Secretary Geithner announced proposed legislation that would impose ground rules on derivatives through private clearing houses.
But Geithner's plan still would not go as far as what Brooksley Born proposed long before the extent of the abuses became a full-blown catastrophe. Well placed sources have told me that Summers and Geithner embraced partial reform largely because two other brave public officials have been asking very tough questions of Treasury nominees at confirmation hearings and have threatened to block Senate action on them. These are Senators Bernie Sanders of Vermont and Maria Cantwell of Washington State. Perhaps they will be next year's Profiles in Courage winners.
Robert Kuttner is co-editor of The American Prospect and a Senior Fellow at Demos www.demos.org. His best-selling book is "Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency."
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You have these three women -- Bair, Born, and I'll add Warren -- two of which predicted this, and I'm sure you could argue that Warren did by way her book, "The Two-Income Trap," i.e. households that rely on two full-time breadwinners to afford even a minimal home with no wiggle-room (loss, illness, etc.). None of them are being taken seriously, been told to keep quiet in the past, and look who is in charge of this bailout!!! I know there are lots of men who have predicted this, too, and congrats to the senators who voted against repeal of Glass-Steagall, who predicted this.
I would love to know what ordinary Americans can do to stop this. This morning it was announced that another $7 billion will now be handed to GMAC.
Obama said California will not be aided, it needs to pay for some of its mistakes. I haven't seen anyone pay for mistakes on Wall Street. The lone person making that effort is Andrew Cuomo.
Within a few more months, if nothing has changed, Obama own this mess 100%. I'll say it again, Obama is no FDR.
Obama owned this mess the minuted he appointed Geithner.
Brooksley Born is a hero.She should be running the CFTC. There is only one party in Washington, :(,
The BIG MONEY party.
You see what happens to persons of principle in DC? Is it any wonder that the entire Congress seems to have capitulated to Wall Street. Once they get a taste of the power they will do anything to keep it--including selling themselves to the highest bidder, in this case, the banks. But what kind of power is it really, once you are owned?
It isn't really all that surprising that Summers, Geithner, and company know their bread is buttered by the bankers. What is more fascinating is Obama's buy-in. Possibly it is simply payback. He didn't raise record breaking campaign funds just from small donors. But it is likely more complex. It seems also a convergence of ignorance, temperament, and ideology.
As Lincoln had never thought much on war strategy before confronted with the Civil War, Obama seems to have given little attention to economic mechanisms. Like Lincoln, his response has been to cede authority to insider experts. Also much like Lincoln, Obama is by inclination an incrementalist. Lincoln held out for years before Emancipation, always groping for some less radical resolution. And not coincidentally, both Obama and Lincoln have greatly overvalued consensus. That they could create a Team of Rivals out of a Collection of Rogues
Maybe Obama should read Jefferson on banks and corporations to get a more balanced view of things. He is way too ideological when it comes to Lincoln, that's for sure.
Harvard PhD trained mathematician Dr. Iris Mack should also be on this list.
She warned about the dangers on derivatives use while a money manager at Harvard Management Co.
For this she got fired by Larry Summers - Obama's economic advisor.
See more info about her on www.twitter.com/PhatMath.
This is an excellent bit of info that I'd forgotten. Summers is, and always will be, a shill for the same discredited free market econ b.s. that got us into this mess. Obama must have been high when he hired him!
How does she feel about Obama/Geithner's thr.eats to revoke FDIC insurance for any bank with the audacity to pay back TARP?
And now they want to strip another woman of power, the SEC. I guess she's making too many waves with "threats" of regulation.
I suppose she doesn't know her place in Larry Summer's House.
PART II
When anyone discusses America's atrocities the conversation is short-lived, as if nothing could be done about it. A bunch of shoulders shrugging. If I were a gambler, I'd bet that every criminal that broke the law and was found guilty would give an arm to be released of their "debt to society" because evryone has moved on and the transgressions were oh so long ago. There is no statute of limitations for murder. Maybe America should pay it's "debt to society". Financial courage, indeed.
Summers supposedly called her and told her that her proposed regulations would cause a financial crisis.
Do you have any proof he was wrong?
The proof is that the lack of regulation caused the problem. Wall Street has whined about excessive regulations for over 100 years, and we have seen what has happened to markets when regulation is lax - markets run amuck and than have meltdowns. Effective regulatios give markets time to adjust, and even playing fields by making for better transparency something Wall Street insiders fight fiercely because their inside knowledge gives them the financial edge to make money while the rest of us lose money. Even Las Vegas has better regulation than Wall Street.
No, that is not proof. Would her regulations have caused a financial crisis immediately? I think it is likely they would have.
In the 1990s Larry Summers was trying to get a Republican congress to pass regulations to limit predatory lending. Those were regulations that would not have caused a financial crisis in the late 1990s as exotic subprime did not really exist, and likely would have gone a long way in preventing the credit crisis of 2008.
Shouldn't the burden of proof be on the speculator (Summers)?
This isn't really useful without specifics.
Thank you Robert - how about sending your article to Obama?
Obama only reads the happy talk news about his policies. If he isn't listening to Sheila Bair, who has some access to him, you know he isn't reading the Huffpost these days.
Well, we can only hope he is not reading the lunacy on THP.
johnsonc20.....You don't know what the hell you are talking about.
President Obama is the most open president to his critics than any president in recent memory.
johnsonc20.....You are wrong. President Obama is the most open president to his critics, of any president in recent memory.
Obama is dismissive of blogs. That sentiment was expressed a couple of months ago, if anyone remembers.
I wonder how those so-called 10 letters a day that he reads from everyday Americans are chosen? Does he pick them at random or is somebody doing it for him? I would gather the latter.
I've long admired them both. Where I have some concern (lack of understanding, perhaps) is how Bair's going along with using the FDIC as the insurer of last resort for the very toxic investments she warned us about ten years ago, will affect the FDIC's ability to cover all of Our bank deposits should those investments go bad? This just seems like a very bad move from a really bright person. Anyone have any insight on this?
Agreed. If it comes to fruition, Geithner's toxic asset buyback plan will be the final nail in this country's economic cof.fin. I can't understand why Bair would be party to such a stu.pid plan.
I remember when she agreed to it, she said that the underlying securities would not go belly up and that our money was safe. I also remember thinking, "Where have I heard this before...?"
Hmmm...not a good team player? Sorta reminds you of the decisions in Bush 43's Office of the Attorney General. Where is the outrage?
Attention, Jon Stewart, Stephen Colbert, Bill Maher, Keith Olbermann, Rachel Maddow:
Please move Sheila Bair and Brooksley Born up on your guest calendars. If you have already had them on your shows, invite them back, regularly.
great idea!
Both women! In the man's world of Geithner, Summers, Bernanke, Rubin, Paulsen, Greenspan, Gensler, Levitt, Gramm, and more. Obama, too.
I'm male, not overly fond of some of what comprises "woman's lib", and a supported of Obama over Clinton, but maybe there is a message here for me and for the rest of us. Maybe the Change we need is to throw out all of the men who have brought us financial derivatives, the failure to regulate our banking system, auto company bailouts, macho testerone fueled Wars on Iraq/Afghanistan/Terror/Drugs, Guantanamo and Bagram, rendition, health care for profit, etc., etc., etc., and replace them all with women. Maybe hang on to a few "girly boys", and boot out a few bitchy women, but ban macho competitiveness and greed, and raging testosterone forever from the public scene.
yeah, just watch out for the Ayn Rands, Michele Bachmanns and Ann Coulters!
Virtually all of our problems come down to one problem.
Special interests run Washington.
So long as our “representatives” must go hat in hand to finance their elections,
nothing is really going to change.
Not so long ago, if a Congressman took money from a private concern then wrote an “earmark” to benefit that firm, that was known as a bribe.
Not so long ago, if a Congressman went to work as a lobbyist for a corporation that had been financing his tenure, that was known as corruption.
These days it’s just business as usual.
Until and unless we return this government to a system representative of the majority, instead of the corrupt oligarchy it has become, we will forever have these “problems”, and constantly wonder why the people we send to Congress never seem to be on our side.
As Americans continue to vote for the candidates that take the most "campaign ontributions".
If Americans can't comprehend the problem, we deserve the corrupt government we have.
Campaign financing reform has to happen and every lobbyists sent back home to compete for jobs like millions of Americans right now.
TIME TO REFORM CORRUPTION IN CAMPAIGN FUNDING SYSTEM
Simple Solution to PROTECT OUR Congress Members Votes so votes are NOT sold to Highest Bidders:
1. Setup a Government Contribution Acceptance and Funds Distribution Agency
2. Funnel all Political Contributions through this agency
3. Uses strict formulas for allocating funds to House+Senate Members
4. "Blindly" distribute lump sums twice per year to Politicians - No KNOWN SOURCES of funds!
5. Reserve part of funds for those New Candidates that meet campaign funding criteria
6. Two Term Limits for Senators
7. Four Term Limits for House Members
2 Major Points from FDR's Inauguration Speech:
"1. Strict supervision of all Banking and Credits and Investments.
2. Stop speculation with other people's money."
FDR would wipe out all Credit Default Swaps and Most if NOT all Derivatives!
Why should Banksters be able to Invest and transfer all Risks to OTHERS! FDR said NO!
Sunday, May 17, 2009
Reforming Credit Default Swaps and OTC Derivatives
Not only are the largest derivative dealers fighting efforts to reform the CDS and other derivative instruments that caused the AIG fiasco, but regulators like the Fed and US Treasury are working with the banks to ensure that a small group of dealers increase their monopoly over the business of over-the-counter ("OTC") derivatives.
The immediate objective of JPM and the dealer community is to counter attempts to truly regulate and, most important, make standardized commodities of OTC derivatives, even as the dealers clothe the new regime proposed by Tim Geithner for clearing and trading OTC contracts in the language of reform, transparency and efficiency.
If the NYSE and CME were to trade derivatives, the big banks knew they would not be able to control their fees or capture the profits from clearing. Therefore, they sold The Clearing Corp. to the Intercontinental Exchange, or ICE, a recent start-up in the OTC derivatives business which had been funded with money originally provided by, you guessed it, the banks.
In the deal with ICE, the banks receive half the profit of all trades cleared through the company. And the large OTC dealer banks made sure, through their connections with officials at the Fed and Treasury, that ICE was the winner chosen over the NYSE and CME offerings. That's right, we hear that Geithner personally intervened.
http://marketpipeline.blogspot.com/2009/05/reforming-credit-default-swaps-and-otc.html
They want to take the RISK out of their Investing and put it on someone else using Toxic Tools!
Completely counter to what FDR wanted when he said, "Stop speculation with other people's money."
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