06/17/2009 05:12 am ET Updated May 25, 2011

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 His best-selling book is "Obama"s Challenge: America's Economic Crisis and the Power of a Transformative Presidency."