Thursday, November 19, 2009

THE BORN CONSPIRACY (redux) ... STARRING ELIZABETH WARREN

One of the more exciting series I've watched is the Bourne trilogy, starring Matt Damon. Painted as an out of control experiment gone bad, Jason Bourne is pursued by powerful forces trying to protect both themselves and a turf they believe others simply don't understand. The Bourne reference to Elizabeth Warren will become clearer below ...




In 2007 Elizabeth Warren, head of the Congressional Oversight Panel for the Troubled Asset Relief Program, penned an article that argued for a new model of financial regulation. She wrote that financial products should be subject to the same - and by now routine - safety screens that "governs every toaster, washing machine, and child's car seat." You know, the kind of government-driven safety measures that we all take for granted, and assume are "market-driven."

As is the case with all good legislation, Warren was clear that the focus should be "primarily on consumer safety rather than corporate profitability." Specifically, Warren wrote:

No one expects every customer to become an engineer to buy a toaster that doesn’t burst into flames, or analyze complex diagrams to buy an infant car seat that doesn’t collapse on impact. By the same reasoning, no customer should be forced to read the fine print in 30-plus-page credit card contracts to determine whether the company claims it can seize property paid for with the credit card or raise the interest rate by more than 20 points if the customer gets into a dispute with the water company.

After what we've learned about the financial sector's abuses of consumers and their own markets in 2008 and 2009 one would think that developing a financial product safety commission that focuses on the economic health of consumers would be a slam dunk. Think again.

Thomas Cooley, dean of New York University’s Stern School of Business, is part of growing group of special interests - led by the Chamber of Commerce, the American Bankers Association and the Financial Services Roundtable - who sees a wild-eyed fundamentalist in Elizabeth Warren. Cooley argues that her regulatory efforts make her little more than “an ideological crusader” who will "stir up a lot of trouble.”

Using the same tired arguments built around "free markets" and their magical powers to reign in stupidity, greed, and fraud, Cooley is effectively arguing that the same markets that helped create and fund lending activities before the 2008 market collapse only need to be tinkered with by "thoughtful people" doing "thoughtful analysis." Elizabeth Warren, according to Thomas Cooley, is not one of these people.

Accusing her of “waging a self-righteous holy war” Cooley makes the same arguments that were made about Brooksley Born, former head of the Commodity Futures Trading Commission (CFTC), who warned about the dangers of an unregulated derivatives market in the mid-1990s.



Born, whose warnings were famously ignored and criticized at the time by Alan Greenspan (Federal Reserve Chair), Larry Summers (Clinton's Council of Economic Advisors), Robert Rubin (Treasury Secretary), and Arthur Levitt (SEC Chair), was labled as an out of control zealot. Because of her efforts to audit and regulate the derivative market, which helped bring down the American economy in 2008, Born was painted as an "irrascible, difficult, stubborn" woman who was "unreasonable" when it came to judging the power of markets.

The logic of the market was presumed to be so powerful at the time that Alan Greenspan even went so far as to argue that fraud could be handled by the market and should not be regulated. This is all discussed in the Frontline video, The Warning (Arthur Levitt is not pictured in this Frontline ad/promo; presumably because he later regretted going after Born, and was interviewed saying as much).


For her efforts, Greenspan, Summers, Rubin, and Levitt conspired to work against Born, eventually forcing her from her post as director of the CFTC. In many respects their efforts could have been labled The Born Conspiracy.

Cooley revives this anti-regulatory mentality, implying that Warren is devoid of "rational and clear-headed perspective." He even goes so far as to disparagingly suggest that Warren's goals are Crusade-like and little more than her war of "faith" on markets. The implication is clear. Like Jason Bourne in the trilogy - and Brooksley Born in the 1990s - regardless of the talent, skill, and motives involved in her efforts, Elizabeth Warren is viewed as an out of control force that needs to be stopped.   

That this kind of mentality exists, so close to the market collapse, is troubling. It also helps explain how, if we continue to do nothing to discipline or regulate market players, we're setting ourselves up for another market collapse.

- Mark

1 comment:

Jack van Dijk said...

Also look at Ellen Brown, and at de concept of the Sparkassen in Germany. (The concept is even better described in the Grman language, but alas, knowledge of anything outside the US, or outside the deep South....)