The Warning - Recap
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Will Lyman recounts in 2005 how Washington’s hands off attitude over Wall Street was paying was allegedly working We see Alan Greenspan getting a special civilian from Bush. Lyman recounts his name as “The Wizard”. We hear many analysts comment on him. Lyman talks about Greenspan’s career which goes all the way back to the Gerald Ford administration. We hear how Greenspan was a fun of Ayn Rand who stood opposed to any government control and control in general. Analysts talk about the Libertarianism that Ayn stood for.Lyman tells us that the philosophy of less government control was made for Ronald Reagan and then later on Bill Clinton. We hear about appointment of Bob Rubin, a well known financier in financial markets. Rubin surrounded himself with other big names like Larry Summers a well known economist, and Alan Greenspan. Lyman calls the 90s the Go-Go boom period because it was one of the last big booms in the financial markets.
However, as Lyman tells us not everyone thought the boom would last we hear about the CFTC commission and their criticism of the markets. We hear about the rise of Brooksley Born in the CFTC. She herself is interviewed and talks about her lawyer background. She was the first female president of the Stanford law review in a time where it was rare to have female lawyers to begin with. Born established herself and later on became close friends with Hilary Clinton. Hilary tried to bring in Brooksley into the administration but things fell through. Born then went to become the head of the CFTC. Born was an advocate of government regulation. Lyman tells us that she clashed with Greenspan. They clashed over areas such as fraud in the market. Greenspan seemed to think that the market itself would expose the fraudsters while Born thought there should be rules in place to deal with fraud. The discussion turns to over the counter derivatives which are largely unregulated. Lyman describes these derivatives as bets between the banks and market largely done in secret. Fraud became an issue with these derivatives. We hear about the case of Bankers trust vs. Procter and Gamble.
By the spring of 1998, Lyman explains it would seem out of place to favor tough regulation over things such as derivatives. Brooksley tried to report to then President Clinton the dangers of over the counter derivatives but her efforts were curtailed by the Presidents Working Group led by Rubin, Larry Summers, and Alan Greenspan who were spewing out that deregulation is the way to go. Born was drafting a idea called “Concept Release” to regulate derivatives. The Presidents Working Group goes to Congress for help in curtailing the concept release from becoming law. We see real footage of the congressional hearings between Greenspan, Rubin and others going against the CFTC. The funny things as the analysts point out is that a lot of members in congress didn’t even know what a derivative but were willing to buy the testimony of so called experts of Wall Street like an Alan Greenspan. Lyman tells us that Brooksley’s warning became a prophecy six weeks later when the hedgefund of LTCM (Long-Term Capital Management) started to go under. Lyman tells us that LTCM was run without any government intervention.
Lyman tells us that even investors for LTCM didn’t know how the company worked. Lyman tells us that LTCM did business with fifteen major banks totally five billion dollars in derivatives. Lyman continues to tells us that a collapse in Russian’s markets affected LTCM. Word of impending collapse spread, but disaster was averted when the banks agreed to bail out LTCM. Then not so surprisingly Rubin, and other financial people started to change their tune about government regulation with the exception of Alan Greenspan who couldn’t admit that what happened to LTCM would happen again.
In the end, congress again sided with Greenspan. Then they decided to go after Born. Eventually the need to deregulate Wall Street continued all the way to the Bush year where Lyman explains over the counter derivatives reached five hundred and ninety five trillion dollars. One analyst calls this a “ticking time bomb” Lyman then goes over briefly all the financial disasters since then and then gives us an update about what happened to Bob Rubin, Arthur Levitt, Greenspan and other financial advisors. The highlight of this is Greenspan resignation before the big meltdown of 2008. There is still no strong regulation on over the counter derivatives.