Frontline: The Warning
by Michael Kirk
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DVD Cover Information
Actor: Reported By Jim GilmoreDirector: Michael Kirk
Brand: PBS
DVD: Region Code 1
Audio: English (Unknown); English (Original Language)
Format: Color, DVD, NTSC
Picture Format: 1.33:1
Running Time: 60 minutes
DVD Release Date: 2010-01-05
Audience Rating: NR (Not Rated)
Studio: PBS
Movie Reviews of Frontline: The Warning
Movie Review: Warning from a Modern Day Cassandra
Summary: 5 Stars
This is the story of one woman who was the lone wolf in the financial world who tried to sound the alarm of the impending financial disaster. Her warning would make her an enemy of very powerful people who would attempt to shut her up and shut her down. Unfortunately, they would succeed.
Brooksley Born who is appointed Chairperson of the Commodities Futures Trade Commission (CFTC). As chairman of the CFTC, Born was authorized to regulate agriculture futures and derivatives. The men she would go up against are Allan Greenspan, Chairman of the Federal Reserve, Robert Rubin, who served as Assistant to the President for Economic Policy under Bill Clinton, and Tim Geitner. Rubin's top deputy would be Harvard Economist, Larry Summers. Together they formed a powerful influence. When these men spoke, Government and Wall Stree listened.
Over-the-counter derivatives soon get her attention for its lack of regulation. Derivatives, or swaps, are essentially insurance policies that companies enter into to protect themselves against unforeseen calamities. It is a twenty-seven trillion dollar market that was hidden from public view. In 1993 Proctor & Gamble sued Bankers' Trust for losses in the millions from swaps. Proctor & Gamble employees find secret tapes of conversations between Bankers' Trust representatives bragging how they played P & G knowing they would lose. The only way the Federal Trade Commission found out about the fraud from the high profile lawsuit. The largest banks are operating in secret. There is no recordkeeping, reporting, or regulation of swaps and their failure could take down the entire financial system.
Worried about an out-of-control financial instrument, Brooksley Born decides to attempt regulation by issuing a concept release. She will not only face the economic and banking titans, but also the most powerful lobby ever--the banking lobby. Their immediate push only heightens Born's suspicion, and she continues her regulatory action, which her agency is empowered to do. She is only answerable to the president. The "President's Working Group reacts. It consists of Greenspan, Geitner, Summers, Arthur Levitt, the SEC chairman, the head of the FTC, and other members picked by Rubin. Their intent is to browbeat Born into retracting her concept release, but she refuses.
The Working Group gets both houses of Congress to hold meetings immediately in the Summer of 1998. The old boys' network led by Senator Phil Gramm believes the good old boys, and Born is battered by the hearings. With no support or political clout Congress does nothing, but it doesn't take long for her prophecy to develop. In fact, it takes only six weeks when a hedge fund called Long Term Capital Management (LTCM) starts to melt down, exactly what what worries Born. Members of Congress begin to call for regulation but Allan Greenspan has no intention of yielding, and Congress backs him up. There will be no regulation against fraud, no transparency, no capital reserve requirements, and no record of transactions. The only action Congress takes is against the CFTC. Congress imposes a regulatory freeze on the CFTC because Born is the bearer of bad news, and not viewed as a team player. Powerless, she resigns. Wall Street is left to regulate itself at Greenspan's urging, and the last two years of the Clinton administration turns out to be the heyday of the derivative. By 2007, the OTC derivatives market grows to $595,000,000,000,000--that's trillion. Almost ten years after the collapse of LTCM the worst crash since the Depression occurs.
Robert Rubin eventually leaves government to join top management at Citibank. After the crash, the government gives the bank 100 billion to keep Citi afloat. Larry Summers and Tim Geitner have become Barack Obama's chief financial advisors. Allan Greenspan retires just before the crisis of 2006. He realizes that his life-long belief a self-regulating free market is flawed. Larry Summers now says that he is very much in favor of derivative regulation. The Treasury Dept. releases a proposal with some of the same ideas Born made more than a decade ago. The banking industry still opposes regulation. Without it, Brooksley Born a modern day Cassandra, predicts the same thing again in a different form until we learn from our experience. She epitomizes the meaning of public servant.
The question remains, if Brooksley Born's prophecy was heeded, would a financial crisis had been averted? The answer is yes.
Finally, the CFTC is still powerless as a watchdog agency for the public.
This is a phenomenal account of what happened, and who is to blame for the financial crisis from which this country still reels. For anyone who wants to understand what happened, this will inform you in 60 minutes.
Also recommended:
PBS' website where the discussion of the financial crisis continues, and a timeline of deregulation over the decades is offered.
Leopold, Les, "The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity." Chelsea Green Publishing, White River, VT. 2009
Summary of Frontline: The Warning
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