I recently attended a small party with President Obama’s deputy chief of staff, Jim Messina. Messina – a Huck Finn type originally from the office of Montana Senator Max Baucus – treated us to a Pollyannaish assessment of Obama’s first year.
According to Messina, White House Chief of Staff Rahm Emanuel is the smartest political brain in America and Obama is the greatest political communicator of his generation.
That’s where I started to tune out. My BS periscope surfaces whenever I hear these superlatives used to describe politicians. After a lifetime in the game, I’ve learned that genius labels should be reserved for Nobel Prize winning scientists and mathematicians.
Why am I so skeptical? Maybe it’s because our “genius” political class so often drums out rational, intelligent voices of dissent.
Take the case of Brooksley Born.
You could be forgiven for not knowing the former Commodity Futures Trading Commission Chair. But last week’s powerful PBS Frontline story about Born should be must-see TV for all Americans.
Let’s put it this way: If former Fed Chairman Alan Greenspan, former Treasury Secretary Robert Rubin and Assistant Treasury Secretary Lawrence Summers had heeded Born’s warnings, we might have averted the worst financial crisis since the Great Depression, saved taxpayers $12 trillion in bailouts and averted the loss of millions of jobs.
Instead, all three Washington “geniuses” came together to undermine, trivialize and ultimately to bury Brooksley Born.
Born is a San Francisco native whose father once headed the Welfare Department. She graduated from Stanford Law School at the top of her class in 1964 and was the first woman to be elected president of the Law Review.
Born’s distinguished legal career led to a partnership at the prestigious Washington law firm of Arnold and Porter. In 1993, she was on President Bill Clinton’s short list for Attorney General but lost out to Janet Reno. Instead, she was appointed to head the Commodity Futures Trading Commission (CFTC) because of her extensive expertise in securities law and regulation.
As chair of the CFTC, Born became deeply concerned about a class of financial products involving trillions of dollars in liabilities that the government knew almost nothing about. Derivatives were being exchanged between huge financial institutions without regulation. Born deduced that no one really understood the risks or even knew the massive amounts of money involved.
At the center of the derivatives market was a new piece of paper called the “credit default swap,” which insured lenders against losses from creditors.
Born began to propose regulations that would require transparency in the derivatives markets. But she was opposed head-on by Greenspan who marshaled Rubin and Summers to testify against her views in Congress.
They were strongly opposed to regulating financial products, preaching that markets can always be trusted to police themselves. Congress even passed a law prohibiting Born and the CFTC from regulating derivatives. She resigned and returned to private practice.
History is clear about what happened next.
For years, Greenspan was hailed as “The Maestro.” His easy money policies fueled years of expansion. Rubin gained hero status as an economic guru, left the Treasury and became a highly paid Citibank executive. Summers became President of Harvard University.
But in 2008, a mountain of credit default swaps came due when the mortgage market collapsed and home values plummeted. Fear swept the financial markets. Financial companies’ inability to honor their policies plunged the financial system into chaos.
Brooksley Born had predicted Armageddon and she had been right.
Washington loves to plant the genius label on the reigning A-list power brokers but only history decides the truly deserving. Fifteen years after leaving the CFTC – Brooksley Born has been vindicated. Greenspan, Rubin and Summers were dead wrong.
Greenspan has shrunk from public view. Rubin’s Citibank required a $100 billion federal bailout to remain solvent.
Larry Summers is now President Obama’s economic guru.