Reading Dr. Ed’s Morning Briefing (a great newsletter from Ed Yardeni–the 1/13 briefing), I was encouraged to hear about a member of the new Financial Crisis Inquiry Commission (The new FCIC website is at www.fcic.gov).
One of eight commissioners on the commission, Brooksley Born had been the head of the CFTC (Commodity Futures Trading Commission). She resigned, though, after almost three years because President Clinton’s financial team (Greenspan, Summers, Rubin) disagreed with her concern about credit swaps and other derivatives. While she pushed for regulation, the administration worried instead that she would create turmoil and diminished value of the dervivatives she targeted.
You might want to look at a “Frontline” report (55 minutes) about “The Go-Go Years” that includes a focus on Alan Greenspan and Brooksley Born.
The Economic Life:
Just like bubble gum, hot air that has no substance inflates financial bubbles until they pop. Derivative related securities that ranged from credit default swaps to collateralized debt obligations (CDOs) helped to inflate the housing bubble because they made more money available for mortgages. More money for mortgages pushed home prices up.