FRONTLINE: The Warning


"Larry Summers. . . says, 'You're going to cause the worst financial crisis since the end of World War II.'"

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, head of the obscure federal regulatory agency—the CFTC—who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could've helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it, he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in fall 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the group—former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin—convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

The members of the Working Group vehemently opposed regulation—especially when proposed by a Washington outsider like Born.

Michael Greenberger, a former top CFTC official walked into Born's office. "She's hanging up the telephone; she says to me: 'That was Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II." [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

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