The warning details the collapse of the financial system of America in 2008. It was not a collapse that happened overnight, but a series of unregulated actions by investors, bankers and government officials that aided and increased the likelihood of the collapse through their purposeful actions of dereliction of duty, greed, personal agendas coupled with political and personal beliefs and agendas.
The financial collapse of 2008 was caused by but not limited to derivatives, regulation and long-term-capitol, Alan Greenspan’s policies and beliefs and finally, the failure to heed warning signs of Brooksley Born, who was the Federal Trade Commission Chief.
Derivatives and regulation
To begin, the financial collapse of 2008 were caused by but not limited to derivatives and regulation ‘ bureaucracy was absent in this case. A derivative is like an insurance policy. The use of a derivative is for speculation and hedging investments. To hedge is a further insuring method to insure an investor when the price of the investment begins to slip and lose value. For example, the weather now is very cold and snow and ice are threatening crops nationwide, so since crops are very important to the base of this nation, the investors will hedge the crops or fund so that this year won’t be a total loss to the farmers or the investors. A few different forms of derivatives are a swaps and or a bet. It is legal to swap and bet against the market as well. This is considered fraud but at the time the government did not regulate this and in some instances they still don’t. A swap is when two entities exchange an asset that may be a bond or stock that can be traded in for some form of gain or monetary value if the other party defaults. This is like a pawn shop. The world market also does this type of financial business and still does despite yet another impending collapse based on market analyst. Many thought it was the housing market collapse but the housing market was a just a sub-heading under a derivative that went into default along with banks and auto-makers. Many investors still deal with these over-the-counter-derivatives which are mostly still not regulated by any entity and the government is currently unsure how to regulate these transactions or black bag deals that only the parties involved know about.
Alan Greenspan’s policies and beliefs
Secondly, derivatives, black bag deals, housing market woes weren’t the only issue that brought about the near total financial collapse of America. It was dereliction of duty by the regulators as well. One such regulator was Alan Greenspan. Alan Greenspan was known as the financial wizard. He was the Federal Chairman. He was initially hired by Gerald Ford but worked his way to the top, primarily because he was smart, well-spoken and made millions, if not billions on Wall Street that made many respectable circles respect him and his judgment. Greenspan, although articulate and smart, held his own political and financial views that caused some alarm by some but overlooked by his employers. These views were that of a libertarian, which is an individual who believes that the investment markets should have total and unabated autonomy with the privilege and freedoms to operate how they so choose to. Greenspan was a follower of this idea and principle as well as a follower of political activist Ayn Rand. Ayn Rand was in opposition of any and all forms of government control over financial freedom of the market. She believed that there should be a separation from government and economic dealings. Rand was a staunch supporter of deregulation and the troubling reality is that Greenspan was a follower of Rand. This philosophy was the undoing of Greenspan and the American market because it is a direct violation and opposite thought process of the American governments policies to stop fraud and to regulate the market and society. These regulations are and were necessary to keep America from crisis like the one set up by this libertarian attitude Greenspan adopted. She and he followed libertarian philosophy. She and he rallied for a free and unregulated economy.
Greenspan was truly intelligent and while acting as the Federal Reserve Board Chairman, he had a few people in league with him that literally ran the financial market of America from the White House. Those people were Secretary of Treasury Robert Rubin, the United States Securities and Exchange Commissioner (SEC) Mr. Arthur Levitt and Deputy Treasury Secretary Larry Summers. These were the men who then and some, still today are council for the presidents of the United States. These gentlemen wanted a free market that they believed would regulate itself. At the time, the economy was riding high and bankers were uneasy that Brooklsey Born, the new head of the Commodities Future Trade Commission (FTC), was asking questions about perceived fraudulent dealing with derivatives and other under the table actions dealing with the market. She wanted regulation and answers. Greenspan, Rubin, Levitt and Larry Summers all rallied to block Ms. Born from regulation and went so far as to get Congress to limit her powers as the FTC head. They argued that her ideas of regulation would cause a panic among investors and create a financial disaster and cause banks to leave the country, irony abounds.
Finally, the financial collapse of 2008 was caused by failure to heed warning signs of Brooksley Born, who was the Federal Trade Commission Chief ‘ (FTC). Born was a lawyer who was appointed to the FTC by Bill Clinton. The FTC regulates the futures speculations of agriculture and supposed to regulate derivatives as well, or so Born thought. Born was a lawyer in the field of derivatives for over 20 years by the time she took this position. She was in favor of regulating the market and derivatives and her total opposite was the juggernaut ‘ Alan Greenspan who supported deregulation of derivatives. Brooksleys’ life was about financial regulation and Greenspan’s life was about free market. The two clashed. Born attempted to implement more regulation and rules on derivatives, so that full disclosure can be a part of the packaged derivative deals but Greenspan was not in favor of these ideals and multiple investors were getting angry. Greenspan used his influence to block Born. Born received several threats from these powerful men but she still attempted to do her job. She begged and pleaded with several other offices and she received little to no help and the market, in the fall of 2008 ‘ crashed.
In conclusion, the financial collapse of 2008 was caused by but not limited to derivatives, regulation and long-term-capitol, Alan Greenspan’s policies and beliefs and finally, the failure to heed warning signs of Brooksley Born, who was the Federal Trade Commission Chief ‘ (FTC). Alan Greenspan, who was the Federal Reserve Board Chairman, the Secretary of Treasury Robert Rubin, the United States Securities and Exchange Commissioner (SEC) Mr. Arthur Levitt and Deputy Treasury Secretary Larry Summers all opposed regulation because the market was almost in an all-time high. This was a dangerous move that proved fatal. Some consolation to Born, but not the economy as we are still in financial woes, is that Born was given an award. That award was the John F. Kennedy Award for Profiles in Courage. It is an award that recognizes courage under fire during her time that she was trying to warn the nation and Congress of the impending financial crisis. Born has been quoted saying that there will be another crisis because policies have not changed much. The bureaucrats have now been awaken, somewhat. They previously turned a blind-eye for capitalism but now the rules are being updated and changed as with the Dodd-Frank law which regulates derivatives is being rewritten and upgraded to the Volcker rule, in which it will restrict U.S. banks from making speculative investments that are toxic.