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May 7, 2015

Former CFTC Chair Brooksley Born: A longtime fighter to protect Americans from the dangers of derivatives

By now, almost anyone paying attention knows that Former CFTC Chair Brooksley Born fought to regulate derivatives in the late 1990s. She lost that battle and derivatives were unregulated, which allowed Wall Street to create, package, sell and distribute trillions and trillions of dollars of what Warren Buffet has correctly referred to as “weapons of mass financial destruction.” While there are many sensible uses for derivatives, they are also a perfect vehicle for Wall Street’s too big to fail banks to recklessly gamble with, ballooning their billions in bonuses but also dramatically increasing systemic risk for everyone else.

The Wall Street derivatives-making machine is what was at the core of creating the subprime bubble before 2008 and what not only ignited the financial crash, but they also acted as a conveyor belt distributing that risk unseen throughout the global financial system. A key goal of financial reform and preventing Wall Street from ever doing that again to the American people was to regulate derivatives as Chair Born argued over a decade ago. Much has been done to bring transparency and a level playing field to the derivatives markets since 2008, but much still needs to be done.

Chair Born was one of a number of terrific speakers at the INET Finance and Society Conference in Washington, DC this week and her remarks are an important reminder of where we have been, where we are and where we need to go to protect the American people and the country from another derivatives-driven financial crash and crisis. A fragile and dangerous financial system and the threats posed by it to people everywhere should be a top issue for politicians worldwide: As Better Markets has documented, the 2008 financial crash was a massive economic calamity that will cost the United States at least $12.8 trillion. But the crash was a worldwide crisis that had ramifications across the globe, including in Britain, where the government was forced to outright nationalize some of the country’s largest banks (unlike here where some were de facto nationalized, which socialized losses but privatized gains from taxpayer bailouts and government support). The 2008 financial crash proved yet again that, other than war, nothing devastates a country’s economy more than a financial crash and crisis, which spews widespread economic wreckage across the land, ruining lives and treasuries alike.

The worldwide financial system still remains too fragile, so you would think that major political campaigns would make financial reform issues a priority. We’re already seeing these issues start to play a big role in the 2016 Presidential election because it is undeniable that the American people rightfully remain very concerned about the threats posed by Wall Street and the failure of elected officials, policy makers and regulators to sufficiently protect Main Street from those threats. But we’re seeing a different conversation, or lack thereof, on the other side of the Atlantic ahead of the parliamentary election in Britain today.

Unfortunately, candidates there have remained silent on an issue that shook the world just a few years ago, and financial systematic risk has even failed to make the list of priorities among British voters. The electoral campaign in Britain could be the closest in a generation, so it’s especially disappointing to see these issues virtually absent from the debate. With the global financial markets still at risk of another crash, voters on both side of the Atlantic deserve a candid, robust discussion about the key financial reform issues and a public debate about how political leaders must work to prevent another global financial crisis.



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