Friday, October 16, 2009

ALERT: Major Distortion of Financial Crisis About to be Launched

The PBS news program Frontline is about to launch an "expose" of the financial crisis and blame it on free markets. The program is titled, The Warning, and is to be first aired on October 20. It will blame the current financial crisis on supposed free market advocates (and this, I guess, is not a PBS joke), Alan Greenspan, Robert Rubin and Larry Summers.

Greenspan, at the time, was the head of the Federal Reserve, which is responsible through monetary manipulations for the distortions that do cause the business cycle. Rubin is a former Goldman Sachs CEO, who like all Goldman players used his government position to benefit Goldman and other elite insider banks. He left his position as Treasury Secretary to become a senior adviser to Citigroup (Many believe he was awarded the Citi position for his directing, while Treasury Secretary, regulations in a way that would significantly benefit Citi). Summers is now lead economic adviser to President Obama and sings the praises of the administration's interventions in the economy, from the intervention of shoveling money in the banking and auto sector to federal control of healthcare.

If these people can be considered free market advocates, well then just consider me President Obama's birth mother.

But Frontline sets up the absurdity of these three as free market advocates so they can attack free markets and trot out their heroine, Brooksley Born. Born, a friend of Hillary Clinton was named a member of the Commodity Futures Trading Commission, in the Clinton Administration. The CFTC during Born's era buried the major illegal trading that resulted in Hillary Clinton trading $6,300 into $100,000. In short, Born was just the political operative that the Clintons needed at the CFTC. She got the job done, ah, make that got the job buried.

Now, she is being trotted out as foreseeing the financial crisis, because she wanted to regulate derivatives. In truth, her aggressive demand to have the CFTC regulate derivatives was a turf war. Even before she was made head of the CFTC, it was clear the CFTC would be a battler for oversight of derivatives.

A May 3. 1994 NYT article by Robert Hershey Jr, discussed this turf war, just days after Born became a member and Mary Schapiro was about to be named CFTC chair:
One big topic for the next C.F.T.C. chairman will no doubt be the regulation of financial derivatives.
Thus, Born's fight for regulation of derivatives was a long term agenda of the CFTC, and she was the political tool used to fight in the turf battle. She was not some prescient derivatives genius who with blank slate walked into the CFTC and saw the dangers of derivatives. The course was set for her and she was simply spun around to face the direction she was supposed to march in, and march she did (probably with boots on).

Yet, because, as a political hack, she called for regulation of derivatives by the CFTC, Frontline is promoting her as someone who saw the dangers of derivatives. Yes, this same hack, who couldn't spot anything wrong with Hillary's commodities trading, though a Washington Post reporter, could rattle off violation after violation, is now Frontlines tool to be used to promote the idea that the financial sector needs to be more heavily regulated, curiously just in time for Obama to launch its campaign to add piles and piles of more regulations on the financial sector.

The mass media, and other first line spreaders of programmed nonsense, will use this "expose" as their outline to spread a call for more regulation. Because gosh jolly, if the regulation advocate Born had her way, house prices would have never gone up and the politically charged CFTC would suddenly not be politically charged if they got their hands on derivatives. As the 6 year old non-balloon boy might say, "Excuse me while I puke".

The fact that business cycle crises have existed long before derivatives even existed, and that business cycle crises are first and foremost a monetary phenomena will be lost on these unthinking sponges who absorb nonsense and then drip it out.


  1. PBS can't tell its face from its rear end when it comes to financial markets and intermediaries. They too fail to identify the capitalism/corporatism distinction. I expect a lousy, pathetic scapegoating of derivatives from "Frontline."

  2. You are obviously a true disciple of those folks that stole trillions from workers worldwide.

    How do you sleep at night?

    I bet well, since you seem to have no conscience.

    Brooksley was attacked 12 years ago; and you attack her today.

  3. This blogger gets it...take notes.

    New party, same crooks. MSM increasingly gets it.

    In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all 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 the fall of 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 Working 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."

    Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

    "I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] 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."

    Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

    "It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience."

    2009-10-16 04:26:57

  4. Chris Dorf

    The preview of this show is like the flip-side of CNN's attempt to "fact-check" a SNL skit that satirized Obama. SOme in the media (including those who produced "The Warning") are clearly having difficulty discerning fact from fiction.

    If you are employed by PBS perhaps you could pass along Dr. Rothbard's definition which should clarify their understanding of capitalism:

    "If we are to keep the term "capitalism" at all, then, we must distinguish between "free-market capitalism" on the one hand, and "state capitalism" on the other. The two are as different as day and night in their nature and consequences. Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government — the State — to accumulate capital for themselves by expropriating the production of others by force and violence."

    There is no one in "the Warning" who could remotely be considered a free-market capitalist. This suggests that the shows producers believe that state capitalism has failed us and I couldn't agree more. However, the implied solution seems to be more state capitalism.

    This "hair of the dog" solution indicates that the producers will need more than a simple definition of capitalism. Perhaps a ten-step program would help...but probably not.

  5. Is it a coincidence that Rubin, Summers, and others are also prominently featured in the 6-hour "Battle for the World Economy" that pits Mises and Hayek against Keynes?

    I think not.

    PBS has NO understanding of profit and loss, only "contributions" from foundations and viewers like you.

  6. Yes, silly Frontline, decrying the dangers and damages of Madoff, the Ten Trillion Dollar Debt, Al Qaeda, Enron. And their audacity in speculating that "The Man Who Knew" tried to prevent 9-11. They should just go home, eat their Cheerios and just shut up. Oh yeah, tell the same thing to Jesus and Gandhi.

  7. The main point I took away from "The Warning" is that the OTC Derivatives business was too large to operate without the public having any clear insight into who was doing what with whom. Was there a political side to all of this? I'm sure there was, but don't lose sight of the real issue, which is publicly traded companies, especially huge banks cannot be allowed to cut back office deals that no one knows about.

    Every market needs some type of oversight to ensure those playing in it are on the up and up. This in turn encourages more people to participate which results in a truly free market. A market cannot be free when information is not readily available to the players. That's ECON 101.