The Frontline program, “The Warning“, reports on Brooksley Born’s effort to gain an understanding of over the counter derivative markets. There are a few things that should have been made more clear than they were:
(1) The Concept Release issued by the CFTC in 1998 did not in fact propose any regulation of over the counter derivatives. All it proposed was that regulators gather enough information about the market to determine whether or not regulation was necessary.
The opposition she faced under these circumstances was simply inexcusable. The “regulators” took the position that they didn’t even want to gather enough information to understand what it was they were supposed to be regulating. They chose very deliberately to fly blind and ridiculed Brooksley Born for pointing out that flying blind is a bad idea.
(2) Their response to the Concept Release was to cut down not only the protections that had been put in place by Roosevelt in the form of CFTC and SEC regulation of all legally enforceable derivatives, but also the traditional common and state law provisions that had protected financial markets from excessive growth of speculative derivative contracts for more than a century. Thus the Commodity Futures Modernization Act destroyed a financial infrastructure that had been carefully developed over centuries of experience with financial contracts.
For more on this issue see here.