All the Devils Are Here [69]
Six months later, the President’s Working Group issued a report on LTCM, which focused much more on the firm’s excessive leverage than its derivatives book, and which made exactly one regulatory recommendation: unregistered derivatives dealers should be required to report their financial risk profiles on some kind of regular basis. In a footnote, Greenspan dissented even from that recommendation.
Although Brooksley Born signed her name to that report, she was unhappy with it, feeling that it only reinforced the government’s laissez-faire attitude toward derivatives. When the White House called and asked if she wanted a second term, she declined. By June 1999, she had returned to Arnold & Porter, where she resumed her practice until she retired in 2003.
A few weeks after Born left the government, so did Rubin. Rubin never spoke to Born again after that April 1998 meeting. Immediately after the Long-Term Capital Management fiasco, she had reached out to Gary Gensler, then a high-ranking official at Treasury—later, ironically, the chairman of the CFTC—asking him to convey a message to Rubin. “We all seem to be on the same side now,” she told Gensler, hoping he would convey to Rubin that she wanted to work with him on the derivatives issue. Rubin never responded. Not long afterward, she attended a meeting at the Treasury Department in which she tried to congratulate Rubin for his role in containing the crisis. He brushed past her without saying a word.
Years later, Rubin’s defenders would claim that it was Born’s hard-nosed approach that had turned him against her. She was too strident, they said, too legalistic, not deferential enough to the Treasury secretary. “If she had just been more collaborative,” said one such defender, “Rubin might have been her ally.”
Arthur Levitt, the SEC chairman, was one of those who had been told by Treasury that Born’s supposed stridency made her impossible to work with. Years later, though, he worked with her on a project and found her completely collegial. He later told the PBS documentary show Frontline that he felt Treasury had misled him. For his part, Greenberger believes that Rubin didn’t take her seriously because he didn’t view her as a bona fide member of the establishment like himself.
Even so, why should Brooksley Born’s personality or her background have been the deciding factor? Derivatives either were a problem or they weren’t. Rubin either understood the trouble they might someday cause or he didn’t. If, as he says, he did understand the problem, then allowing his position to pivot on whether or not Born showed him the proper deference would seem, in retrospect, a pretty serious dereliction of duty. Robert Rubin had spent most of his career affecting a kind of egoless management style. His treatment of Born—his willingness to put his personal irritation ahead of the important public policy issues that derivatives posed—suggests that he wasn’t quite as egoless as he let on.
It fell, finally, to Larry Summers to make sure that derivatives could never again be threatened by a regulator like Brooksley Born.
After Rubin left the Treasury Department, he took a position with Citigroup as “senior counselor,” where he had no operational responsibilities but was nonetheless paid around $15 million a year. Clinton named Summers as his replacement. A few months later, the President’s Working Group issued a long-awaited report on derivatives—a report that had been prompted by the furor over Born’s concept release. “A cloud of legal uncertainty has hung over