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Chapter 12: The Collapse!

So why was Alan Greenspan, who was Chairman
of the Federal Reserve from 1987 to 2006, opposed to
any oversight of the derivatives market? Alan Green-
span is a disciple of Ayn Rand, who wrote the book,
Atlas Shrugged, in 1957. Rand believed that the market
should be free of all government regulation. So, here we
have the Chairman of the Federal Reserve, who handles
regulating the banking system, opposed to oversight.
When Brooksley had a private conversation with Alan
Greenspan and pointed out extensive fraud in the
derivatives market, he responded that the CFTC should
not persecute fraud because the market would take care
of it.
Events took a turn when banks rescued Long-term
Capital, a hedge fund, from bankruptcy in 1998 when it
was on the losing side of a derivative contract. The
banks told Congress that the LTCM problem was the
exception to the rule and was not indicative of the
derivatives market. Congress accepted this argument
and passed the Commodity Futures Modernization Act
(CFMA) of 2000. The CFMA stripped the Commodity
Futures Trading Commission of all responsibility for
derivatives and forbade the Securities and Exchange
Commission (SEC) and state regulators from interfering
with the market.

CREDIT DEFAULT SWAPS (CDSs)

In addition to the Community Reinvestment Act,
the subprime mortgage market and the expanding
derivatives market, credit default swaps and
collateralized debt obligations played a role in the
economic crisis of 2007-2008.

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