Will They Pull a Brooksley Born on Elizabeth Warren?

Remember Brooksley Born, former head of the Commodity Futures Trading Commission? In the late 1990s, Born sensed trouble was coming to a $25-trillion derivatives market. She pushed to strictly regulate derivatives under the Clinton administration, but lost the battle because she found herself on the wrong side of then Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, his deputy Lawrence Summers, and Securities and Exchange Commission head Arthur Levitt.

To say Born's warnings were ignored would be an understatement. The gurus of the U.S. economy "dark markets" went after her.

Looking back on that time, Born told the Washington Post, "I was concerned about the lack of transparency and the lack of any tools for enforcement and the lack of prohibitions against fraud and manipulation."

Greenspan, of course, famously argued that there wasn't a need for a law against fraud because the market would take care of fraud on its own. Born recalled Greenspan's perspective as follows: If a broker engaged in fraud, customers would find out and stop doing business with him.

The dark market defenders went to battle against Born in 1998, fighting to block a concept paper she had prepared. Born prevailed and released the document, but was immediately labeled a "rogue regulator." Soon thereafter, Long-Term Capital Management, a huge hedge fund that bet heavily on derivatives, nearly failed and had to be bailed out by a group of banks.

Instead of offering Born an apology and thanks, the "Oracle" Greenspan and his crew lobbied Senators to place a moratorium on the power of the CTFC. They won. Born did not seek reappointment. And large-scale fraud, as we've since come to know it, was given free rein.

After the financial disaster was well underway, Born acquainted Greenspan with the fact that as Fed Chairman he had "failed to prevent the housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse." His response was essentially that sometimes he is wrong but he is right more often.

Today, given President Obama's hemming and hawing about appointing Elizabeth Warren to head the Consumer Financial Protection Bureau, it's not far-fetched to think that history could repeat itself. Another woman trying to break the old guard's economic chokehold could be shown the door.

Warren has compared predatory bankers and brokers to "financial wizards" who "loot from middle class families." She is not intimidated by Timothy Geithner. Nor is she naïve, as some claimed Born was, about the politics of Washington. Therefore, she is likely to be a "loose cannon" by Geithner's standards -- and that's not President Obama's favorite type of person either.

If the financial overseers do pull a "Brooksley Born" on Warren, they will be overestimating their own power and underestimating both the acumen and the power of Americans who supported President Obama in the past. They will also be turning their backs on those striving to join the middle class and those struggling to remain there.

If President Obama fails to appoint Warren -- or if he appoints her and his cronies render the Consumer Financial Protection Bureau powerless, he will lose the next presidential election.

Millions of Americans, and perhaps especially American women, will not stand idly by and let the establishment savage Warren, her skill, integrity and willingness to defend those not able to so aptly defend themselves.

Kathleen also blogs at bardscove.