By Staff
A historical account of Brooksley Born's thwarted campaign to regulate the derivatives market and why her warning echoes louder in 2026 than ever before
In the spring of 1998, a federal regulator named Brooksley Born did something that seems almost incomprehensibly reasonable in hindsight. She issued a document called a concept release, a set of questions asking whether the over the counter derivatives market, which had exploded from roughly $4.5 trillion to $28 trillion in just four years, should perhaps be subject to some basic transparency requirements. Not new laws. Not restrictions. Just questions. A conversation starter.
Born was the chair of the Commodity Futures Trading Commission, a small agency with a tiny budget and a mandate that most Americans had never heard of. She was a brilliant lawyer, the first woman to serve as president of the Stanford Law Review, a partner at one of Washington's most prestigious firms and a genuine expert in derivatives law. She had practiced in the field for more than twenty years. She understood these instruments better than almost anyone in government. When she arrived at the CFTC in 1996 and began examining the over the counter derivatives market, she was alarmed by what she found. The market was entirely opaque, operating in what she later described as a dark market where nobody, not even the regulators, knew the full extent of the exposure.
Her staff began telling her how big this market had grown, how deeply interconnected it had become with the broader financial system and how completely it operated beyond the reach of any oversight. Born recognized the danger immediately. If something went terribly wrong in this unregulated, invisible market, the consequences could cascade through the entire global financial system. A falling domino effect. She felt the weight of her responsibility heavily. The CFTC's statute gave her agency regulatory authority over these markets and she believed it was her duty to act.
What happened next is one of the most shameful episodes in modern American regulatory history.
Within hours of Born issuing her concept release, three of the most powerful economic officials in the world, Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and Securities and Exchange Commission Chairman Arthur Levitt, issued a joint statement expressing their grave concerns. They seriously questioned the scope of the CFTC's jurisdiction and warned that Born's action may increase the legal uncertainty concerning certain types of OTC derivatives. Three regulators ganging up on a fourth, not because she had done something reckless but because she had the audacity to ask whether someone should be keeping an eye on a market that was growing at exponential rates with zero transparency.
The assault was not merely bureaucratic. Larry Summers, then Rubin's deputy at Treasury, called Born directly to berate her. According to Michael Greenberger, one of Born's top aides, Born hung up the phone and the blood drained from her face. Summers told her she was going to cause the worst financial crisis since the end of the Second World War. He said he had thirteen bankers sitting in his office who had informed him of this. His message was simple and blunt, stop right away. No more.
The irony is almost too brutal to bear. The man warning that regulation would cause a financial crisis was unwittingly describing the crisis that the absence of regulation would actually produce just a decade later.
Greenspan was equally dismissive. He told Born she did not know what she was doing, that the derivatives market involved sophisticated professionals who could police themselves, that government interference would only disrupt innovation. He had called derivatives one of the greatest innovations in recent financial history. He testified before Congress that Wall Street professionals needed no government oversight. He was wrong about everything.
There was a personal dimension to the hostility that cannot be ignored. As one senior CFTC director later observed, Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street. She was an outsider, a woman in a world of men who had built their careers on the assumption that markets were self correcting and that anyone who questioned that orthodoxy was either ignorant or dangerous.
Born released her concept paper anyway. Within weeks, Greenspan, Rubin, and Levitt jointly urged Congress to impose a moratorium on the CFTC regulating over the counter derivatives. Congress, ever responsive to Wall Street lobbying, obliged. Less than a month after Born had simply asked questions, Congress passed a statute forbidding the CFTC from taking any regulatory action in the over the counter derivatives market for six months.
Then, five months later, something happened that should have vindicated Born completely. A hedge fund called Long Term Capital Management, which had made massive, highly leveraged bets using the very derivatives Born had been warning about, collapsed spectacularly. The Federal Reserve had to orchestrate a $3.6 billion bailout involving fourteen of Wall Street's biggest banks to prevent a cascade of defaults that could have destabilized the entire financial system. It was a dress rehearsal for 2008, a clear and unmistakable warning that the unregulated derivatives market posed systemic risk.
And the response from Washington? Nothing. No new regulations. No investigation into the derivatives market. In fact, the opposite happened.
In 2000, the year after Born left the CFTC, Congress passed the Commodity Futures Modernization Act. The bill was sponsored by Senator Phil Gramm, the same man behind the Gramm-Leach-Bliley Act that had dismantled the Glass-Steagall firewall between commercial and investment banking. The new law did not merely maintain the status quo of non-regulation. It actively stripped the CFTC and the SEC of any authority to regulate over the counter derivatives. It forbade state regulators from interfering. It exempted the entire market from all government oversight, all oversight on behalf of the public interest. President Clinton, in his final days in office, signed it into law.
The derivatives genie was not just out of the bottle. The bottle had been smashed and the pieces scattered.
What followed was the most predictable catastrophe in financial history. The unregulated derivatives market metastasized. By the eve of the crisis, the notional value of the global derivatives market had swollen to approximately $600 trillion, roughly ten times the entire GDP of the planet. Credit default swaps, instruments that functioned like insurance policies on bonds and mortgages but with a critical difference, you did not need to own the underlying asset to buy one, proliferated without limit. Speculators with no exposure to the underlying mortgages placed massive bets that those mortgages would fail. The more bets they placed, the more money they would make when the housing market collapsed.
AIG, the largest insurance company in the world, sold roughly $500 billion worth of credit default swaps through its London based Financial Products division, conveniently beyond the easy reach of American regulators. The company collected billions in premiums while assuming it would never actually have to pay out, because the assets it was insuring, collateralized debt obligations built from pools of subprime mortgages, carried AAA ratings from the major credit rating agencies. AAA, the same rating given to the United States government. Between 2002 and 2007, Moody's alone stamped its AAA approval on nearly 45,000 mortgage related securities. In 2006 alone, Moody's was approving thirty of these securities every single working day.
The ratings were a fantasy. The rating agencies were being paid by the very banks whose products they were evaluating. It was like having a restaurant critic who gets paid by the restaurants he reviews. The incentive to give everything five stars was overwhelming and that is exactly what they did.
When the housing market turned, the entire structure collapsed. Lehman Brothers, founded in 1844, went under with $39 billion in toxic real estate assets. AIG required a $182 billion taxpayer bailout, which was not really a bailout of AIG but a bailout of every bank and institution that had bought credit default swaps from AIG. Goldman Sachs alone had approximately $20 billion in transactions with AIG and was paid one hundred cents on the dollar for its credit default swap contracts, no haircut, no negotiation, no shared sacrifice. The Dow Jones Industrial Average plunged nearly forty percent. Global stock markets lost approximately $17 trillion in value. Nearly ten million Americans lost their homes. Household net worth in the United States declined by $13 trillion in the first year of the crisis alone.
Brooksley Born watched her worst nightmare come true. Nobody really knew what was going on in the market, she later reflected. The toxic assets of many of our biggest banks are over the counter derivatives and caused the economic downturn that made us lose our savings, lose our jobs, lose our homes. Joseph Stiglitz, the Nobel laureate economist, was blunt. If we had restricted the derivatives, some of the major problems would have been avoided.
Here is where the story turns from tragedy to something closer to institutional crime. The people who created the conditions for the catastrophe, who systematically silenced the one person who tried to stop it, who dismantled every guardrail that stood between the financial system and total collapse, faced no consequences whatsoever. In fact, many of them were subsequently put in charge of cleaning up the mess.
Larry Summers, the man who had called Brooksley Born to berate her with thirteen bankers in his office, became the director of the National Economic Council under President Obama. Timothy Geithner, who as president of the New York Federal Reserve had overseen Wall Street in the years leading up to the crash, was made Treasury Secretary. The same foxes who had helped demolish the henhouse were now put in charge of rebuilding it.
Robert Rubin left his position as co-chairman of Goldman Sachs to become Treasury Secretary. After leaving Treasury, he joined Citigroup, where he was paid over $126 million over the next decade, while the bank loaded up on precisely the kind of toxic assets that the deregulation he had championed had enabled. Citigroup would eventually require $45 billion in taxpayer bailout funds.
Henry Paulson left his position as CEO of Goldman Sachs to become Treasury Secretary under George W. Bush. From that position, he oversaw the bailout of AIG, which conveniently ensured that Goldman Sachs, AIG's largest counterparty, was made whole on every dollar.
Of the major Wall Street executives who presided over the crisis, essentially none went to prison. The banks paid fines, nearly $80 billion in total penalties by 2014, but $80 billion is a rounding error for institutions that had profited by trillions during the bubble years. And it came out of shareholders' pockets, not the executives' personal fortunes.
The message was clear. You can gamble with the global economy, crash it, get bailed out by taxpayers, and walk away with your bonus intact.
Brooksley Born received the John F. Kennedy Profile in Courage Award in 2009. Arthur Levitt, the former SEC chairman who had joined Greenspan and Rubin in opposing her, eventually admitted publicly that silencing Born was clearly a mistake. He said he wished he had known her better, that she was one of the most capable, dedicated, intelligent, and committed public servants he had ever encountered.
Cold comfort, perhaps, for the millions who paid the price for not listening to her.
Born's story is not merely a historical curiosity. It is the operating manual for how the system still works in 2026. The forces that created the 2008 crisis have not disappeared. They have adapted. And the CFTC, the very agency Born once led, is once again at the center of a regulatory capture story that echoes her experience with eerie precision.
The CFTC under its current chairman, Michael Selig, appointed during the Trump administration, has been systematically captured by the very industries it is supposed to regulate. In January 2026, Selig announced the formation of an Innovation Advisory Committee populated with executives from crypto firms and prediction market platforms, companies that have pending business before the agency, companies that stand to gain enormously from favorable regulatory treatment. The committee includes Polymarket founder Shayne Coplan, Gemini CEO Tyler Winklevoss and other industry chiefs who now have a formal seat at the table advising the agency that is supposed to police them.
The committee's composition has drawn sharp criticism. Better Markets, a financial reform advocacy group, noted in August 2026 that crypto companies and prediction markets form a majority of the committee's members. "It is hard to understand how it can do that when it is being advised by the very firms it is supposed to regulate," the group observed. The concern is not abstract. It mirrors precisely the dynamic that enabled the 2008 crisis. The regulated writing the regulations, the foxes designing the henhouse.
The consequences are already visible. Under Selig, the CFTC has given the crypto industry its preferred regulatory status, approved crypto products previously deemed too risky for American investors and sided with crypto companies it previously sued. The agency joined the SEC in interpreting federal securities laws to exclude most crypto assets from the definition of a security, treating them instead as digital commodities. This was the crypto industry's long sought goal, because the CFTC, compared to the SEC, has fewer resources, laxer rules, and less focus on protecting retail investors.
The CFTC has also become what critics call the prediction markets chief cheerleader. It has proposed rules that give prediction market platforms almost everything they want, allowing event contracts on sporting events, despite the fact that these contracts are functionally indistinguishable from gambling and even allowing event contracts on political elections despite the threat they pose to democratic integrity. The agency has intervened in state lawsuits against prediction markets, arguing in court that a wager on whether a team will win a game somehow constitutes trading a financial derivative. It has gone so far as to tell prediction markets to ignore lawful court orders, ordering firms to execute bets in defiance of state court injunctions.
The revolving door, the mechanism by which the financial industry captures the regulatory apparatus, is spinning as fast as ever. Tyler and Cameron Winklevoss, whose Gemini Trust Company was previously accused by the CFTC of making false statements in connection with its bitcoin futures business and faced a $5 million penalty, each donated $1 million in bitcoin to the Trump reelection campaign. They are White House ballroom contributors and investors in a private club partly owned by Donald Trump Jr. In February 2025, former CFTC commissioner Brian Quintenz, who had been tapped to lead the agency, released private text messages in which Tyler Winklevoss insisted he treat Gemini's complaint as the highest priority and said he would be "happy to raise this issue with the president himself." When Quintenz refused, his nomination was withdrawn. Selig was nominated instead. Now installed as chair, Selig has moved to vacate the $5 million penalty against Gemini.
A June 2026 letter from the Senate Banking Committee documented the scope of the agency's deterioration. The CFTC has shrunk its workforce by approximately twenty five percent, purged career officials, sharply curtailed crypto enforcement and helped out prediction markets at virtually every turn. On June 1, 2026, the agency began offering buyouts and early retirement packages to remaining staff. A CFTC with fewer staff members, reduced enforcement activity, and expanded responsibilities is a recipe for disaster. It leaves the public even more vulnerable to bad actors and the financial system even more fragile.
The parallels to the pre-2008 era are not subtle. Then, as now, a CFTC chair recognized systemic risk and tried to act. Then, as now, powerful industry interests mobilized to crush that effort. The difference is that Brooksley Born fought back. The current leadership of the CFTC appears to have preemptively surrendered.
Brooksley Born, in her final warning after leaving the CFTC, said something that resonates with chilling force in 2026: "I think we will have continuing danger from these markets and that we will have repeats of the financial crisis. It may differ in details but there will be significant financial downturns and disasters attributed to this regulatory gap over and over."
She was right about the derivatives market in 1998. She was right about the systemic risk that market posed. She was right that the absence of regulation would produce catastrophe. And she was right that it would happen again.
The 2008 financial crisis was not a natural disaster. It was not an earthquake or a hurricane, a random act of nature that no one could predict or prevent. It was engineered by decades of deregulation, enabled by the capture of government by financial interests and amplified by instruments of speculation that were deliberately hidden from view. The people who engineered it faced no consequences. The people who tried to stop it were silenced.
The names and the instruments have changed in 2026. The derivatives that nearly destroyed the global economy have been replaced by crypto assets and prediction markets and whatever exotic financial products will be invented next. But the architecture remains the same. An opaque, unregulated, fantastically profitable system designed by and for a tiny number of insiders, protected by a captured regulatory apparatus, operating beyond the reach of public accountability.
The CFTC was once led by a woman who understood that her job was to protect the money of the American public, which was at risk in markets that nobody was watching. She was destroyed for taking that responsibility seriously. Today, the agency she led is being advised by the very firms it is supposed to regulate, approving products it previously deemed too dangerous and shrinking its enforcement capacity even as its responsibilities expand.
Financial crises are not accidents. They are choices made by people with names and addresses and motivations that can be understood. The choice in 1998 was to silence Brooksley Born and let the derivatives market run wild. The choice in 2026 appears to be to hand the keys to the industry and call it innovation. The lesson of 2008, the real lesson, the one that Born tried to teach us, is that when regulators become servants of the regulated, the public always pays the price. And the bill always comes due.
Sources:
The True Origin of the 2008 Financial Crisis: What Historians Get Wrong
https://www.youtube.com/watch?v=3HbiCTTnexU
Brooksley Born derivatives warning 2008 financial crisis documentary
The Warning | FRONTLINE | PBS | Official Site | Documentary Series pbs.orgBefore the Great Recession, “The Warning” (full documentary) youtube.com
The Warning | FRONTLINE | PBS pbs.org
Alan Greenspan Robert Rubin Larry Summers Brooksley Born CFTC silencing
JOINT STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN, FEDERAL RESERVE BOARD CHAIRMAN ALAN GREENSPAN AND SECURITIES AND EXCHANGE COMMISSION CHAIRMAN ARTHUR LEVITT | U.S. Department of the Treasury home.treasury.govInterviews - Brooksley Born | The Warning | FRONTLINE - PBS pbs.org
Brooksley Born, the Cassandra of the Derivatives Crisis washingtonpost.com
OTC derivatives market regulation 2024 2025 2026 systemic risk
Regulation - EU - 2024/2987 - EN - EUR-Lex eur-lex.europa.eu
Delegated regulation - EU - 2024/363 - EN - EUR-Lex eur-lex.europa.eu
CFTC regulatory capture revolving door Wall Street 2025 2026
Crypto, Prediction Market Chiefs Gain Sway as CFTC Advisers news.bloomberglaw.com
The Honorable Michael S. Selig Chairman Commodity Futures Trading Commission 1155 21st Street, NW Washington, DC 20581 Dear Chairman Selig: I write with deep concern regarding the Commodity Futures Trading Commission’s (“CFTC”) inability to function as an effective regulator of prediction markets and cryptocurrencies. According to recent reports, the agency has been “steamrolled” 1 by prediction market ventures and crypto firms—industries the agency helps oversee, and in which President Trump and his family hold significant financial investments. As prediction markets balloon in size, 2 and Congress advances legislation that threatens to loosen the guardrails on cryptocurrency, the CFTC’s reported capture by industry poses severe risks to American families and our economy. I therefore request additional information to better understand the agency’s ability to protect American investors and markets amidst unprecedented presidential corruption. Prediction markets and the cryptocurrency industry are experiencing explosive growth. Kalshi and Polymarket have approximately $60 billion in market value as of early 2026, 3 and prediction markets may reach $1 trillion in trading volume by 2030, according to an investment firm estimate published by CNBC. 4 Bitcoin, which is regulated by the CFTC, 5 grew from a market cap of zero to over $1 trillion over the last decade. 6 The CFTC has asserted exclusive jurisdiction over prediction markets and is responsible for regulating some aspects of the cryptocurrency industry. banking.senate.govCrypto Companies and Prediction Markets are Advising the CFTC | Better Markets bettermarkets.org
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