Nor has Summers ever admitted that the Commodity Futures Modernization Act of 2000, often cited as one of his main achievements as Treasury secretary, led directly to the financial crash, a conclusion of the FCIC report. Summers's sponsorship of the act was the culmination of his long fight to prevent the regulation of derivatives trading. Channeling the views of Wall Street, he believed that even a hint of regulation would send all derivatives trading overseas, costing America business. (It was the unspoken assumption in those years that what was good for Wall Street was good for the U.S. economy, and vice versa.) When Brooksley Born, then the chairwoman of the Commodity Futures Trading Commission, devised a 1998 proposal suggesting that over-the-counter derivatives be regulated, he called her, livid. Although she did not report to him, he dressed her down loudly. Born's deputy, Michael Greenberger, says he walked in as the call was ending. "She was ashen," he recalls. "She said, 'That was Larry Summers. He was shouting at me.' "
Summers told Born that a group of bankers had come to his ofﬁce to say it did enormous damage to their business just for her to raise these questions, and he let her know she should just stop doing it. Born later said, "I was astonished a position would be taken that you shouldn't even ask questions about a market that was many, many trillions of dollars in notional value—and that none of us knew anything about."
Even after the financial crash of 2008, Summers did not relent in his view that little else could have been done back then, despite the FCIC's report and other studies that concluded otherwise. Summers's boss and mentor, then-Treasury Secretary Robert Rubin, conceded during the post-crash hearings in 2010 that Born was "right about derivatives regulation." Even former President Clinton later admitted he should have reined in derivatives trading.
Arthur Levitt, who ran the Securities and Exchange Commission during the Clinton years, told me after the crash that he and his colleagues had made a serious mistake in pillorying Born. "All tragedies in life are always proceeded by warnings," he said. "We had a warning. It was Brooksley Born. We didn't listen to that." But Summers was still so sure of his own correctness that, when he saw Levitt on Capitol Hill in November 2008, he fought back. "I read somewhere you were saying that maybe Brooksley Born was right. But you know she was really wrong," Summers said, according to someone who overheard the conversation, which Levitt later confirmed. "Her plan was no good. And we offered a different plan."
In truth, there had been no other plan, at least not one that anyone ever tried to enact. Summers appeared to be referring to a vague recommendation, bandied about in 1997, to get the SEC to regulate derivatives broker-dealers, which never got off the ground. When I asked him about this encounter in a 2010 interview, Summers said, "Well, you know, I didn't say she was really wrong. I said the reasons [Levitt] took the position [he] took was that there was concern that Brooksley's approach was going to undermine legal certainty [about the legitimacy of trillions of dollars of derivatives trades already out on the market]. It wasn't that we didn't want to regulate derivatives. We offered a different approach." But even Levitt said this demurral missed the point: Born had seen danger in a market that no one else did at the time, and she deserved credit for that. A little magnanimity was in order. Legal certainty could have been addressed under Born's approach. "Rubin and Greenspan were probably right in saying there were outstanding contracts thrown into uncertainty," Levitt said. "But we could have grandfathered those and said that thenceforward we were going to regulate them."