The courageous Brooksley Born

By Henry CK Liu

This article concludes a two-part series.
Part 1: The folly of deregulation

In 2009, the John F Kennedy Profile in Courage Award, the nation's most prestigious honor for public servants, was given to Brooksley Born for her role in 1998, as chair of the Commodity Futures Trading Commission (CFTC), to try, albeit unsuccessfully, to bring over-the-counter financial derivatives under the regulatory control of the CFTC weeks before the collapse of Long-Term Capital Management (LTCM).

OTC derivatives are contracts executed outside of the regulated exchange environment and whose value depends on (or derives from) the value of an underlying asset, reference rate or index. Market participants use these instruments to perform a wide variety of useful risk management functions. The Bank of International Settlement (BIS) reports the notional value of outstanding OTC derivatives contracts ending June 2009 to be US$49.2 trillion worldwide against a 2009 world gross domestic product (GDP) of $65.6 trillion.