The Washington Post gets the first interview with Brooksley Born since the crisis started and gives it a good run.

Born was the Clinton-era regulator (and one of the few heroes to emerge in this crisis) who fought tooth and nail with Larry Summers and Robert Rubin to regulate credit derivatives but lost and has subsequently been vindicated by the collapse of the financial industry.

The story offers plenty of evidence for why we need to have regulators that have quite a bit of distance from those they regulate. Born, who headed the Commodity Futures Trading Commission, was a lawyer, unlike, say, Treasury Secretary Robert Rubin (UPDATE: Or, actually, he was. Commenter Nick notes that Born headed a law firm’s derivatives practice before she joined. Not exactly an outsider, then. Rubin came to Treasury after heading Goldman Sachs, but has a law degree. Double oops on my part):

“I was very concerned about the dark nature of these markets,” Born said. “I didn’t think we knew enough about them. 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.”

That’s common sense, right? Unlike Rubin, the former head of Goldman Sachs, or Summers, Born was able to step back from the situation and see it for what it was. Unsurprisingly, Rubin and Summers both declined to comment to the Post.

But while there’s been a lot of ink spilled on this intra-administration battle, ultimately the responsibility lies with the Big Dog, Bill Clinton himself. Where was Clinton in this argument? Did he come down on the Rubin/Summers side? Or was this not even put on his plate? A huge portion of the blame for the crisis goes to Clinton because of his empowerment of Rubin and Summers, but it would be nice to know just how involved he was. The Post doesn’t explore that, but then again, nobody really has.

But Congress wasn’t any better:

But then, in September 1998, a huge hedge fund that had bet heavily on derivatives — Long-Term Capital Management — nearly failed and had to be bailed out by a group of banks. Here was a living example of Born’s prophecy. Even Leach, who supported the moratorium on CFTC regulatory action, introduced Born at a hearing by saying, “You’re welcome to claim some vindication, if you want.”

Born responded: “I certainly will not do so.” But she went on to tell the committee that the Long-Term Capital debacle “should serve as a wake-up call about the unknown risks in the over-the-counter derivatives market.”

No one woke up. That same month, Congress passed the moratorium.

The Post’s reporting makes clear that at least some people thought there were undertones of sexism going on here.

“She was not a charming, motherlike figure, which may have been what they were looking for,” Greenberger said. “Her professionalism, and maybe, her lack of bonhomie had been interpreted as stridency.”

And Rubin continues to just look worse and worse seemingly with each story. This from the sidebar:

Treasury Department lawyers argued that if the Commodity Futures Trading Commission began regulating over-the-counter derivatives, they would effectively be defining them as futures and that investors would then refuse to honor existing contracts by saying they were illegal. This would lead to a tsunami of lawsuits, they argued.

This made no sense to Born. Her proposal specifically exempted existing contracts, in her mind invalidating the argument that investors would refuse to honor contracts and be subject to lawsuits. Treasury lawyers also argued that the CFTC had no authority to regulate over-the-counter derivatives.
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Born was flabbergasted at this analysis, which she considered bogus. Treasury Secretary Robert Rubin had insisted that all his points were included in a legal analysis by his top attorney, Ed Knight, and Born was eager to see it. But CFTC lawyers could never get Knight on the phone, said Michael Greenberger, a top CFTC official at the time. (One of the Rubin aides they called was Gary Gensler, now President Obama’s nominee to head the CFTC. When they told him they couldn’t reach Knight, Gensler replied, “Welcome to the club,” according to Greenberger.)

Born came to suspect that Rubin was bluffing and there was no analysis.

Knight, now executive vice president and general counsel of the Nasdaq Stock Market, said he does not recall being asked for a legal analysis.

Why was Rubin so intent on protecting this “Dark Market,” as the Post calls it?

Another great nugget helps understand how off the tracks we really were in the couple of decades leading up to the bust—We had an unhinged radical running the economy for nearly twenty years:

Greenspan had an unusual take on market fraud, Born recounted: “He explained there wasn’t a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him.”

Even Steve Forbes or The Wall Street Journal editorial page would have a hard time arguing that line with a straight face.

Toward the end, the Post goes off the rails into feature land a bit too much here:

Sometimes this woman — whose mother always made her wear white gloves when they went downtown — doesn’t bother dyeing her hair, letting it go gray.

“I go through phases,” she said one afternoon, smiling and drawing a thin, small finger across her head. “I was just looking in the mirror this morning and thinking, ‘Maybe it’s time.’ “

Um, who cares?

Still, it’s good the paper gave Born’s story the play it deserved.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.