Go watch Frontline’s episode on “The Warning.”

It will piss you off to no end, but it is worth watching. It details the story of Brooksley Born who was the one person who foresaw the coming trouble in the financial markets due to the lack of regulation for Over the Counter Derivatives. When she tried to do something about it they shut her down. Here’s Frontline’s summary of the show:

In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group—former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin—convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”

Born’s battle behind closed doors was epic, Kirk finds. The members of the President’s Working Group vehemently opposed regulation—especially when proposed by a Washington outsider like Born.

“I walk into Brooksley’s office one day; the blood has drained from her face,” says Michael Greenberger, a former top official at the CFTC who worked closely with Born. “She’s hanging up the telephone; she says to me: ‘That was [former Assistant Treasury Secretary] Larry Summers. He says, “You’re going to cause the worst financial crisis since the end of World War II.”… [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.’”

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. “Born faced a formidable struggle pushing for regulation at a time when the stock market was booming,” Kirk says. “Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.”

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

“It’ll happen again if we don’t take the appropriate steps,” Born warns. “There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”

And here’s a sneak peeks: Turns out you can watch the whole episode right here:

Watch the whole episode above, but be prepared for some chin bruising from it hitting the floor repeatedly. One of the most amazing aspects of the story is the fact that most of it takes place during the Clinton administration. One of the more frightening aspects of the story is the fact that at least two of the people involved are currently employed as President Obama’s financial advisers.

Rolling Stone’s Matt Taibbi on how fucked we are.

If you have problems with your blood pressure then you probably shouldn’t read Matt Taibbi’s essay for Rolling Stone magazine titled The Big Takeover. It’ll probably give you an aneurysm. It very nearly gave one to me:

In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world’s most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.

In other words, it’s AIG’s rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that’s been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren’t such a nightmare.

It’s a very long read and in it Taibbi outlines for us how the financial crisis we’re currently experiencing has been years in the making and how the current approach to solving it is just more of the same old bullshit. The more you read the article the more angry you’re going to get as you realize just how bad things were allowed to become and just how screwed we really are. When you’re done you’ll no longer be surprised at the stunning arrogance of Wall Street fat cats expecting to be able to collect their promised bonuses using taxpayer money in spite of being the cause of the crisis. The worst part of it is the fact that the people Obama has running the Fed are pretty much from the same group that fucked us over to begin with.

Who do you think they’re going to be looking out for? You or their old friends on Wall Street?

This American Life: Bad Bank

Want to understand the whole banking crisis thing? Go listen to the most recent episode of This American Life:

The collapse of the banking system explained, in just 59 minutes. Our crack economics team—the guys who explained the mortgage crisis, Alex Blumberg and NPR’s Adam Davidson—are back to help all of us understand the news. For instance, when we talk about an insolvent bank, what does it actually mean, and why are we giving hundreds of billions of dollars to rich bankers who screwed up their own businesses? Also, two guys go to New Jersey to look at a toxic asset.

I’m far from being an economist, but this put it all into perspective for me. It also brought home just how fucked we are. This is going to hurt regardless of how it’s handled the only question will be how much will it hurt and that depends on how it’s handled. The idea that we, as taxpayers, will see the government recoup the money they’ve given the banks is probably a bit of false hope given out to make the bailouts more palatable. We’re going to end up paying either way.

The surprising bit is the fact that Americans, as a whole, are at least partially responsible for the mess. Sure the banks shouldn’t have been handing out some of the loans they have, but the truth is most of us have been living beyond our means for a long time now. Which is particularly frustrating to someone like myself who has been doing his best to live within his means for years and is still going to get hurt by the financial melt down.