One question is how much former acolytes of Rubin's such as Gary Gensler, the nominee to head the CFTC, will rethink their former opposition to derivatives regulation. Gensler advised the Treasury Department on the drafting of the Paulson plan. The Obama transition team has failed to bring in aggressive champions of new regulation, critics say. Among those who have not been asked in: Born, Greenberger and Nobel Prize-winning economist Joseph Stiglitz, who was snubbed by the Obama transition despite his prescient warnings in the '90s that the financial system was out of control (and his early support for the president-elect). A leading member of the Obama transition team for financial issues, Tom Dohrmann, said he could not comment on why a Nov. 5 offer to Greenberger to join the team was dropped weeks later. Without those dissenting voices at the table, these critics fear, the new administration might be more likely to succumb to industry lobbying to minimize regulation. As recently as 2004, the SEC agreed to demands from Wall Street—made by, among others, Hank Paulson, who was then head of Goldman Sachs—to raise leverage ratios from 12 to 40, more than tripling the amount of capital they could bet.

Since Born's 1998 proposal, the market in derivatives—contracts whose value derives from an underlying asset like mortgages (or an interest rate or index)—has exploded from $30 trillion to more than $500 trillion, according to estimates by the Bank of International Settlements. By comparison, the entire U.S. economy produces about $14 trillion in goods and services annually. Yet these "over the counter" instruments were subject to no regulation even as bank after bank began to succumb to overloads of bad mortgage-backed derivative securities.

Rubin, in an interview with NEWSWEEK three weeks ago, said that he didn't support Born and other officials when they tried to impose more controls on derivatives because such regulation was "not politically doable;" the industry itself would have resisted it. Rubin also argued that he had long been concerned about derivatives trading and had supported large increases in margin requirements for derivatives, which might have restrained the market. Other former Rubin associates in the Clinton administration say that Born was "clumsy" about pushing her plan, and didn't do the necessary lobbying groundwork. "When you're actually governing, you're just crazed. There was so much going on then. Then someone comes up and says here's a nonproblem, why don't we throw everything at it?" says one Rubin loyalist who spoke on condition of anonymity. But even he admits that her proposal should not have been shot down so abruptly, and that "everybody kind of exploded at her."  Greenspan and the Clinton team continued to ignore her even in the face of the collapse of Long Term Capital Management, a giant hedge fund that almost caused a market meltdown when it collapsed under bad derivatives bets in 1998. Born did not return a call asking for comment.

A review of the CFTC's actual 33-page "concept release" at the time shows that Born had sought comment from different government agencies on how best to regulate derivatives. "We had no preconceived notions about how this should be done," says Greenberger, who served as director of markets and trading for the CFTC under Born. Levitt notes that Greenspan and the Clinton Treasury department were concerned that the proposal might affect the trillions of dollars in derivative contracts already executed, but he says that's a meager excuse. "Rubin and Greenspan were probably right in saying there were outstanding contracts thrown into uncertainty," he says. "But we could have grandfathered those and said that thenceforward we were going to regulate them." Greenspan was especially vehement in opposing regulation back then, say Levitt and others. In recent testimony to Congress, the former Fed chairman confessed his "shocked disbelief" that many of his assumptions about self-regulating markets—his "model"—had been overturned by the subprime crisis. But as yet there is no model to replace them.

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