In 1998, Brooksley Born -- head of the Commodity Futures Trading Commission, an obscure regulatory agency -- tried to regulate the derivatives market. She warned that the unregulated, opaque market for over-the-counter derivatives posed a systemic threat to the financial system. The response from the most powerful financial officials in the country was immediate and brutal. Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Fed Chairman Alan Greenspan united to shut her down. Summers reportedly told Born's CFTC colleague that she was going to "blow up the world" by regulating derivatives. Congress passed a moratorium preventing the CFTC from acting. Born was isolated, smeared, and ultimately forced out. Ten years later, the unregulated derivatives market she tried to rein in -- which had grown to over $600 trillion in notional value -- was the primary mechanism through which the 2008 financial crisis spread from subprime mortgages to the entire global economy. PBS Frontline called it The Warning. She gave it. They ignored it. How the Crisis Was Manufactured The 2008 crash wasn't an act of God. It was an act of industry. Step 1: Create the loans. Banks issued mortgages to borrowers who couldn't afford them. No-income verification. No down payment. Adjustable rates that would reset to unaffordable levels after a teaser period. These were subprime mortgages, and they were originated because they were profitable to sell, not profitable to hold. Step 2: Package and disguise. Investment banks bundled thousands of these risky mortgages into mortgage-backed securities, then repackaged those into collateralized debt obligations (CDOs). Through a statistical sleight of hand called tranching, the same pool of risky loans could produce some securities rated AAA -- the highest possible rating. Step 3: Corrupt the ratings. The ratings agencies -- Moody's, Standard & Poor's, and Fitch -- were paid by the very banks creating the securities they were rating. This was an obvious conflict of interest. The Financial Crisis Inquiry Commission found that credit rating agencies "issued top ratings to tens of thousands of mortgage securities" that later proved to be worthless. Moody's stock price quintupled between 2000 and 2007 on the strength of these ratings fees. Step 4: Insure and multiply. Credit default swaps (CDOs), a type of derivative, allowed institutions to bet against the very securities they were selling. AIG sold billions in credit default swap protection without holding sufficient capital to back it. When the mortgages defaulted, AIG couldn't pay. The government had to step in with an $85 billion bailout of AIG alone. The Warnings That Were Ignored Brooksley Born wasn't the only one who saw it coming. The Financial Crisis Inquiry Commission documented multiple ignored warnings: 2001: Edward Gramlich, a Federal Reserve governor, urged Greenspan to crack down on subprime lending. Greenspan refused. 2003-2005: State attorneys general tried to pursue subprime lenders. The OCC preempted state laws, blocking enforcement. Multiple economists warned that housing prices had decoupled from fundamentals. They were dismissed as alarmists. The regulators didn't just fail to act. They actively prevented others from acting. The Bailout: Socialized Losses, Privatized Profits In October 2008, Congress passed the Emergency Economic Stabilization Act, creating the Troubled Asset Relief Program (TARP) with $700 billion in authorized spending. The total government commitment -- including Federal Reserve emergency lending, FDIC guarantees, and other programs -- reached into the tens of trillions. The banks were saved. The people were not. Over 6 million families lost their homes to foreclosure between 2007 and 2010. The Treasury committed $50 billion in TARP funds for homeowner assistance. By contrast, just the TARP Capital Purchase Program injected $205 billion into banks. The six largest banks by assets paid over $123.5 billion in settlements for mortgage fraud and related misconduct. That sounds like a lot until you realize they earned far more from the activities that generated the fines. Banks that received bailouts continued paying executive bonuses. Citigroup received a $45 billion bailout and paid $5.3 billion in bonuses the same year. Who Went to Jail Almost nobody. One Wall Street executive went to prison for conduct related to the financial crisis: Kareem Serageldin, a Credit Suisse managing director who pleaded guilty to inflating the value of mortgage bonds. He was a mid-level manager. The CEOs who presided over the destruction -- the heads of Lehman Brothers, Bear Stearns, Merrill Lynch, AIG, Countrywide, and others -- faced no criminal prosecution. During the Savings and Loan crisis of the 1980s, a much smaller financial disaster, over 1,000 people were prosecuted and more than 800 bank officials went to prison. After 2008, the Department of Justice chose not to pursue criminal cases against the most senior executives, citing difficulty proving intent. The FCIC report, however, explicitly stated that the crisis was the result of "widespread failures in financial regulation and supervision," "dramatic failures of corporate governance and risk management," and "a combination of excessive borrowing, risky investments, and lack of transparency." These were choices, not accidents. Too Big to Fail Got Bigger Perhaps the most damning outcome: the banks that caused the crisis emerged from it larger and more concentrated than before. JPMorgan Chase acquired Bear Stearns and Washington Mutual. Bank of America acquired Merrill Lynch. Wells Fargo acquired Wachovia. In 2007, the four largest U.S. banks held about 35% of all banking assets. By 2015, the five largest held over 44%. The institutions deemed too big to fail in 2008 became even bigger -- and therefore even more certain that the government would bail them out next time. The Real Cost The crisis destroyed an estimated $16 trillion in household net worth. Unemployment doubled, peaking at 10% in October 2009. Median household income didn't recover to pre-crisis levels for over a decade. Communities of color were hit hardest -- Black and Hispanic families lost a disproportionate share of wealth through subprime lending and foreclosure. The banks were made whole. The families were not. They didn't ask if we wanted to socialize Wall Street's losses. They just handed us the bill. _- The Department_