A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America.

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WASHINGTON — Friends want Brooksley Born to say, “I told you so.”

But she won’t. Not even in a quiet moment in her living room, giving her first interview with a major news organization since last fall’s economic collapse.

She just smiles. “More coffee?” she asks.

A little more than a decade ago, Born foresaw a financial cataclysm, accurately predicting that exotic investments known as over-the-counter derivatives could play a crucial role in a crisis much like the one now convulsing America.

Powerful roadblock

Her efforts to stop that from happening ran afoul of powerful men in Washington, D.C., men with names like Greenspan and Levitt and Rubin and Summers — the same Larry Summers who is now a key economic adviser to President Obama.

She was the head of a tiny government agency who wanted to regulate the derivatives. They were the men who stopped her.

The same class of derivatives that preoccupied Born — including the now-infamous “credit-default swaps” — have been blamed for accelerating last fall’s financial implosion. But from 1996 to 1999, when Born was the chairwoman of the Commodity Futures Trading Commission (CFTC), the U.S. economy was roaring and she was getting nowhere with predictions of doom.

So, upstairs in her D.C. home, Born tossed and turned. She woke repeatedly “in a cold sweat,” agonizing that a financial calamity was coming.

Before taking office, Born had been a high-octane attorney, an American Bar Association power player and co-founder of the National Women’s Law Center.

But none of that carried weight when she entered government; for all her legal experience, she was a woman who wasn’t adept at playing the game.

She could be unyielding and coldly analytical, with a litigator’s absolute assertions of right and wrong. And she was taking on masters of nuance and palace politics. She marched into congressional hearing after congressional hearing — pin neat, always with a handbag — but no one really wanted to listen.

The Wall Street Journal declared that “the nation’s top financial regulators wish Brooksley Born would just shut up.”

Now that she is retired, Born, 68, may be closer than ever to vindication.

The Obama administration has unveiled a plan to regulate some of the derivatives she warned about, though the proposal must still get through Congress and falls short of regulating the entire over-the-counter market that kept her awake years ago.

Still, maybe, her old friends say, the people in charge are beginning to realize what they thought all along: “the lady with the handbag was right.”

Born’s baptism as a new agency head in 1996 came in the form of an invitation. Federal Reserve Chairman Alan Greenspan wanted her to come over for lunch.

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.”

This made no sense to her. She’d spent much of the 1980s defending clients caught up in a vast conspiracy by brothers, Nelson and William Hunt, who duped investors while trying to corner the world silver market.

“After all,” Born said, looking back, “I’m a lawyer, and I think the existence of fraud prohibitions is critically important.”

But Greenspan was insistent, she said.

Finally, he said, “Well, Brooksley, I guess you and I will never agree about fraud.” (Greenspan did not respond to requests for comment. Daniel Waldman and Michael Greenberger, both top aides of Born’s, were briefed on the lunch at the time and independently confirmed Born’s recollection.)

By early 1998, Born had also tangled with Treasury Secretary Robert Rubin, his deputy, Summers, and Securities and Exchange Commission head Arthur Levitt, not to mention members of Congress and financial-industry heavyweights.

She wanted to release a “concept paper” — essentially a set of questions — that explored whether there should be regulation of over-the-counter derivatives. (Derivatives are so-named because they derive their value from something else, such as currency or bond rates.)

They warned that if she did so, the market would implode and predicted tidal waves of lawsuits. Rubin told her she didn’t have legal authority to regulate the derivatives anyway.

She wasn’t buying it, and she wasn’t backing down.

The CFTC had been created in the 1970s, primarily to regulate futures contracts purchased by farmers to hedge against price fluctuations. But by the time Born took office, futures were much more sophisticated.

Four years earlier, the CFTC had created a giant opening for sharp market players, exempting most privately negotiated over-the-counter derivatives contracts from regulation. Waldman calls the decision “the seed” of the current financial crisis.

In the late 1990s, the seed had sprouted into a $25 trillion derivatives market and Born saw trouble coming. The mostly unregulated “dark markets” had shown signs of danger in the preceding years, such as the bankruptcy of Orange County, Calif., which lost heavily investing in derivatives.

“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.”

In early 1998, Born’s plan to release her concept paper was turning into a showdown. Financial executives howled. Summers mounted a campaign against it, CFTC officials recalled.

In one call, Summers said, “I have 13 bankers in my office and they say if you go forward with this you will cause the worst financial crisis since World War II,” recounted Greenberger. Summers declined to comment.

The discordant notes crescendoed in April 1998 during a gathering of top financial regulators. At that meeting, Greenspan and Rubin forcefully opposed Born’s plans, Waldman said.

“Greenspan was saying we shouldn’t do it,” Waldman recalled. “Rubin was saying we COULDN’T do it.”

Born released her concept paper anyway.

Within weeks, she was under attack. Greenspan, Rubin and Levitt jointly urged Congress to pass a moratorium on the CFTC regulating over-the-counter derivatives.

Reality bites

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.

That same month, Congress passed the moratorium. Born says they were “muzzling an independent agency.” She left office in April 1999.

Now almost every week, it seems, someone is giving her props on Capitol Hill.

At a recent hearing, Sen. Maria Cantwell, D-Wash., noted Summers had opposed Born’s effort to regulate over-the-counter derivatives.

“There’s a few people in the administration who still can’t say that it was a mistake, and those are the same people, I think, who are slow-walking, thinking we’re all going to forget about this regulatory reform that is needed,” Cantwell said recently. “I can assure you that we’re not going to forget … .”

This month, Born received the John F. Kennedy Profiles in Courage award. And she once again warned about the danger of Dark Markets.