Feds Make Illegal What We Already Thought Was Illegal
today, in a unanimous vote, "The U.S. futures regulator approved on Monday a rule that puts tighter limits on how brokerage firms can use customer funds, a measure that the now-bankrupt MF Global had encouraged the agency to delay." In other words, while before commingling client accounts was assumed to be a clear violation of every logical fiduciary imperative, now it is set in stone. For real. The CFTC means it.
In the past, I believed that a lot of financial regulations were honest (though often misguided) attempts to create transparent and trustworthy markets. I am increasingly being pushed to the cynical conclusion that financial regulations, like, say, licensing of funeral homes, are mainly aimed at making it impossible for small competitors to survive, while larger competitors either have the scale to pay for compliance departments, or in the case of MF Global, have the political muscle to get themselves exempted (by Administrations of both parties, I should be clear, though the current one certainly gets a hypocrisy award for standing beside OWS while handing out finance and health care law exceptions to the powerful).
MF Global is far worse in my mind than, say, Enron. In Enron's case, the management was at least mostly pursuing the activities and investments that they were supposed to be pursuing. They were making bets of the type shareholders expected, though they were likely masking the cost and risk of these bets by aggressive pushes at the margins of accounting rules.
MF Global was doing exactly what everyone supposedly knew to be an absolute no-no, ie using client funds to make leveraged bets for their own account. If Joe Schmoe in Florida did the same thing, he would already be incarcerated. In the case of MF Global, no one even seems to be interviewing Corzine and so far the bankruptcy committee has put a higher priority on repaying JP Morgan and Goldman for Corzine's bad bets than on getting investors' money back.
Johnson:
Agreed... it is truly scandalous that Corzine has not been charged with anything.
December 5, 2011, 11:36 amBenjamin Cole:
Very insightful commentary.
Remember, never trust anyone on Wall Street. They go there to make money--your money.
December 5, 2011, 11:39 amNoah:
Let it play out without jumping to the conclusion that Corzine walks. He no longer has the reins so there isn't any immediate "danger" and it takes time and serious analysis to prosecute this kind of case.
December 5, 2011, 12:52 pmJohnson:
I don't think a Democratic AG is going to want to prosecute a Democratic former senator. I say he walks....
December 5, 2011, 1:25 pmTed Rado:
Interestingly, the USG which decries dishonesty in Wall Street, encourages it otherwise. They encourage everyone to get US funding for crazy energy and enviro schemes which anyone can show to be nonsense. Chu revels in pushing money out the door at the speed of light for such projects. He, along with a bunch of "buy the vote" crooks in Congress, aught to be put in jail along with Corzine.
December 5, 2011, 2:21 pmjkoerner:
The bankruptcy process is likely happening according to the rules as they were written. It does not surprise me that brokers like Goldman and JPM have priority, they have a huge incentive to perfect their loans and ensure priority if they are lending millions on repo.
What bothers me is how low priority the account holders have - and I assume that this is how the system was set up to work. It kind of seems like the regulators let investors believe they had more security than what existed. Accounts are segregated, but if the broker illegally dips into them, that segregation is destroyed. Also, sovereign debt, including that of italy, is considered an acceptable risk free investment for the brokers' capital reserve.
December 5, 2011, 4:45 pmstan:
Corzine should become the face of the financial crisis that was caused by massive corruption and stupidity that linked DC and Wall Street. I still think there is a good chance that he will. But the odds are less than I thought they were a couple of weeks ago.
December 6, 2011, 3:31 pmdr kill:
You don't suggest that licensing is a scam?
December 6, 2011, 7:16 pmEric Y:
The MF'ers at MF Global (how appropriate) are all crooks. Corzine should be tied and quartered, nah, we need to hang him from a tree and use his testicles as a pinata. I'm never going to be able to recover the losses that I had while I used MF Global and no one is going to jail.
December 11, 2011, 11:09 pm