Look at the books of any big company. Almost all hold large amounts of cash, inefficient from a shareholder's point of view, as protection against liquidity risks in our crazy world. How could Mr. Corzine think this didn't apply to MF Global? How could he have calculated that his customers, creditors and regulators (of which MF has many) would stand by patiently while he carried a bet that could wipe out the firm? The very reason his European gambit could be profitable was because the lending markets on which MF depended were having doubts about Europe's solvency.
"Lending markets" is a euphemism for transferring wealth from the poor to the rich. Like the time I had to pay 20% interest on a car that I had no other way to get, and would still be paying on, but for going to the mat with California Casualty, a company that would not pay for our burned down house in Idaho, which they made us insure for $240G. "Lending markets" give peanuts for interest to small depositors or investors, charge vastly more for borrowers, and stash the loot in their own coffers, minus better interest rates for the already wealthy.
This was indeed risk-taking. But Mr. Corzine did not march down this road alone. His primary backers, including MF Global's board, decided the time was ripe for a contrarian bet that the world would calm and those who anticipated its calming and leveraged up would make a bundle.
The whole system is a house of cards built on a house of cards, floating in the ether and pixels of computers and misguided cerebrums.
And that's fine. MF Global's failure likely isn't a crime, or even the sleazy episode many now suppose.
The whole system is a crime against our species. MF (at least it has the proper initials) Global's failure is merely one representative outcome of our dysfunctional monetary system.
Regulators were aware of MF's European bet. They stepped in early to force Mr. Corzine to change the accounting, disclose more to investors, and put up more capital. Indeed, the whiff of regulatory crackdown, rather than the details of MF's European exposure, may have played the bigger role in sending counterparties and rating agencies running for the hills. This too is a risk you take in a highly regulated business.
Transparency "may have played the bigger role" in failure? It is all I can do to refrain from vulgar language.
Nobody panics if a chip company or hardware chain swings for the fences and fails. Nobody should have an aneurysm when a finance business does the same, as long as it fails honestly and without demanding a taxpayer bailout. Failure is a necessary lubricant of capitalism and long-term economic performance.
Taxpayer bailout appears to be at the root of our current economic woes, along with the blood money we devote to shaking an angry fist and horrific weapons at the rest of the world. If failure is a necessary lubricant of capitalism, why would anyone want capitalism? I mean besides Ayn Rand?
Yet the longing to find criminality in the MF Global case, to shriek "Where were the regulators?" is itself evidence of pathology. Allegations of "missing customer funds" filled the media before forensic accountants could even have cracked the books or begun to track down monies inevitably hung up in abortive trades in the firm's chaotic shutdown.
I don't long to "find criminality" (nor does the article say who does) so much as to see the system change, starting with the dissolution of the Federal Reserve and the literal global abolition of war, which we could accomplish if were to fix the U.N.--but we can't do that while behaving as nation of Americant's, rather than a nation of Americans. I think of myself in the latter group.
One paper reports that MF lobbied to protect a revenue source. Goodness. Another says MF engaged in quarterly window-dressing, though much less so than its fellow primary dealers. Um, OK. Here's guessing that good ol' miscalculation, rather than misfeasance, will turn out to be the real culprit in the firm's collapse.
Why does a major U.S. newspaper make reference to some undisclosed paper and have to guess as to whether there is miscalculation or malfeasance? Is this deliberate choice or gross ineptitude? Not that the answer matters.
Mr. Corzine now has a conspicuous public failure under his belt, and it will likely be his professional swan song. But here's a secret. A world in which a Wall Street firm can blow itself up without blowing up the markets, and without occasioning undue regulatory panic, is a world we'd like to see more of.
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