“Pfft Goes the Cash”

Sydney M. Williams

Thought of the Day

“Pfft Goes the Cash”

Feb 1, 2012

Perhaps it was the warmer weather along the east coast or maybe Iran already has a nuclear weapon, but according to the Wall Street Journal, $1.2 billion in MF Global’s customer funds have “vaporized.” It is always a surprise as to how quickly funds can disappear on a leveraged investment gone bad. We have seen rogue traders at large, global banks lose billion of dollars on complex trades. In the case of MF Global, it appears not to have been a rogue trader, but a rogue firm. So the money has likely evaporated. On the other hand, it may exist somewhere – perhaps in a Cayman Island bank account, or possibly in a safe at 13 Rue de la Paix in Paris, or in the vault of the Bugatti dealer in Greenwich.

Two bankruptcy trustees have been hired to find whatever cash is left: James Giddens is charged with returning money to customers and Louis Freeh is seeking funds for MF Global’s creditors. As an indication of the complexity of the web woven by MF Global’s executives, Mr. Giddens, according to today’s New York Times, has hired a team of sixty lawyers, a hundred consultants and sixty forensic accountants.

Wall Street, from its very beginning, has attracted scoundrels. “That’s,” as Willie Sutton responded when asked why he robbed banks, “where the money is.” In 1995, Hermann Vaske produced the prophetically titled film, “The Fine Art of Separating People from their Money.” Financial fraud at WorldCom and Enron marked the end of the 1990s, while Ponzi-schemers Bernie Madoff and Allen Stanford have characterized the last decade. Now we have MF Global, which trumps them all in its audacity, if not in the total amount of money lost. The firm was led by one of Wall Street’s most successful leaders, Jon Corzine, a former co-CEO of Goldman Sachs. After spending $62 million of his own funds, Mr. Corzine served as one of New Jersey’s U.S. Senators. For four years he was a spendthrift Governor of New Jersey, spending the citizen’s money, while adding more than $6 billion to the state’s debt and obligations. Proving the fallacy of Mr. Obama’s policy proposals, the more than 130 tax increases he initiated as governor only expanded the deficit.

While Mr. Corzine reassured analysts on October 20, 2011 that his company’s $6.3 billion bet on European sovereign debt was no threat to the firm. This was eleven days before his firm filed for bankruptcy. And he was far from alone in terms of misleading investors, either intentionally or otherwise. Henri Steenkamp, MF Global’s chief financial officer, told Standard & Poor’s in an e-mail on October 24th that their business had “never been stronger.” Given their tendency to generally react to events, as opposed to anticipate them, S&P ranked the firm as investment grade until its failure. Moody’s had downgraded the firm’s debt to junk status four days earlier. When they filed for bankruptcy on October 31, it was the eighth largest bankruptcy in U.S history. MF Global may not have been a household name, but its failure was a big deal.

Following a script that has become all too common to public office holders, Mr. Corzine, in a December interview with CNBC, assured reporters the bankruptcy “was not my fault.” Of course it wasn’t. He had only been CEO for nineteen months, placed in the position by a former partner and MF Global board member, J. Christopher Flowers. Accepting responsibility is a road too difficult for too many in positions of power, obviously including the erratic Mr. Corzine. It is an aspect of our culture that stems, in my opinion, from a declining moral sense and a growing dependency on government.

Much of the press surrounding the collapse of MF Global paints Mr. Corzine as a tragic figure. How could a man who had risen to such heights, both in business and in politics, have fallen so low so quickly? I am no psychiatrist, but surely hubris played a role; the portrait is wrong. If it is proven that he commingled customer cash with company funds, he is guilty of larceny. Most high achievers are able to carry their success with alacrity and humility, commending those who helped and giving back to society with care, generosity and thankfulness. A few, like Mr. Corzine, take the low road; so there should be little sympathy. Crony capitalism, a subject I and a host of others have written about often, characterizes our time, and nowhere is it so prominent as between banks and government. While I believe in the principal of innocent until proven guilty, I rue the fact that the guilty on Wall Street have too often gone unpunished.

Whether Mr. Corzine was directly responsible for the trades and the apparent theft that cratered his firm, he was running the firm; so if the charges are true, he should be punished. If, in fact, $1.2 billion of customer funds are missing, his assets should be garnered and he should face prison time. If our society deems it correct to jail a man for six months for robbing $500.00 from a 7-eleven store, how much jail time should a white collar thief serve who separated a few thousand investors from more than a billion dollars? A lot more.

The United States has long served as a beacon for those seeking opportunity and who are willing to work hard. The ability to enrich one’s self is what brings aspirants to New York and immigrants to our country. To the extent that a small coterie of the privileged are immune from responsibility, tarnishes the image of our country, dulls the ambition of our immigrants and makes cynical our youth. In the long run the United States, like every country, reaps what it sows.