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Opinion: After MF Global, Will GOP Candidates Still Insist on Deregulation?

Monday, November 07, 2011 - 04:00 PM

The Washington Post sums up the collapse of MF Global best to me:

“U.S. regulators are investigating whether hundreds of millions of dollars are missing from client accounts at MF Global Holdings Ltd., according to two people with knowledge of the matter. The firm, which filed for bankruptcy protection yesterday, was ordered by the enforcement division of the Commodity Futures Trading Commission to preserve records for the review, one of the people said.”"

Why is this politically interesting in 2011?

Because the Republican candidates for president, Fox News, and the army of conservative talk shows have been attacking the new regulations enacted by Congress after the near-collapse of the banking system.

Touting it as "big government" and "over-regulation of business," the free market aficionados have been getting a lot of the headlines. This means that the average American can't judge objectively whether in fact we are over-regulating the financial markets or corporations or whether there is still a huge danger of shady, dumb, and potentially criminal behavior on Wall Street. The election of 2012, after all, is about Republican's vision of smaller government and less regulation vs. Obama and the Democrats' “Big Government” and more robust oversight.

As you know over this past weekend MF Global Holdings tried to sell off all or parts of the sinking ship.  They were talking to five potential buyers for " ... all or parts of the company, including banks, private-equity firms and brokers." No one wanted to touch any part of MF, which is a very bad sign. There must be lots of toxic stuff on their books.

The CEO of the company was former New Jersey governor and ex-Goldman Sachs Group Inc. co- Chairman Jon Corzine. Yes, the same Goldman that has been in the news when Wall Street got all that taxpayer bailout money. And, yes, the same Corzine whose appetite for risky business has not been quenched by all the disasters and dangerous high-wire games the brokers and money managers have been playing for the past ten years.

So apparently no lessons were learned and what's worse, government regulations to protect investors and protect the United States of America from another financial crisis are NOT working. Under Commodity Futures Trading Commission rules " ... futures brokers that trade on exchanges are required to keep their clients’ collateral, often cash or securities, separate from their own accounts." The question is whether this was done or not. Everyone to date is keeping mum on that and not answering e-mail or phone calls.

How did Corzine and MF Global manage to blow it? "Corzine wagered $6.3 billion of the firm’s own money on sovereign European debt in a bid to increase profits. Instead, the firm reported a $191.6 million quarterly loss on Oct. 25."

Do you know what "sovereign European debt" is? Ever hear of Greece, Italy, Spain, and Ireland and how their national finances are doing? Ever hear of the threat of Greek debt default? Did you know that Italy now poses the single greatest threat to the security of global markets?

I know that Wall Street is all about speculation and taking risks. I know that "smart" investors try to "outsmart" all the others and if they are right they make billions in profit. This whole sorry story seems to confirm the fact that the markets are still largely a huge casino where high rollers playing with investor money are sitting at the roulette table. And, if they are “too big to fail” knowing that the taxpayers will bail them out.

Is it time to regulations on Wall Street as Republicans would have us believe?

In fact, the financial system, on both sides of the Atlantic, is still dominated by too-big-to-fail banks and regulations intended to ensure that their collapse won’t bring down the financial system are still a work in progress.

Another reason that Mr. Corzine’s bets may have gone so wrong — and another echo of the financial crisis — is that American regulators did not rein in the firm. MF Global was highly leveraged, with liabilities at the end of June of $44.4 billion and equity of only $1.4 billion.”

Why don’t we ask Herman Cain, Mitt Romney, Newt Gingrich, Rick Perry and the other presidential contenders about this story and what their position is on business and Wall Street "over-regulation." Is that still a credible story line?

Steffen W. Schmidt, University Professor of Political Science and Public Policy at Iowa State University, WNYC blogger, and chief Political correspondent of Insider Iowa.

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Comments [3]

William W Andrews

Jon Corzine took 12% of our money. The US government has taken 73%!
Our government is our enemy!

Nov. 08 2011 09:04 AM

That there will be a brouhaha about MF Global and financial regulations is a given.

However, for the few interested in more than 'Gotcha!' sound bites there are questions which want answering.

1. For the MF Global situation specifically, is there a clear link between a specific regulation, detecting a violation of it and notifying the company of the violation in time to do any good [or prevent further harm]?

2. If not, can the lack of effectiveness be traced to:

A. The regulation itself, or

B. Its application [surveillance,] or

C. Its enforcement?

It is my guess that these questions will not be in the forefront of the media [writ large] chatter on the subject.

Nov. 08 2011 07:09 AM
Tim Sullivan from New York City

Whether deregulation is credible or not, it will continue to be pushed by the GOP. The Democrats should also be asked: what is the good of more regulation, given that the government does not enforce those already on the books?

Nov. 07 2011 05:28 PM

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