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InvisibleBlack -> Another Wall Street financial meltdown... (11/3/2011 8:54:34 PM)
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I'm surprised that no one here is discussing the total collapse of MF Global this week.
http://www.reuters.com/article/2011/11/03/us-mfglobal-lawsuit-idUSTRE7A28R620111103
http://abcnews.go.com/Business/mf-global-bankruptcy-risk-management-corzine/story?id=14868344
MF Global, an investment firm which can trace its roots back to a trading firm founded in 1783 declared bankruptcy last Monday. It's CEO - John Corzine, former Governor of New Jersey and former chairman of Goldman Sachs (big surprise there) leveraged the firm 40-to-1, taking on approximately 44 billion dollars in debt to slightly over 1 billion dollars in equity and used this money to buy European debt, particularly Italian and Greek debt. When the value of the bonds dropped, MF Global couldn't cover the losses and began dipping into customer's private accounts to cover up the shortfall. Somewhere between 600 and 700 million of customer money is unaccounted for. As losses mounted, Corzine began looking to sell the company or merge with another firm but before anything could come of this, MF Global collapsed and the SIPC (Securities Investor Protection Corporation) stepped in shutting the doors and closing down the company. The FBI is currently investigating the allegations of fraud.
Isn't this exactly what all those "reforms" since 2008 were supposed to prevent? A securities firm led by delusional and overly-aggressive traders taking on massive and unsupportable debt, making crazy high-risk investments and then, when everything goes belly up - they walk away leaving the taxpayer with the bag? Even if John Corzine and his executives all end up in prison - that doesn't recover the money they lost, the company they destroyed, the workers now unemployed (about 3,200) or the loss of confidence in the financial system.
I put it to you that the current system of complex byzantine government financial regulations enforced by hordes of government employees "overseeing" massive financial firms is essentially unworkable on any level. The entire system needs to be scrapped and replaced by a much smaller, more concise and easily enforceable set of rules for financial firms much more in line with the original Glass-Steagall Act. Speculative investment firms should not also be allowed to function as commercial banks or service customer accounts. Much stricter margin requirements should be set in place, especially for massive investments. Minimum sentencing with harsh punishments for traders, brokers and executives who are found negligent or malfeasant should become law.
The current set of financial regulations doesn't even pretend to serve the purpose of safeguarding against this sort of thing, instead they function as barriers to entry, protecting the large financial concerns. Unless you can muster up a massive legal staff with decades of experience in financial law, you can't even begin to operate in this arena - reducing competition and keeping the same set of players in place. Those players know how to snake around the regulations, are so many light-years ahead of the regulators that by the time the government even understands the system the problems have metastasized beyond their ability to address, and are so intertwined with the government - the Oval Office, the Treasury, the Fed, and Congress - that sometimes they're even writing the rules they have to play by.
Anyone have any other viable solutions?
[Edited: Typos. Grammar.]
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