Wednesday, November 2, 2011

We Learned Nothing from 2008

The man above, Jon Corzine (photo copyright Forbes) just finished spectacularly crashing his firm – MF Global – as if it were 2008.  40 to 1 leverage on European bonds.  And now the FBI wants to know if maybe ol’ Jonnie used some of his customers’ money to make this huge and fateful wrong bet.

It’s likely, regardless of what the FBI discovers, that there’ll be any serious consequence for Corzine.  He’ll wash his hands in bankruptcy court and walk away from it.

Just like all the others did.  Except for the ones we bailed out, that is.  They were "too big to fail."

For those who don’t follow the game closely, Jon Corzine is a Democratic politician and long-time baron of Wall Street.  Earlier this year, he lost his brief job as Governor of New Jersey to Chris Christie.  Before that, he ran Goldmine (Goldman) Sachs.  You may recall that firm being in the news in late 2008.

Oh, it’s all one big club, these titans and barons who run the money in the United States.

As a Democratic Party pol, Corzine decried the exorbitant salaries on Wall Street.  So what kind of a deal did he make for himself at MF Global?  A tiny salary of 1.5 million dollars per annum, a signing bonus of 1.5 million dollars, 11 million in stock options, and 400 grand to his lawyers for setting up his compensation plan.  And let’s not forget…the back end of the deal, which says if he leaves MF Global, his options immediately vest, he gets 12.1 million in cash as “severance”.

By the way, MF Global’s second-quarter report shows 64 percent of the firm’s revenues went to compensation.  The only businesses in the world that operate this way are Wall Street firms.

These guys keep doing this, and keep getting away with it without a consequence. 

We learned nothing from 2008.


  1. To paraphrase George Carlin: There's a party going on but we ain't invited.

  2. Colonel,

    I'd be curious to know whether MF Global's compensation percentage (64%) compares to the other big boys. Is it pretty much the same? Is it a sign of impending disaster?

    I'm not being flippant. I can only imagine -- imperfectly, I assure you -- how the "titans and barons" actually "run the money". Can the money only "run" if there are immense incentives to the titans and barons? Is it just an extension of the whole Wall Street greater-fool theory? Are we the greatest fools for believing that lessons can actually be learned from all of this?

    Again, I'm not being flippant...mordant is more like it, I suppose. I commented on somebody else's blog who mentioned the banking system and the big profits the money racketeers were making. I said:

    I like to think of how the market responds to government regulation like squeezing a balloon animal: the free market is the balloon animal. Things start to inflate too much in this here part of the balloon, so the government squeezes to regulate it...but that makes the balloon pop out there and there. So the regulators go chasing after the new swellings and impose new regulations -- squeeze the balloon animal -- but the balloon animal pops out again in a couple new places for every squeeze, hydra-like, until the balloon pops.

    Somehow the government regulation-loving have a big blind spot when it comes to human AND business nature. Folks with skin in the game are going to scratch and claw to get as large a piece of the pie as they can given the contemporary regulatory climate. Yes, some of them will even commit fraud. But whenever government imposes new financial regulations the skin-in-the-game folks get creative and use the new regulations as shields for their latest manipulations which will (mostly) be permitted.

    Having faith that the government can (eventually) come up with the perfect set of regulations to prevent all fraud and make all financial transactions fair to the poor...well, it's misplaced, to say the least. Regulations provide COVER for new financial depredations.

    If only this or that would be regulated it will all be better. Keep trying. Go ahead. Now that the government has inserted itself into so many aspects of finance and markets, we will NEVER be free of stupendous financial meltdowns. Never. Because of the ever-proliferating and unholy corporate/government alliances.

    P. J. O'Rourke said it most succinctly: "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators."

    The Town Crank