Will someone go to the slammer *this* time?
The Finance Industry, by carefully tailoring the laws beforehand, have been able to escape any sort of punishment: not only do they face no hard time for their various forms of fraud, they even got the taxpayers to cover their losses: truly Scot-free.
But, as Simon Johnson points out in his fascinating article on how countries melt down economically through crony capitalism, once the debts reach a certain level, a game of musical chairs ensues: which of the wealthy power centers will take the hit, because the money is now insufficient to cover the debt. That’s when countries go to the IMF and do a weird little dance: getting the bad news of what they must do, leaving and trying to weave gold from straw for a while, back to ask again for help, being told again what they must do, retreat again to try even more desperate measures, … , and ultimately realizing that the music’s stopped and some will not have a chair. This can turn quite ugly, or it can be done efficiently.
The US is still in the denial phase, but the Jon Corzine-headed MF Global fund quite clearly lost its chair, and we even know when: sometime over last weekend about $630 million of customer money was taken from their accounts and apparently used to cover the margin calls for all the Spanish and Italian debt MF Global was backing. The money was there last Friday, it was gone by this past Monday (roughly speaking—I don’t think the exact details are yet public, though this story has a very good countdown and provides excellent and fascinating detail).
The fact that the money vanished within the past 7 days and that Mr. Corzine was intimately involved in its fate makes one wonder whether in this case there will action be some action taken. Corzine is certainly a member of the club: former president of Goldman Sachs, one-time US Senator, one-time governor (of New Jersey), now head of a company that just imploded and in the process stole $630 million from its customers. Will he, like so many, get away with it?
The story at the link is going to make a hell of a movie.
UPDATE: You can already see how Corzine will walk: he got regulators to grant his firm an exception to a regulation, so that his firm was allowed to borrow money from its customers accounts. So no laws broken, nothing to see, move along—and now he’s doubtless negotiating the bailout.
