The New York Times took another swing at the MF Global debacle this past Saturday, this time in James B. Stewart’s “Common Sense” column.
Unfortunately the column doesn’t live up to its name in that it works very hard to complicate a series of events that are not that complicated. Common sense would have been to stick to the obvious.
Stewart does not attempt to defend Corzine as others have and the entire column makes the point that Corzine should be viewed as responsible, more so than Edith O’Brien even though he did not explicitly tell her to dip into customer segregated accounts, which he did in fact, instruct others to do by the way.
But in that Stewart’s column goes so far as to talk to experts in business ethics and organizational psychology and cites a famous 50-year Yale study involving electrical shocking of subjects, he misses the obvious.
The CFTC report cites a conversation between Corzine and other officials where he directs them to dip into the segregated customer fund account (futures firms typically put their own funds in these accounts—which they are allowed to withdraw — to create a buffer in times of high activity). The CFTC action notes the following conversation on Oct. 7 between Corzine and an unnamed MF Global employee regarding MF Global’s customer segregated accounts and customer secure accounts: “Corzine pronounced: ‘We need to go through what that real number is at the FCM. You know, what’s the drop dead amount. … You know, I’m sure there is a buffer in her (presumably MF Global Inc. CFO Christine Serwinski) thinking. We’ve got to find out what that is so that we have some ability to think about pulling it if we have to.’”
What was occurring in the fall of 2011 at MF Global is why an FCM would put some of its own capital in a segregated account. The firm was under stress and customers were pulling money out. This is why a firm would add capital, to ensure that with all the transfers in and out of the customer segregated account they don’t fall under seg.
And where are all these officials along the chain of command that are cited throughout the report and who testified before Congress? The Global Treasurer who famously stated on a recorded line: “we have to tell Jon that enough is enough. We need to take the keys away from him.”
Apparently instead of taking the keys from Jon, the deflected all action to O’Brien. (See Subcomittee memo)
Stewart writes, “The complaint suggests that Mr. Corzine, the firm’s chief executive and a commanding figure apart from his position at the firm, showed scant interest in regulatory issues or compliance in his rush to transform MF Global into another Goldman Sachs.”
This could be the understatement of the year.
Like others writing about the sordid episode, Stewart seems to come at it late and focuses on the machinations of the final days without the proper context. He does note how it was Corzine’s plan to transform MF Global into an investment bank but he misses the more important facts that it was Corzine himself that directed all of the proprietary trading, fought with risk managers over the size of his positions and lobbied and argued with regulators over the nature of these positions.
Stewart doesn’t need to consult business ethicists or organizational psychologists to determine who is responsible here and neither should the Department of Justice.