What we can learn from the failure of MF Global.
"Looking ahead, I am certain, very certain of this: we CANNOT let this event destroy the long-term trust and confidence upon which market participants rely."(1)
--Gerald F. Corcoran, Chairman and CEO of R.J. O'Brien & Associates speaking on MF Global
How can $1.2 billion be lost overnight?
Former MF Global executives, appointed bankruptcy trustees, financial regulators, and industry insiders are admittedly without a clue. In today's culture of lax government oversight, exotic derivative structured transactions, and speculative Wall Street gambling, anything goes. Only the investor loses. And in the case of MF Global, they lost over a billion dollars.
2008 was supposed to be the end of the road for balance sheet manipulation, marginalization of risk protocols, and deviant executive breaches of fiduciary duties. Yet, the recent failure and bankruptcy of MF Global suggests that many of the same practices that led to the demise of Bear Stearns, Lehman Brothers, and Merrill Lynch still plague the financial system today.
MF Global was traditionally a future commodities merchant ("FCM") that traced its roots to 18th century London. The story of the proud brokerage's demise includes the firing of whistle-blower personnel, ineffectual regulatory governance, repeated failures to act, and dangerous off-balance sheet risk.
Efficient capital markets require investor faith that their money is safe. Accordingly, MF Global's bankruptcy and shortfall of $1.2 billion customer funds only makes it more imperative that investor trust is renewed through reforms of the current financial regulatory regime that include enhanced governance, stricter derivative regulation, and ethical imperatives for Wall Street.
Here's how it unraveled for Jon Corzine and MF Global: