Two stories making headlines in recent weeks are putting renewed attention on allegations of crony capitalism in Washington: First, the fall of Jon Corzine's MF Global, and second, a "60 Minutes" report on insider trading by members of Congress.
The latter instance is an overt example how our elected officials, and even members of their staffs, are privy to nonpublic information, which they then can use toward their own financial gain. What's astonishing is that such behavior is legitimate due to a legal loophole that excludes members of Congress from insider trading rules.
In the case of Corzine, before becoming a Democratic senator and then governor of New Jersey, he held the top position at Goldman Sachs. After being voted out of public office, he made a return to the investing world as the head of MF Global. What's more is that he's been a long-time fundraiser for the Democratic Party, including offering significant financial support for the country's commander in chief: President Barack Obama.
In the accompanying interview, The Daily Ticker's Aaron Task and The Wall Street Journal's Greg Zuckerman discuss what led to the bust of MF Global -- and the investigations currently under way to find out what happened to the $600 million in client money that's still missing.
MF Global: The Fall
It's not Corzine's investments in European sovereign debt that got him into trouble. Instead, it was the fact that he used an overabundance of leverage to make the bet. So how much leverage did he actually use? For every $40 of liabilities, there was only $1 of assets on the books.
Zuckerman considers Corzine a "throwback" of sorts to a day when leveraged deals were commonplace. But today is a new day, and regulators and ratings agencies care much more about the debt carried by financial institutions.
After threats of a downgrade from rating agencies, investors began to panic and started pulling money out of the firm. Zuckerman says the departing capital is what caused the company to fall, not the risky investments.
On Oct. 31, MF Global filed for bankruptcy, followed by the resignation of Corzine himself.
MF Global: Missing Money
It's been roughly two weeks since the beginning of this saga, and still $600 million in client funds remain missing.
"It's a distinct possibility, some would say probability, that somebody has done something with the money, and that it's not going to be 'all of a sudden discovered' with an innocent explanation," said Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, late last week.
But today, it is still not clear if someone will go to jail or if any acts of wrongdoing actually occurred. What is certain is the fact that this two-week lag time is really undermining to investor confidence in the system, says Zuckerman.
With Corzine's close ties to politics at every level, one can only hope that regulators and investigators are looking into the matter with the utmost urgency, Task says. Moreover, if illegal behavior is uncovered and not followed by adequate repercussions -- such as fines or even jail time -- confidence in the system will only be further undermined, he says.
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