Juxtaposing U.S., Chinese Justice Systems
According to a Chinese government report released today, “primary leadership responsibility for the bullet-train collision rests with top Railway Ministry officials.” The report noted that 54 government, ministry and industry officials face disciplinary action, including possible criminal charges.
—China Blasts High-Speed Rail System; The Wall Street Journal (12/29/2011).
Former MF Global CEO Jon Corzine says that the now-bankrupt firm still doesn’t know what happened to clients’ $1.2 billion in cash — but it wasn’t his fault, and he feels really bad about it. Corzine, who’s skiing in Aspen with his family this week, said through a spokesman that the company is determined to find out what it did with its clients’ money.
—USA Today; 12/29/2011
OK, so no such USA Today article appeared today, and I have no idea what Jon Corzine is doing at the moment.
And yes, I’m aware that the same Chinese government regularly jails its brave political dissidents and civil rights activists — or worse — without so much as a wisp of due process, or anything else the West would consider enlightened, rule of law.
But consider just how broken U.S. financial regulation must (still) be if, almost two months after over $1 billion in customers’ cash is unaccounted for at MF Global, the following incredible statements can all be made: a) no one knows where the money went; b) no one at MF Global — not even a “Fabrice Tourre-style” scapegoat, ala Goldman Sachs — has emerged*; and c) it’s not even clear, according to convoluted U.S. financial laws, whether MF Global did anything illegal.
Ask one of MF Global’s former customers waiting to get their cash back if the company did anything illegal.
In an age when high-frequency trading — the practice of executing mega-trades in nanoseconds — rules the markets, a two month (and counting) delay for an accounting from MF Global is simply unacceptable.
Auction-Rate Securities Redux
Although it never attracted as much attention as the crises involving Bear Stearns and Lehman Brothers, the earliest market melt-down in 2008 involved something called “auction rate securities.”
In a nutshell, auction-rate securities were a way for high net worth individuals to squeeze out a little extra yield on their short-term cash, vs. accepting the puny returns available to the financial hoi polloi in CD’s and savings accounts.
The catch?
The auction rate securities market ultimately was a sham, kept going — at least for awhile — by the brokers (Goldman Sachs, Lehman Brothers, etc.) who created and ran it.
When they decided to stop supporting the market, it collapsed virtually overnight — leaving thousands of investors with no way to access tens of billions in what were supposed to be highly-liquid instruments.
Sound familiar?
To me, it all suggests the financial equivalent of “First They Came”:
In Germany they came first for the Communists, and I didn’t speak up because I wasn’t a Communist. Then they came for the Jews, and I didn’t speak up because I wasn’t a Jew. Then they came for the trade unionists, and I didn’t speak up because I wasn’t a trade unionist. Then they came for the Catholics, and I didn’t speak up because I was a Protestant. Then they came for me, and by that time no one was left to speak up.”
— Martin Niemöller, German anti-Nazi theologian and Lutheran pastor
Ben Bernanke’s efforts notwithstanding, monetary policy is no substitute for a functioning legal system.
I suggest that the most pressing problem facing this country at the moment isn’t a dysfunctional financial or political system — which we clearly have as well — but a dysfunctional civil and criminal justice system.
Unfortunately, the latter may very well be a more serious disease to cure . . .
*Alternative theory of liability: if MF Global’s senior management, including Corzine, truly don’t know what the company did with its clients’ money . . . . prosecute them for gross negligence.
