Our national discourse on the nature of wealth has been a good cure for sanity of late.
News that a book coming out from the surviving son of Bernard Madoff, mastermind of the largest Ponzi scheme in history, elicited comments from readers that could be called anything but charitable. Alongside an interview with Madoff’s wife, Ruth, whose picture speaks volumes about the toll the scandal has taken on her life — not in the least the suicide of her other son — are comments that plainly show how bitter the feud has become between the rich and the working class in our country. In response to Ruth’s claims of not knowing of her husband’s illegal financial dealings, readers wrote:
“What a bunch of lies. Anyone in the industry knows that the returns had to be made up…the sons knew it, the wife knew it, everyone knew it.”
“I do not think Ruth knew, but she strikes me as remarkably incurious and shallow.”
“This is a woman who married at 18 and never took responsibility for her own financial security. True, she raised their children but she chose to ignore the choices made by her husband. Now she claims to be a victim. I am sorry but I do not buy this. She chose to remain ignorant.”
Overlooked was this part of the interview, in which Ruth Madoff discusses falling in love with her husband, as it would inevitably inspire some modicum of humanity.
Aside from Madoff-venting, the debates rage about the solutions. At Occupy Wall Street, which I visited last week, you have, on the one hand, a number of concerned Americans questioning — or outright decrying — capitalism in all its trappings. They suggest that the only solution is to raze and rebuild the entire political and financial system.
Unfortunately, they are still experimenting with new models to offer in its place.
On the other, you have national leaders quick to denounce the financial crisis, but just as quick to vote down any new rules aiming to prevent a financial crisis in the future.
Already, we are seeing the results of this splintering of the populace: we remain effectively paralyzed to redress our own fragility, forced to lurch from one crisis to the next. Large financial powerhouses continue to fail spectacularly as the Department of Justice, the Federal Bureau of Investigation, the Securities and Exchange Commission and a smattering of other government agencies struggle to keep up with reports of unchecked theft, negligence and fraud amid budget cuts frequently meant to hobble them (as if the backlog of cases they’re drowning in wasn’t enough).
In the meantime, too much money in all the wrong places undercuts the healthy cleansing that might otherwise be achieved through a democratic elections process. As one hedge funder told me while in New York last week: “Nothing can pass C0ngress, because the Republicans believe all regulation is bad. They don’t want another financial crisis, but they don’t approve of any new rules either. They haven’t quite worked out their dogma yet.” And we know Obama and the Democrats, whatever the dogma, do not appear capable of executing a plan.
Last week, former U.S. senator, New Jersey governor and high-ranking Goldman Sachs executive, Jon Corzine, stepped down from a job he held for just over a year as head of the world’s largest futures brokerage house. The 200-year-old-plus brokerage, MF Global, handled traders’ transactions in the multitrillion-dollar futures market, where people bet on the future prices of everything from soybeans to gasoline to interest rates.
Corzine’s company, which sought to become a mini-Goldman Sachs, filed for bankruptcy after betting more than $6 billion on bonds tied to the European debt crisis and getting caught short. Corzine, a self-described son of an insurance salesman who grew up on a “small family farm” in Illinois, raked in hundreds of millions at Goldman as he ascended to its highest echelons after starting out as a bond trader there.
Given his trading background, Corzine very likely understood exactly what kind of risk his brokerage was taking ahead of its downfall. (“A good rule of thumb is, if the guy is not a former trader, he probably didn’t know what hit him,” the hedge funder told me over a nice-sized steak. “But if you’re a former trader, you get the joke. You probably wrote the joke.”)
MF Global faces a particularly thorny issue now: customer funds are missing to the tune of hundreds of millions of dollars. This has raised fears that the brokerage may have actually helped itself to some of its clients’ money — a huge no-no, even in the futures market. Separately, additional customer money has been frozen, trapped in bankruptcy-proceedings limbo until all financial issues can be sorted out. This means people with millions entrusted to the once-reputable brokerage won’t recover their funds for years, if at all.
Corzine, however, will recover his funds. On top of his $1.5 million annual salary and $1.5 million signing bonus, he received $11 million of stock options. (Corzine did have a $12.1 million “golden parachute” lined up in case he sold the firm before leaving — which he tried to do — but it didn’t work out.)
Naturally, Corzine is a rock-ribbed liberal who has long spoken out against the ills of overcompensating executives on Wall Street, particularly when their pay is not tied to fiscal performance, as was precisely the case with him in his latest job.
On his blog last week, Sean McGillivray of GP Trading wrote:
This story isn’t about Jon Corzine or whether or not he gets a golden parachute or prison jump suit. It is about the estimated 150,000 investors who have been locked out of their account since Sunday night.
Occupy Wall Street believes firms should not be able to gamble with customers’ money, a tricky concept financial institutions are still having trouble grasping. Turns out it is a tough request to ask big-name firms not to touch our cash.
To blame capitalism or the quote-unquote 1% is to oversimplify things. But it is obvious we have yet to root out the corruption that led to the 2008 financial crisis and the brazen apologists who remain willfully ignorant to change.