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Top of Mind: Where Are the Adults?

November 29, 2011
By: Jeanne Bernick, Top Producer Editor

Financial leaders are playing childish games with our money. Just three years ago, we were all scared silly when our financial system crackled under Lehman Brothers’ missteps. Now financial folly is back with downgraded U.S. credit, a European debt crisis and the bankruptcy of MF Global, which "misplaced" $600 million that had strong ties to agriculture.

Led by former New Jersey Senator Jon Corzine, MF Global commingled client funds and invested portions in European bonds to help grow MF into a sort of mini–Goldman Sachs. The recklessness at MF Global will likely put some farmers and elevators out of business, or at least put them at reduced capacity for a while, notes Pete Meyer, 30-year veteran of ag markets, financial consultant and publisher of Opening Print.

"Clients trust their clearing broker to safeguard their trading capital, not invest it unwittingly for the benefit of the house," Meyer says. "If these European bonds had appreciated in value, clients would have been none the wiser, though their money would have paid the salaries of the people who abused their trust. That trust has been broken by an ex-executive who should have, must have, known better."

Bad Behavior. The root of the current problems with the financial markets is that there are no grown-ups in positions of serious power anymore. Greedy CEOs and politicians have paved the path to U.S. credit default and financial failures. Former MF Global CEO Corzine simply had no regard for his clients when he secretly invested their money elsewhere. Ironically, he was best known in the Senate for co-authoring the Sarbanes-Oxley Act, a law to combat corporate scandals. It’s sad to think that Corzine is a farm kid from Illinois—farm chores should have taught him more about responsibility.

The CME Group, where MF Global did most of its business, also failed in its grown-up role as auditor. Folks who invest in futures contracts were assured by CME that funds with MF Global were safe, but now some farmers are losing faith in the exchange. "You do business with these places and you just assume they are fine and reputable," notes a Montana farmer who traded through MF Global and can’t access his money.

CME says the missing money at MF Global is an isolated incident. In an act that might restore faith in the markets, CME took the unusual (and grown-up) step of pledging $300 million to help customers of the bankrupt brokerage firm.

The one saving grace is that the rest of the world seems to be run by children, too. Both Italy and Greece dealt with leadership dismissals last month. Let’s hope that 2012 brings the return of adults and the world can stop playing this giant game of risk.
 

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FEATURED IN: Top Producer - December 2011

 
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