MF Global has never been disciplined by the National Futures Association.
And as far as I can tell, neither has Goldman Sachs, Merrill Lynch, Citigroup, JPMorgan Chase, Barclays Capital, HSBC Securities or any of the biggest futures traders on Wall Street.
The NFA, you see, is one of those self-regulatory organizations set up so that Wall Street companies could — ahem! — police themselves. It dates back to 1974, when the Commodity Futures Trading Commission was formed by Congress.
And you might have to go all the way back to the beginning to find the last time any big Wall Street firm had any disciplinary actions taken against it by the NFA.
Futures trading firm MF Global and its former head, Jon Corzine, have been in the news lately. About $1.2 billion of OPM — other people’s money — is missing there.
Nobody seems to know how this could have happened. But I do: Self-regulatory agencies don’t work, because human beings are basically dishonest and will use their influence to keep nosy people like regulators away.
I wrote extensively last year about the Financial Industry Regulatory Authority, or Finra, which is supposed to self-regulate the securities industry. What I found instead was that Finra was mostly going after the small and vulnerable and leaving the big guys alone.
Unless the NFA can prove otherwise, that’s also happening in the futures industry. I’m actually very excited about this story because it was brought to my attention by a gen-u-ine, bon-a-fide anonymous whistleblower — the first I can remember in my career.
“A handy rule of thumb when dealing with NFA enforcement is that if your firm has over $100 million in net capital, it is very unlikely to ever draw NFA scrutiny,” wrote Mr. Anonymous in an e-mail to me. We’ve been communicating regularly for the past week.
“Currently, 53 [companies that trade futures] have over $100 million in net capital, and in their entire history only four complaints have ever been issued against these firms in total,” he — or it could be a she — wrote.
I spot-checked Mr. Anonymous’s facts, and they seem to hold up.
A spokeswoman for the NFA tells me the organization has lodged 40 disciplinary complaints this fiscal year, but she couldn’t say the size of the firms that were acted against.
“I’ll see if I can drum them up,” she said. But she hadn’t as of press time.
*
Finally, someone is getting blamed for the mess at Fannie Mae and Freddie Mac, whose appetite for home mortgages and ambition allowed the housing industry to become obese and unhealthy.
The Securities and Exchange Commission, the blind public watchdog on a short leash, sued six former executives of Fannie and Freddie last week.
Who else was to blame? Well, Alan Greenspan for one. The former Federal Reserve chairman allowed interest rates to stay so low that buying a house was affordable to people who couldn’t actually afford it.
And then Greenspan timidly started issuing warnings about the health of the quasi-government mortgage insurers.
Blame Bill Clinton and the second George Bush, too. The two former presidents thought it was politically expedient to extend homeownership to the unwise masses.
It was a good political move. But homeownership for the masses also happened to be bad economic policy.
I started warning about Fannie and Freddie in a series of columns that started in 2000 and continued into 2001.
“You gotta hate Fannie Mae in this sort of economy,” I wrote on Aug. 30, 2001. “Stock of the packager of mortgages is still near its high even though the high-risk borrowers to whom this quasi-government organization caters are having increasing trouble paying their bills.”
Unfortunately for the future of our country, it took years, but eventually common sense won out.
***
As I’m writing, Washington is still considering an extension of the payroll tax cut that began last year.
This is truly a remarkable idea when you think about it.
In order to put more money in people’s pockets, Washington last year reduced the amount workers have to pay into Social Security.
By cutting taxes this way, the federal debt doesn’t get any worse, and our country doesn’t look any broker than it already is.
Only trouble: Social Security, which is also going broke but at a slower pace, will lose revenue and arrive quicker at a time when it’s unable to pay benefits.
Can we afford not to extend the tax cut? No, because Washington is counting on consumer spending to bail out the economy when all the other economic tools have been rendered useless. Christmas retail sales showed that consumers need help.
But we also can’t afford the tax cut. The federal deficit will grow even larger if the government has to cut back what it is borrowing from Social Security because of accelerated deficits in the retirement system.
It’s one of those damned if they do, damned if they don’t situations.
Oh, yeah — enjoy the holidays.