Jon Corzine’s disastrous tenure at MF Global will boost something that Jon Corzine, the liberal senator from New Jersey, undoubtedly would have supported: the Dodd-Frank Act.
The financial reform law passed last year by Congress was aimed at a preventing a relapse of the crisis that nearly brought the U.S. economy to its knees in 2008. But efforts to implement the law have been stymied by congressional Republicans and industry lobbies. The law requires various federal regulators to write and pass about 400 rules, according to an analysis by law firm Davis Polk & Wardwell. Of those, only 74 rules have been finalized.
That may now change. While the failure of MF Global, which Corzine oversaw as its chairman and CEO, did not have the same seismic impact as the collapse of Lehman Brothers, experts say the shuttered futures firm speaks directly to the need for certain aspects of the regulatory framework envisioned by Dodd-Frank. It also gives ammunition to those who want to push through the mountain of rulemaking that remains to be done.
"It adds fire under our feet to get these regulations done as soon as possible," said Bart Chilton, a member of the Commodity Futures Trading Commission, in an interview. A staunch advocate for strong regulation, Chilton called MF Global the "new poster child" for the need to beef up market oversight. The CFTC is tasked to write 64 rules, of which it has completed 22, according to Davis Polk.
MF Global was brought down the last week of October after the publicly traded firm reported a record quarterly loss; saw its credit rating slashed to junk; spooked its trading partners and shareholders with its vast and highly leveraged exposure to European sovereign debt; has roughly $600 million unaccounted for, and a federal investigation is underway into both the whereabouts of the money and possible violations by the firm over its disappearance.
Meanwhile, the court-appointed trustee overseeing MF Global’s liquidation on Friday fired more than 1,000 of the firm’s broker-dealer employees to preserve funds for the claims process.
About 50,000 futures customers had their trading accounts frozen and partially transferred to other firms when MF Global entered bankruptcy.
MF Global belonged to an organization that is a central tenet of Dodd-Frank, said Kevin McPartland, senior analyst with the TABB Group.
"MF Global will encourage regulators to shine a much brighter spotlight on questions of clearinghouse governance," she said.
Others are using MF Global’s failure as a clarion call for imposing Dodd-Frank’s ban on federally insured banks using their own capital for speculative investments, otherwise known as proprietary trading.
It’s high time that we get on with it!!!
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