This doesn’t seem to be much of a story and hey deservedly not:
The Federal Reserve Board on Monday issued a consent cease and desist order and assessed a $6 million civil money penalty against the Bank of New York Mellon (BNYM), New York, New York, a state-chartered bank that is a member of the Federal Reserve System. The order addresses allegations that BNYM breached certain representations and warranties made to Federal Reserve Bank of Boston in connection with BNYM’s participation in the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF).
Boy is that boring. They breached certain reps and warranties! The actual story from the consent cease and desist order is maybe ever so slightly more scandalous but still pretty boring. BoNY participated in the AMLF,* which basically allowed banks to go buy asset-backed commercial paper from struggling money market funds and hand it to the Fed in exchange for cheap non-recourse loans against it. Cheap non-recourse funding is attractive especially if it is September 2008 and you are a bank, so BoNY did as much of that as it could, and also some that it couldn’t. The total of (1) what it could do plus (2) what it couldn’t do but did anyway was a little over $9bn – just for the first day of the AMLF (22-Sep-2008). The balance between (1) and (2) is not clear; the consent decree just says: Read more »
A bankruptcy judge said MF Global can use existing insurance policies to pay potential “wrongful act” legal-defense fees for former Chief Executive Jon S. Corzine and other executives, even as commodities customers continue to argue that they are entitled to at least some of the money. Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan approved the request by MF Global to free up insurance money from two separate entities: a total of $150 million in potential coverage from a subsidiary called MF Global Assurance and as much as $225 million from U.S. Specialty Insurance Co. With $375 million in proceeds potentially available, Judge Glenn said he will place a “soft cap” of $30 million for the defense costs, with the parties required to come back to court for approval of further use of the funds. He overruled several customer objections. [WSJ, related]
One thing that I’ve assumed from the beginning about MF Global is that no one’s ever going to find an email from Jon Corzine saying “Hey guys – can you steal a bunch of customer money to keep us afloat? Then kill the witnesses and bury their bodies in shallow graves.” This faith was tested on Friday when it came out that MF Global treasurer Edith O’Brien claimed in an email to have just such instructions, though she would say that since she’s currently the leading candidate for having buried all the bodies. But, false alarm: JSC did apparently say “transfer that money,” but he thought it was not customer money, so no probs. For now.
When people talk about banker pay they often fall into what I think of as comp determinism, a view that what you pay for is all of and only what you get. So if bankers’ pay function is “you get a fixed salary with a 10% raise each year,” they will spend their time playing golf and drinking at lunch, while if it is in the form of a call option on their returns, they will spend their days maximizing the volatility of their returns and you’ll end up wishing that they’d been playing golf and drinking at lunch instead. I’ve had some doubts about the details but there’s lots of truth to it: every business, perhaps especially the financial industry, attracts people who look out for their self-interest, and so if you align their self-interest with whatever you want you’re more likely to get it.
If that is your model, though, you can’t limit it just to comp. Your model has to be something like “people who work in the financial industry are people, albeit unusually-lacrosse-loving people, and they want the things that people want and they do stuff at work to get those things.”* Read more »
Taking away the one thing he thought he had going for himself. Read more »
Back in February, Vanity Fair ran a piece on Jon Corzine in the wake of the whole MF Global situation, attempting to determine “what set Corzine on the road to ruin.” Figuring his personal life would be a good place to start, some story lines that were explored included JSC’s relationship with his children and his divorce from Joanne, who he met in kindergarten and was married to for 33 years. The former was described as having become “increasingly distant” as Corzine made his way up the ranks at Goldman Sachs. The latter “bitter,” which was not helped by the fact that, according to VF, Joanne had gotten “too close” to a onetime GS employee with whom Corzine had “bad blood,” named David Tepper. Jon’s children happened to catch the article and responded to it today in a letter to the editor, the short version of which is: “YOU KNOW NOTHING.” From the longer version: Read more »
Want to feel close to Jon Corzine but can’t bring yourself to tell people you live in Hoboken? Rather than buying his NJ love shack, perhaps consider placing a bid on a ’87 Jaguar he supposedly once owned and is now on the eBay auction block. Read more »
The last several months have not been the best of times for Jon Stephen Corzine. His fund went down for the dirt nap. He was forced to shelve his dreams of becoming a count. He made the tearful decision to put his Hoboken hideaway on the market, probably to free up some cash should it become necessary to pay legal fees. And while some pissant MF Global clients have in fact served him with papers, today brings the joyous news that any sleepless nights spent worrying over doing time were all for naught. Read more »
I’m not the only person who noticed that Mark Zuckerberg is going to have more than the usual amount of control over Facebook (Facebook Facebook Facebook), both unto his grave and beyond. As a conceptual matter I’m kind of down with that though I’m not going to, like, buy shares in the IPO or anything.* But my basic take is that, if you’re going to buy stock in in a poking machine that makes about a penny per user per day, you should be willing to trust Mark Zuckerberg. Because if you were the inventor of Facebook, you would have invented Facebook, or something.
The alternative to giving a hoodied 27-year-old complete control over all aspects of a multibillion dollar business is to have a team of professional managers being all professional and managing by committee and checking each others’ work. It is not clear what is better. I suspect Facebook would not be a $100 billion asset today if it had sold to Yahoo in 2006 though, also, no one has ever accused Yahoo of being professionally managed. But the point is that those are two distinct styles and there are arguments for both. Professionalism has much to recommend it but so does complete domination by one visionary; for instance, founder dominated firms outperform the market.
On the other hand there is a downside to dominant visionaries, as some (non-Zynga-based) hog farmers now know all too well: Read more »
The chief risk officer who was brought in to install risk management systems at MF Global after a rogue trading incident in February 2008 is expected to tell Congress Thursday he outlined his concerns about European sovereign debt trades in the fall of 2010…At the hearing, Michael Roseman is expected to say he “expressed my growing concerns with regard to the potential capital risk associated with the growing positions and began to express caution on the growing liquidity risk,” according to a copy of the testimony reviewed by The Wall Street Journal. In mid-September, Roseman told MF Global’s chief executive, Jon Corzine, that he would consult the firm’s board of directors on requests to increase limits on the European trades. According to his written testimony, Roseman is expected to say that by late October of 2010, the positions were approaching $3.5 billion to $4 billion. After discussing his concerns with Corzine and others, the risk scenarios he presented “were challenged as being implausible.” Roseman’s testimony doesn’t specify who aside from Corzine and the board he told of his concerns. [FINS]
JSC has reportedly put his Hoboken hideaway on the market, for reasons that are unclear at this time (and which we should not speculate over. Surely there are some who will be quick to suggest he’s downsizing and freeing up cash in case he needs money for legal fees but we have no idea, do we? Maybe the new venture became a success sooner than anyone thought, and he’s moving to a bigger place. Maybe he’s decided to live in France full-time). Some details, for those interested in a place with a story to tell: Read more »