An interesting news item recently: When Bernie Madoff's Ponzi Scheme collapsed, the man charged with recovering as much money as possible for the investors he swindled was Irving Picard, the court-appointed trustee. In some ways, Picard has done a decent job. Faced with a horrible situation, he has succeeded, so far, in recovering $330 million, a mere fraction of the estimated $20 billion overall loss -- but still, if the money is gone, it's gone. Any recovery is better than nothing.
Only here's the thing. Mr. Picard's efforts 'on behalf of' investors have so far racked up fees of $554 million. He estimates that by 2014 those fees will have amounted to some $1,000 million. The biggest beneficiaries of Mr. Picard's hard work is -- so far -- Mr. Picard and his colleagues.
Now, just to be clear, what Picard is doing is perfectly legal. He's acting under the eye of the court and, no doubt, in compliance with every rule, every code of conduct, every nit-picking little regulation. But it's still a scam. An outrageous fraud committed on the investors who have already been robbed blind.
And what happens? Nothing. What will happen? Nothing. Mr .Picard will go on collecting his $850-an-hour fees. Investors will see their recovery prospects dwindle and dwindle. And nothing will happen to anyone. (Except your pension, of course, if your investment manager was dumb enough to invest a slice of it with Bernie Madoff. But who cares about you? You don't wear a nice suit and charge $850 an hour for your time.)
Take another example. Jon Corzine ran a derivatives brokerage called MF Global. Corzine ought to know how to manage risk, given that he'd been CEO of Goldman Sachs. He had some pretty fancy political connections too: formerly Governor of New Jersey and a man strongly endorsed by President Barack Obama and Vice-President Joe Biden.
Unfortunately, however, MF Global went bust. It went bust for the most Wall Street of all reasons: It had too little capital, too much debt, but went ahead and made huge, aggressive, dangerous bets anyway. In a way, that's OK. Capitalism is about winners and losers. If MF Global was one of history's losers, its equity holders and lenders will have learned a useful lesson about doing better due diligence on their investments.
Yet there's a crucial rule in the financial markets: that client money should never be intermixed with the firm's money. If a firm goes bust, the money it holds on behalf of clients "segregated funds" should not be touched. That rule was apparently not observed by MF Global. In a recent Congressional hearing, Senator Bob Corker asked James Giddens, the trustee tasked with recovering the lost money, what had happened. Giddens replied, "In these firms, cash is moved around from account to account on a daily basis. It was possible that mistakes were made."
And Giddens is wrong. First, it's certain that mistakes were made: The money has not yet been restored to its owners. And secondly, it looks very much as if a serious criminal offense has been committed -- and committed by people who should know a lot better.
So what happens? Nothing. Sarbanes-Oxley, an existing law apparently not enforced.
No one's in jail. No one's on bail. Money just vanishes into the ether, and the response of the authorities appears to be, Hey, whatever.
It's not just the United States where this no-consequences culture has taken hold. Christine Lagarde is head of the IMF. This last week, she talked tough to a British newspaper, saying she had no sympathy for Greeks, when they don't pay their taxes. Only she doesn't pay taxes herself. And, in the words of a Reuters report last year, she's currently under investigation by French judges "for possible misconduct in approving a huge payment to a friend of President Nicolas Sarkozy when she was finance minister." But are there any consequences or follow-up? No, of course not.
And it's wrong. It's all wrong. Trustees should not enrich themselves and their colleagues with a billion dollars in fees. If MF Global cannot produce its clients' money on demand, someone should be sitting in jail until that fact is remedied. If a major international figure is under investigation for serious misconduct, that person should not be permitted to remain in office.
I've just cherry-picked a few examples from many more possible. JP Morgan loses $2 billion? Hey, someone down the food chain loses their job, but why should the CEO suffer? Greece was allowed to join the euro on the basis of false national accounts, but why should anyone be investigated or go to jail for that? Vikram Pandit, the CEO of Citibank, sought a compensation package worth $15 million last year, despite the fact that the company's stock price has declined 90 percent from the date of his appointment to the end of 2011. Shareholders voted against that pay package -- but don't worry Vikram, the vote isn't binding.
When "Queen of Mean" Leona Helmsley remarked, "Only the little people pay taxes," she was rightly vilified for her attitudes. But the world has changed. We live in her world now. Transparency? Accountability? Responsibility? That's for little people. Consequences? Forget it: If you're rich, there are none. We live in Leona Helmsley's world now, and it's not a good place to be.
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