Have We Really Hit the Outrage Wall?

Goldman, Goldman, Goldman. Ever since Greg Smith announced his resignation from Goldman Sachs from the Op-Ed pages of the New York Times (essay, here), the comments, cat-calls, and commendations have been flying.

Terming the Goldman culture "toxic", Smith claimed that sales meetings were now devoted only to how much money the firm could make, not to what was best for the client.

Journalists picked up on some of the choicer phrases (the London Evening Standard led with this headline: "Goldman Boss: We Call Our Clients Muppets"); Goldman chief Lloyd Blankfein (a.k.a. Mr. We're-Doing-God's-Work) responded with a measured letter to employees: "We were disappointed to read the assertions made by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients."

The Times alone carried three separate articles today (here, here, and here), along with uncounted comments (positive, negative, and positively vitriolic). Slate magazine carried two (here and here), and there was much, much more.

So what am I going to say about this?

Nothing.

Because while I'm interested in the furor, I'm more interested in a story that's not getting anywhere near as much attention: MF Global.

I wrote about MF Global last November, when the company imploded with seemingly astonishing speed. The issue then was, What happened to the $600 million in missing customer cash (which turned out to be $1.6 billion in missing customer cash)? Not to mention, How did it happen "so fast" when watchdogs had been waving warning flags for several months? Plus, Who does ex-CEO and former New Jersey governor Jon Corzine think he is, anyway?

When Alexander Eichler reported in the Huffington Post last Friday that as many as 23 senior employees of MF Global could get bonuses of up to six figures for their assistance in the bankruptcy investigation, I expected a storm of protest. As Eichler wrote,

What do you do after your company implodes and customer money goes missing? You collect a bonus, of course.

But instead of protest, there was ... nothing. Even the comments on the article, usually a sure-fire source of invective, were relatively calm. There were the usual complaints that if you steal $100 and get caught, you go to jail, but if you steal $1 billion .... well, not so much.

On Monday, the biggest MF Global story was about offers that customers were receiving to cover their losses. As Azam Ahmed and Ben Protess (who have both done a great job covering this debacle for the Times) wrote,

The thousands of MF Global customers whose lives and businesses were derailed after $1.6 billion vanished in the collapse of the brokerage firm have now received offers to sell their claims and recoup nearly the entire shortfall, people involved in the negotiations said.

What was once thought to be a lost cause has erupted into a bidding war among Wall Street firms: Barclays, the Royal Bank of Scotland, and the Seaport Group, a little-known firm that specializes in distressed assets, are all scrambling to buy MF Global customer claims.

Why would anyone be bidding 91 cents on the dollar for those claims? Generosity of spirit? I don't think so. The companies are betting that, in the long run, they can make money on them:

The banks do not plan to hold the claims on their books, but will sell them to hedge funds and other clients. Those investors are wagering that, when the dust settles, the trustee, James W. Giddens, will recover nearly all the money owed to customers.

Some MF Global customers may be able to wait for the recovered funds, but others may be in immediate need of cash.

OK, but what about those bonuses?

Even Joe Nocera, the Times columnist who has been fiercest about the firm's lapses, wasn't thinking about the bonuses. In his Monday column, he sighed that it's "starting to look like Jon Corzine is going to get away with it."

Nocera is incensed that Corzine and his senior managers are not being prosecuted:

Let’s not mince words here. These executives committed a crime. Virtually every knowing violation of the Commodities Exchange Act is a crime, but taking money from segregated customer accounts is at the top of the list. And for good reason. Customer money is supposed to be sacrosanct. If a broker-dealer goes bankrupt, the segregated accounts are supposed to remain safe, a little like the way bank deposits remain protected if a bank goes under. Indeed, customers need to be able to trust the fact that their money is segregated and protected at all times. Otherwise, the markets can’t function.

But somehow, prosecutors haven't found the "smoking gun" that they need to move their case ahead.

That's not really surprising, as Nocera noted: "As a general rule, financial professionals tend not to write e-mails that say, 'Hey, we’re desperate. Let’s break into the customer accounts!'"

Nocera understands -- as did some of the commentators to the MF Global bonuses story -- that we need to see some of these crooks in the witness box. Yes, "innocent until proven guilty". How about if I say, "We need to see some of these alleged crooks in the witness box."

We need to believe that if you rip off the system and get caught, you will pay. So what's taking the prosecutors so long? Nocera acknowledged that "bringing complex financial cases in front of a jury is not easy." But that's not an excuse for not bringing the case at all.

Yesterday, the Times' Ben Protess, reporting from the Futures Industry Association gathering in Boca Raton FL, wrote that the MF Global fiasco was "Topic A". Everyone agreed that it was a very bad thing for the industry. Everyone agreed that something should be done to prevent its happening again. Nobody agreed on what should be done -- maybe an insurance fund? maybe tougher internal controls? maybe outside third-party audits?

How about some jail time?

As I said, I don't get the lack of outrage here.

But maybe Gary Weiss at Salon does. He's labeled the phenomenon, "Greed Fatigue". As he wrote yesterday,

You say there is a group of devious men (and they are usually men) who lost or stole the money from a large group of trusting and trustworthy people and then enriched themselves for their atrocious behavior? And we’re supposed to be surprised? As a news story, the MF Global bonuses is familiar. The headline “Vultures Flourish in the Great Recession” reeks of 2009. Besides, what can you do about it? Not a single executive responsible for the crash of 2008 has gone to jail or even visibly suffered. After a while the story gets tiresome.

Weiss is kinder to Corzine and the rest than Nocera -- he said only that they "may" have engaged in criminal conduct.