Back on November 17, 2011 I penned a piece in response to Fed Governor Bullard’s assertions regarding the collapse of MF Global. Bullard thought there was no lasting consequences to that blow-out:
At the time, I thought that Bullard was full of crap, and that there would be significant consequences to the collapse of MFG. My words:
OK, Mr. Bullard I’ll make you a wager. A six pack of your favourite beer. Give the MFG story another month and it will be a problem. It will undermine markets. It will impact confidence in our financial system. It will impact liquidity. As those things will occur it will force both the Treasury and the Fed to take actions.
I was wrong, Mr. B was right. There were no consequences to the MFG disaster. No heads rolled. No one went to jail. There were no lasting economic consequences. There were were no regulatory changes. The MFG affair was buried.
Bullard never accepted my bet, but I still feel I owe him. If he reads this and sends me a note I will forward his beer. He deserves it. He won. Unfortunately, we all “lost” as a result.
Today we have yet another MFG in our laps. Peregrine Financial has followed the exact same path as MFG. The PFG bankers looted customer accounts.
I lost a bet for $12 worth of beer. Customers at Peregrine have lost $220m (so far). I can’t help wondering what would have happened had won the bet. If there had been hell to pay regarding the MFG affair, things might have turned out differently for Peregrine’s customer. But there was no market reaction, the CFTC ignored the signs, the SEC never lifted a finger. Nothing changed, so history has repeated itself.
Perigrine customers, looking at a loss today, might be warming up lawsuits against Bart Chilton and the CFTC. He clearly fell down on the job. I think he should be fired on the spot.
Fed Governor Bullard is not responsible for the failure of Peregrine (or MFG), but his dismissing attitude is:
This is no big deal, it will blow over”
To that extent, he shares in the blame.