STOCK MARKET WATCH -- Monday, 26 November 2012

[Demeter]

29. House Report Faults MF Global Regulators

http://dealbook.nytimes.com/2012/11/15/house-report-details-collapse-of-mf-global/

When MF Global was on the brink of collapse, chaos and confusion spread not only among the firm's executives in New York, but also among its regulators in Washington, according to a report released on Thursday. In the final hectic hours before the brokerage firm's bankruptcy more than a year ago, regulators at the Commodity Futures Trading Commission instructed MF Global to transfer $220 million to plug a hole in customer accounts. The firm agreed - over the objections of the Securities and Exchange Commission and other regulators.

Upon learning of the futures commission's orders, the chairwoman of the S.E.C., Mary L. Schapiro, responded in an e-mail to a colleague: "Without telling us? That is unacceptable." The e-mails of regulators, cited in an "autopsy" report from Republican members of the House Financial Services Committee's oversight panel, portray a "disorganized and haphazard" approach to oversight from an alphabet soup of federal agencies. The regulators, the Republicans said, struggled to communicate even as MF Global was reeling.

The 100-page report, which some Democrats dismissed as a sort of public shaming of Obama administration watchdogs, further traced the MF Global debacle to the firm's top executives. Republicans placed blame on the former chief executive, Jon S. Corzine, a onetime Democratic senator and governor of New Jersey, who they said increased a bet on European debt without regard for internal controls or the danger to clients. Rather than rein in his risk-taking, Republicans said that regulators afforded Mr. Corzine a long leash....The report, the outgrowth of several Congressional hearings with MF Global's executives and other officials, is the culmination of a yearlong investigation that sought to chronicle the firm's undoing and rebuke those at fault. The House panel's findings stemmed from dozens of interviews with former employees and more than 240,000 documents. The report leveled some of its harshest criticism on regulatory agencies, which it blamed for breakdowns in communication...

"We didn't need additional regulation. We needed regulators actually doing their job," Representative Randy Neugebauer, a Republican from Texas who led the investigation as chairman of the oversight panel, said at a news conference on Thursday

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Citing "an apparent inability" of the regulators to coordinate their actions, Republicans suggested that investors and customers would be better served if the S.E.C. and the futures commission streamlined their operations or combined into a single agency. But that proposition is fraught with political peril. Lawmakers have sought to merge the two agencies for decades, only to scuttle the plans in the face of opposition. The Senate and House agriculture committees - clinging to the power and campaign donations that come with overseeing the futures commission - are often the first to object. After the financial crisis, as lawmakers debated the Dodd-Frank regulatory overhaul, federal authorities again put forward the idea of combining the agencies. But legislators reached a bipartisan consensus that such a change would spread confusion at a time when the financial industry was barely back on its feet. On Thursday, federal officials were skeptical of the House panel's suggestions. While some top S.E.C. and Congressional officials say they support a merger, others doubt it is politically feasible unless another crisis erupts. One Congressional aide who spoke on the condition of anonymity dismissed the House panel's recommendation as a "power grab."