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MF Global: Lehman all over again? First victim of the European debt crisis? Or something even worse?
You may have heard by now that MF Global, a somewhat obscure Wall Street investment firm run by former Goldman Sacher and former New Jersey Governor Jon Corzine, imploded on Monday, declaring bankruptcy after failing to find someone to buy it. MF Global might also have illegally diverted money from client accounts to its own trading operations.
The firm is now being looked at as either (1) a sort of junior Lehman Brothers — which makes sense, as Corzine was trying to move MF Global into a spot in the much-reduced-by-the-financial-crisis firmament of investment banks — or (2) the first victim of the European debt crisis.
At MarketWatch, Brett Arends goes a bit farther, pointing out that MF Global's abrupt meltdown will directly affect average investors, because those investors' mutual funds and pension funds were mixed up with Corzine's wannbe Goldman and its risky bet on European sovereign debt.
But Arends also goes to the trouble to put MF Global into the context of how business gets done these days in high finance, even in the aftermath the the financial crisis. Essentially, we've learned nothing:
MF Global says that it employs about 3,000 people. And these were good — meaning high-paying— jobs. According to the latest filings, the average MF Global employee earned about $46,000 last quarter — or $184,000 a year.
That’s the average. Account for the support staff and so on, and the traders and risk-takers were pocketing serious coin.
It’s pretty much the same across Wall Street. But what are they actually doing? They’re just playing poker against each other. They’re engaged in an “industry” that produces neither iPhones nor brain scans nor pizzas. There is no output. There is no wider social purpose. They just trade paper against one another. Like most of Wall Street, it’s just a zero sum game.
What's worse, nobody understands what they're doing. I've read a variety of accounts of how the MF Global position in Euro debt was structured, and I've got a ways to go before it all makes sense.
The alarming implication — and this goes beyond Occupy Wall Street and its disgust with the financial elite — is that productive activities simply aren't lucrative enough anymore to beat back the threat of finance. And in a fast, global world, finance is the only function that has the velocity to make real money. Companies take time to build. Inventions involve near-constant failure.
Productivity requires sacrifice and commitment. Many ambitious people aren't about that. They'd rather play poker with each other all day. And take home $184,000 a year on average. And much, much more than that if they're really, really good.
It's a radically quicker path to the 1% — the preferred path, in fact. And all you need to make it happen is the mutal and pension fund billions of the people who are too slow to figure it out.