We made a judgment error in this morning’s Scan. Pressed for time, we included an MF Global story that ran on page C1 of the Journal but skipped the one on C2, assuming the one on the front of the Money & Investing section must have been the more important one. Well, you know what they say happens when you assume….
The story we blew off takes a step back and observes that MF Global was the fifth primary dealer to either go bankrupt or be acquired at a fire-sale price in as many years. (The story actually says "four" but we're counting five, the others being Bear, Lehman, Merril and, believe it or not, Countrywide.) The article explores the question of whether the Fed should have greater oversight of these firms, which trade directly with the central bank when it carries out open-market operations.
It’s unsexy, meat-and-potatoes stuff, but arguably more important than whether Jon Corzine and Chris Flowers are still buddies (the subject of the story that the Journal gave more play).
True, previous articles have looked at the primary dealer angle on the MF Global saga. And it’s debatable whether ramping up the Fed’s monitoring of these trading partners is even a good idea. As the Journal notes, “until 1992, the Fed directly monitored all its primary dealers, making regular visits to their offices. It ended the practice after the collapse of a big primary dealer, Salomon Brothers, in 1991. The hope was that by relying on the SEC and CFTC to handle some of the supervision, it might remove the aura that the relationship with the Fed gave some firms.” Donald Kohn, the Fed’s vice chairman, is quoted as saying the SEC and CFTC should improve their supervision, rather than adding “another layer.” We also haven’t forgotten the fine Times story which noted that one of the problems with MF Global was that "everybody and nobody" was in charge of regulating the firm. Lack of clear jurisdiction can lead to a kind of regulatory capture.
But this is a debate well worth having, and highlighting, even if you can’t “hang it” on big personalities. We like a good human interest story as much as the next blog, but honestly, sometimes we think “people” are overrated. Wealthy and powerful figures like Corzine and Flowers certainly should be put under the microscope, and the BFFs-no-more piece was well reported. Still, the reading public would be better served if abstract discussions that shape our economy and our political system were treated as the main event once in a while, even if they’re “harder to relate to.”
From now on, Scan fans, we pledge to geek out.