Reuters Breakingviews columnists break down how the Dodd-Frank financial regulatory reform legislation still wouldn’t have caught problems at a smaller firm like MF Global.
“Clearly MF Global is not going to be considered a systemically important institution, so those rules … even those rules are very sketchy in terms of what they do that’s new,” said columnist Reynolds Holding.
Columnist Antony Currie added, “If you think about what the banks, the big banks are allowed and not allowed to do, or what they soon won’t be allowed to do, think about leverage. None of the banks or investment banks that we usually cover as the big banks are allowed to have big leverage now. Lehman went under with, like, 30, 33 times gross leverage. We don’t have that now; they’re all down in the teens. But MF Global had 30-, 40-plus leverage at various points.”
“Right, so it’s like â€¦ that kind of risky activity has been pushed down to these smaller outfits,” said Breakingviews’ Assistant Editor Richard Beales, responding to Currie.
“Well, in fact, Jon Corzine, who runs it, of course came out publicly last year and said we can go after some of the business the big banks cannot,” Currie said. “He was very happy to go after risk; they were very, very happy â€“ rarely for an investment bank â€“ to say we are very happy taking proprietary positions.”
Also worth noting in the video, the Breakingviews columnists remind us that MF Global is a remnant of the defunct Refco, which collapsed amid fraud in 2005.