This was originally posted on May 25, 2012.
Board members and event organizers Walker Todd and Elizabeth Currier spotted me during my first appearance on the Max Keiser TV show talking about MF Global. (I was on Max Keiser again this week again talking about JP Morgan, MF Global, and Goldman Sachs. What do those three have in common? Faithful readers will know. Answer below.)
The Committee describes itself this way:
The Committee for Monetary Research & Education, a non-profit educational organization, seeks to promote greater public understanding of the nature of monetary processes and of the central role a healthy monetary system plays in the well-being, indeed, in the very survival of a free society.
That’s a long way of saying that the focus of the Committee is to educate others and keep themselves informed about monetary policy and, in particular, a return to the gold standard. A quick glance at some of the suggested readings on the site betrays the flavor of many of the speeches I listened to on May 17th. ( I stayed until the bitter and triumphant end and a speech by Edwin Vieira that finished after 10:00pm.)
There’s lots of experience, history and passion in this group.
Book review of Frederick Sheehan’s Panderer to PowerRead Bill Bergman’s excellent review of Frederick Sheehan’s 2010 book Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, which provides us a window into the sources of the worst financial and economic crisis since the Great Depression. Part I Part IIA World in DebtA World in Debt, by Freeman Tilden. Tilden’s masterful work examines the nature of credit and its inverse, debt. He explores the aspects, theories, colorful history, and the inevitable collapses of this most dangerous of financial innovations.Authoritarian Audacity is Going To CrashAuthoritarian Audacity is going to Crash by Bob Hoye (in PDF format)It’s in the Law!AMERICA HAS NOTHING TO FEAR BUT FEAR ITSELF by Dr. Edwin Vieira, Jr., Ph.D., J.D. There is mounting concern these days about the fragility of America’s monetary and banking systems, and especially about the possibility that, as a result of foreigners’ loss of confidence in the Federal Reserve Note as a viable world-reserve currency, huge amounts of foreign holdings of “dollar”-denominated instruments of credit may suddenly pour into America’s domestic economy, to buy up hard … Read more
To be honest, I don’t think too much about gold, since I’m allergic to wearing it. I stick to silver after all those years in Latin America. Last year while I was covering the Berkshire Hathaway Annual Meeting, silver prices jumped from about $25 per ounce at the beginning of the year to almost $50. I joked to Matthew Bishop of the Economist that I was wearing my retirement savings on my wrists.
The study of monetary policy and theories of money is also not for amateurs. I had my fill of Federal Reserve Bank Presidents at the Milken Institute Global Conference. They seemed more befuddled than brilliant. One of the speakers at the CMRE event reminded the audience that anyone who gets to a senior policy level at the Federal Reserve or Treasury is a politician first and an economist second — if he’s even a decent economist to begin with.
My speech focused on the lack of official response to so many frauds. These frauds are waking up that part of the 1% that’s not part of the 0.1% even above them. For every 1% member who thinks they know what’s going on, there’s someone, lately connected to the Fed, that knows more. And it’s not public information. So even very experienced veterans of the futures business lost money because of MF Global. Even the highly educated, mostly extremely well-heeled crowd at the CMRE event – there was a Prince and a Princess in the room – are mad at the sham being perpetrated under cover of supposedly legitimate regulation and governing.
Here’s my speech, which perhaps by default but more likely by careful design over so much time covering these issues, ended up indicting PwC. When I came to the part of the speech that revealed this connection to all the scandals I had discussed earlier, there was an audible gasp from the audience.
That was fun.
A man becomes preeminent. He’s expected to have enthusiasms.
He’s also likely to demonstrate hubris. In ancient Greek, hubris referred to actions that shamed and humiliated the victim for the pleasure or gratification of the abuser. The term had a strong sexual connotation, and the shame reflected on the perpetrator as well.
I’ve only got twenty minutes so I won’t go into my speculations about the sex life of John Corzine of MF Global. Or Aubrey McClendon of Chesapeake. Or Jamie Dimon of JP Morgan. Or Walter Noel and Jeffrey Tucker of Fairfield Greenwich. Perhaps Maria Bartiromo should survey Fortune 500 CEOs to see how long their mothers breastfed them.
Dimon, McClendon and Corzine were all dual CEOs and Chairmen. McClendon was recently stripped of the Chairman’s title. Corzine still had it when the ship went down and was even playing hooky as Chief Trader. Dimon beat proposals this week to limit his power at JP Morgan and is also on the board of the New York Fed. Who said there were no more imperial CEOs after Jack Welch retired?
Dimon is even Greek.
The word, hubris is also used to describe the actions of those who challenge the gods or their laws, especially in Greek tragedy, resulting in the protagonist’s fall.
Corzine’s actions at MF Global set in motion a tragedy, for the company and its employees and other stakeholders as well as for him personally. He may work in this town again, but suffice to say his name will never be the same.
Aubrey McClendon of Chesapeake is often described as lion-maned, giving his good looks and swagger almost mythical qualities.
Jamie Dimon is eating crow a bit right now. He may say he never put himself on a pedestal but others certainly did and he never tried to stop them. His rhetoric regarding restraints on bankers and banks has become stronger and bolder in the last year. JP Morgan came out of the crisis the strongest of the major money center banks, at least by reputation, and Dimon had a reputation a tough but effective boss. The schadenfreude or Dimon-freude going around now as a result of the “egregious” errors the bank made on his watch is to be expected and may stick with him.
In an American Banker column in January, I predicted that not only would Corzine have to answer for MF Global, in spite of his political ties to President Obama but perhaps because of them, but Jamie Dimon would also be tainted by the fallout from MF Global.
The list of JP Morgan’s sins are long. You just hadn’t heard them recited all together and in one place so much before because Dimon’s arrogance, confidence and seeming competence shielded the bank for the kind of scrutiny the others Citigroup and Bank of American in particular have been suffering under for a while. JP Morgan was also MF Global’s primary banker.
Fairfield Greenwich is the investment fund that was the largest group of feeder funds to Bernie Madoff’s Ponzi scheme. More than $15 billion in 2006 and up to $29 billion in 2007 of Fairfield Greenwich investor’s money was invested Madoff across various funds all over the world.
Madoff, of course is the king of hubris and his hubris has certainly caused financial and human tragedy to many.
There’s another common thread besides a man with hubris for the four cases I mentioned – MF Global, Chesapeake, JP Morgan and Fairfield Greenwich.
All of these firms are audited by PricewaterhouseCoopers LLP.
The current Global Chairman of PwC is Dennis Nally.
What does he say about fraud and illegal acts that occur on his watch? You may recall PwC was the auditor of Satyam, a $1 billion fraud in India where the firm was sanctioned and fined in April of 2011 by the SEC and the auditing regulator, the PCAOB, for ignoring their obligation to perform an audit
An interview with Nally in the Financial Times entitled, The Man Who Would Be Biggest, on June 26, 2011, barely two months after the Satyam sanctions, included this snippet:
Mr Nally crosses his arms across his monogrammed shirt, for the first time looking a touch defensive.
“There are professional standards out there [and] an audit is not designed under those standards to detect fraud,” he says, pointing out that detecting fraudulent behaviour rests on other indications including a company’s governance, management tone and control systems.
His predecessor, Sam DiPiazza, had this to say to the Indian press when the Satyam fraud broke in early 2009:
“What we understand is that this was a massive fraud conducted by the (then) management, and we are as much a victim as anyone. Our partners were clearly misled.”
Sam DiPiazza, whose firm PwC audits Bank of America, JP Morgan, AIG and Goldman Sachs, took a post-retirement Vice Chairman slot with Citigroup. Another former PwC Global Chairman James Schiro is now the lead Director and Audit Committee Chairman at his former client Goldman Sachs. Tim Flynn, retired Global Chairman of KPMG, whose firm audits Citgroup and Wells/Fargo/Wachovia as well as the former New Century Financial and Countrywide now owned by Bank of America, took a post-retirement Audit Committee position on the JP Morgan Board of Directors. It doesn’t take a CPA to see that the independence between the global audit firms and major financial services firms is impaired.
I’m not hopeful that executives and directors will be held accountable at MF Global, Chesapeake, and Fairfield Greenwich when even the watchdogs, the auditors who are supposed to be fulfilling a public duty to shareholders and the capital markets, are full of hubris.
No one has called PwC to testify before Congress about their lack of scrutiny of the “chaos” at MF Global that caused $1.6 billion of customer funds to “vaporize”. No one at the SEC or DOJ has yet announced an investigation of PwC and how the firm missed or was complicit in MF Global.
There’s no one protecting your money, or your gold, in the end, but you.