A Garden of Weeds?

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To comment go to Facebook, Twitter, or our Youtube channel.  James R. Gorrie, Managing Editor, Absolute Wealth.

Greetings Absolute Wealth readers, from Newport Beach, California…

Thought the financial world might have taken just a bit of a break from the scandals orgy that we’ve witnessed for the past several years…

Ah, but no such luck.

The latest scandal is the collapse of PFG, a relatively small futures brokerage based in Cedar Falls, Iowa with big implications for the industry.

The money lost is relatively small, too, about $200 million.  Mind you, if it was your $200 million lost, then it’s a different story…

But even though PFG is just a fraction of the size of, say, MF Global, industry experts say that the impact of its collapse may be much greater.  That’s because the futures industry has—or had—a spotless record of keeping clients’ money safe.

It also shows that regulatory bodies’ ability to police firms is under some doubt, to say the least…

Crime but no punishment

The sad irony is that many of PFG’s clients were former MF Global clients, who fled with their money when that firm went the way of the dodo.

And true to form, Jon Corzine, its CEO and who also happens to be a former Senator and New Jersey Governor, has yet to see the inside of a courtroom or account for where the money might have gone.

PFG's collapse also comes on the heels of the J.P. Morgan trading scandal that lost, what, $2 billion?  Or was it $9 billion?  Or even more?

And will Mr. Dimon, head honcho at J.P. Morgan, be on the hook for the billions in lost money?  Don’t hold your breath.

Then, of course, there is the growing Libor scandal involving Barclays Bank over in London, where interest rates have been illegally manipulated for years with the apparent approval of our very own Federal Reserve.

Our Treasury Secretary, Timothy Geithner, apparently knew about it since 2007, when he was with the Federal Reserve, but did nothing.

But remember, this party’s been going on for quite a while now…

In government as well as finance…if there’s even a difference anymore.

You remember all of that, don’t you…the whole “too big to fail” chestnut?

Everybody who was anybody was invited…

AIG, all the big banks, GM and Chrysler among others, and of course, the Federal Reserve.

And don’t forget the fabulous party favors: the bailouts, the TARP money, the stimulus money, all $(fill in the blank) trillion of it going to bankers around the world and back again…

One concern for those of us little people who have their money with financial firms is that these scandals now seem to be ever present.

How can anyone have confidence in a system that does not protect your money?

What does this say about the state of the financial industry today?

Are there just a lot of weeds in the garden that need to be taken out…or is it, in fact, a garden of just weeds?

Either way, who’s responsible?

I was chatting with my friend and colleague John Frederick Carter yesterday, and he pointed out that no matter what happens in the financial world, the big banks that run everything will continue to throw money at every problem.

“And why not? “ he told me, “They have an endless supply of it.  All it takes is the push of a button to create it.”

That is likely the case.  In fact, I’m sure it is.  But although it may delay the inevitable with regard to debt issues, it doesn’t address the basic problem that plagues the financial industry as a whole.

As I see it, is not just a recurrent theme of thievery in the financial industry...

But also the widespread nature of it, from small firms all the way up to the biggest firms in the world.

No consequences for the well-connected

Then, there’s also the naked fact that very few of the worst offenders are ever caught, much less pay any restitution for their theft.

Punishment is a very important function in a society, for it reaffirms that society does not condone the behavior…

It shows us that there are consequences for bad behavior, and I don’t mean a seven-figure book deal followed by a seven-figure tour on the speaking circuit.

Look, let’s not be naïve; there has always been fraud and corruption in every walk of life and livelihood.

There does, however, seem to be two big changes that are worth noting these days...

One is the degree of corruption and theft in the financial markets, and the other is that almost everyone seems to not only get away with it, but are further rewarded by it.

At some point, it becomes apparent to even the smallest of the little people, that the higher you are to the top, the safer you are from any kind of punishment for stealing hundreds of million, billions, or even tens of billions of dollars.

That was Bernie Madoff’s downfall, wasn't it?   For all his ill-gotten gain, he didn’t get himself elected to public office or spend enough money to buy his very own politician to provide cover from the law, the silly man.

At the end of the day, what should we make of these constant scandal eruptions in the financial industry from top to bottom?  Are they weeds in an otherwise healthy garden?

Or is it we just don’t want to admit to the obvious?

Not sure when the change took place, but the financial industry looks more and more like…a garden of weeds.

And those are…The Gorrie Details.

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