Thursday, February 2, 2012


American Heritage Dictionary: kak·is·toc·ra·cy
n., pl., -cies.
Government by the least qualified or most unprincipled citizens.

If there was one word to sum up the MF Global bankruptcy, "kakistocracy" qualifies better than any other I can think of.  Every level and entity involved from MF Global, CME Group, the CFTC, all the way up to the Executive branch of government has all proven to be a kakistocracy of oversight and regulation.  How an industry filled with numerous brilliant minds to be overseen by a kakistocracy often left me puzzled at how it could happen and the easiest answer I can think of is that the futures industry is run with a brokerage mentality rather than a trader mentality since very few actual traders are in positions of power and are largely crowded out by those with ties to the brokerage industry.  There is a tremendous difference between the two and Ayn Rand wrote well on what defines a trader mentality:

"The symbol of all relationships among [rational] men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot, are traders, both in matter and in spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws. A trader does not squander his body as fodder or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirit—his love, his friendship, his esteem—except in payment and in trade for human virtues, in payment for his own selfish pleasure, which he receives from men he can respect. The mystic parasites who have, throughout the ages, reviled the traders and held them in contempt, while honoring the beggars and the looters, have known the secret motive of their sneers: a trader is the entity they dread—a man of justice."

To hear the CME's CEO respond to a question on the earnings call today of the exchange losing it's regulatory powers in the wake of the MF Global bankruptcy by mentioning how things have historically been managed well was hard to accept.  One of the first sayings I ever learned in a trading pit was "you're only as good as your last trade" and that last trade for CME was a disaster.
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