41 Years After The Death Of The Gold Standard, A Look At "How We Ended Up In This Economic Purgatory"

Tyler Durden's picture




 

Via Kenneth Landon, JPMorgan... Yes, JPMorgan

Landon Lowdown: "Brother, Can You Spare $1.37"?

As we await the latest developments out of the Eurozone and Washington, I take a moment to look back on this very important day in history. If you want to understand current events, then you first have to understand history. How did we get here? More specifically for financial markets, how did we end up in this mess -- this economic purgatory? The answer boils down to a simple proposition on the philosophical level, which I will leave to the reader to identify because my doing so would likely ruffle a few too many feathers. So I will keep the discussion on the concrete-bound level. However, I am willing to say that the political philosophy that drove us to the current state of affairs was responsible for the respective concrete measures implemented over the years. The crisis in confidence that we observe today resulted from cumulative effects of those measures. 

This being August 15, 2012, students of the history of monetary economics no doubt are aware that this is the 41th Anniversary of the breakdown of Bretton Woods. It was on this day 41 years ago that President Nixon defaulted on the promise to exchange gold for paper dollars presented for exchange by foreign central banks. Aug 15th marks the anniversary of the collapse of Bretton Woods and the gold-exchange standard that was established after WW II. (Notice that dollar debasement has been bipartisan over the years: Republicans Nixon and Bush and Democrats Carter and Obama have all presided over major declines in the value of U.S. money.)

The current crisis in the global monetary system pales in magnitude to the sundering of gold from central banks' fiat paper currencies in 1971. That is, we are not witnessing the wholesale dismantling of an entire monetary system. What we are witnessing is a loss of confidence in the current monetary system, which, of course, is equivalent to a loss of confidence in central banks' ability to restore stability. However, the decision to renege on the gold-exchange standard that was made 41 years ago is still reverberating today. In *fact*, many or most of the problems observed today are the direct result of wrong-headed discretionary monetary policies.

What was it that made the current morass inevitable once the paper dollar was severed from gold?

 The answer is simple: fiat paper money that is not grounded in any objective standard can be manipulated at the whim of the issuer. Without the requirement to exchange fiat money for gold or some other commodity, the central bank can issue unlimited amounts, thus making its value subject to extreme volatility and, as we have seen, perpetual debasement.

Chart 1 (above) shows the extent of debasement of the value of U.S. money since 1913 when the Fed was established. To summarize in simple terms, a child with 4 cents in his pocket could buy the same amount of candy in 1913 as his descendant could with $1 in 2012. Today, it takes a quarter to buy what a penny did in 1913. The dollar has lost 96% of its purchasing power since 1913! (using CPI statistics) Once the dollar lost all linkage to gold, its value plummeted at an accelerated rate. Since 1971 when Bretton Woods was intentionally dismantled, the dollar has lost 82% of its purchasing power. 82%! Because Nixon sabotaged the last vestige of honest money, a child in 2012 would need $1 to buy the same amount of candy purchased by children for just 18 cents in 1971.

Monetary debasement has rendered obsolete the expression "brother, can you spare a dime?", which was the title of a 1930's Depression-era song that became a common refrain of panhandlers in those days. In 2012, the equivalent would be "brother, can you spare $1.37?"

 An honestly governed gold standard eliminates "discretionary" monetary policy by centralized authorities (i.e., central banks).

Gold is an honest check on the amount of leverage that can build in the financial system and it limits the amount of money the government can borrow. A government that does not have a captive central bank and fiat paper currency cannot borrow massive amounts of money (think Greece). Fiat paper money managed by complicit central banks remove any discipline of free-spending politicians. Thus, central banking and huge deficit spending go hand in hand.

Let's turn to a former Chairman of the Fed to give some added explanation:

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

 

They have created paper reserves in the form of government bonds which -- through a complex series of steps -- the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of society lose value in terms of goods.

 

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [in 1933]. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

 

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

 

Alan Greenspan, 1966

When Greenspan later rose to a position of prominent political power when named Chairman of the Fed, he disavowed his essay about gold. However, that disavowal does not detract from the truth of his written word. His words stand on their own. (What changed since 1966 was Mr. Greenspan and not the truth.)

We are currently witnessing in both Europe and the U.S. a crisis relating to the financing of the modern-day Social Welfare State that goes to the core of the generally-accepted political philosophy upon which they rest. The resolution of the problem is therefore not as simple as coming up with a new policy that is a derivation of previous ones (e.g., using debt to solve debt). The real resolution will come only after a major shift in political power, if seen at all, that results in a significant reduction in spending of the respective governments. Otherwise, it will be more of the same: a continued decline in living standards and individual liberty in countries experiencing this rot. Profligate central banks are a symptom and enabler of the political rot. They are not the cause.

 

The chart 2 (above) shows the gold content of one U.S. dollar. Today, one dollar buys a pitiful 0.0006 ounce of gold, which compares to about 0.05 ounce a hundred years ago just before the Fed existed. The deprivations that Mr. Greenspan wrote about are illustrated in the sharp decline in the gold content of the dollar.

 

For point of historical reference, Chart 3 (above) shows the silver content of the Roman Danarius between 64A.D. and 270A.D. You can draw your own conclusions.

"Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice."

 

George Washington, in letter to J. Bowen, Rhode Island, Jan. 9, 1787

Sadly, few people understand the process by which paper money leads to "fraud and injustice" as President Washington accurately warned in 1787. If they did, then perhaps days like Aug 15, 1971 would never have happened.

To end with one last quote, this time from a Socialist who knew the importance of gold:

 

You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

 

George Bernard Shaw

Shaw wanted to end the Capitalist system and knew, like Greenspan, that gold stood in the way of a Socialist government from achieving its objectives.

August 15, 1971: A day that will live in infamy.

 

h/t Wallstreetmane 

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Wed, 08/15/2012 - 21:01 | 2708870 Cognitive Dissonance
Cognitive Dissonance's picture

I'd say by hook and by crook is how we got here. The endless details are how this basic fact is obscured and ignored.

Wed, 08/15/2012 - 21:05 | 2708885 I think I need ...
I think I need to buy a gun's picture

I just wanted to thank the guys running this site, (the tylers) without these articles and some contributions from other sites i'd have already gone insane

Wed, 08/15/2012 - 21:15 | 2708905 Unprepared
Unprepared's picture

I thought it was a requirement to be insane to be accepted into the club that which we are not supposed to talk about? Double lives and shit.

Few days ago, across my desk, 2 bank directors chatting:

Director1: So you are into capital markets and shit?

Director2: Yeah!

Director1: I've got an amazing website for you, it's called Business Insider.

Director2: Wait, hold on a sec. [typing] b-u-s-i-n-e-s-s-i-n-s-i-d-e-r-dotcom

Me [to self]: Amateurs.

Wed, 08/15/2012 - 21:22 | 2708928 economics9698
economics9698's picture

The history lesson is great but what is more important, imo, is that people understand the new national bank needs to be restricted to weights and measures.

All banks should have a 100% reserve requirement to prevent the theft.

We need to understand fractional reserve banking, boom, bust, and sound banking.  If we kill the Fed and fiat and go back to unsound banking what have we accomplished?

Wed, 08/15/2012 - 21:57 | 2708997 fnord88
fnord88's picture

meanwhile, the UK is about to invade the soverign territory of Ecuador. Because some guy had consensual sex with two girls, and they later compared notes and felt slutty about it. The mind fucking boggles.

Wed, 08/15/2012 - 22:06 | 2709025 Manthong
Manthong's picture

“Gold is money. Everything else is credit.”

-J.P. Morgan,   testifying to Congress in 1912.

Wed, 08/15/2012 - 23:00 | 2709139 cranky-old-geezer
cranky-old-geezer's picture

 

Gold is money.  Paper is a derivative.

-- COG, testifying on ZH in 2012.

Paper currency is a derivative.  A gamble on some underlying asset.

If paper currency is redeemable for gold (or silver), at a fixed weight and purity stated on the currency, it may seem pretty safe, but it's still a gamble.  You really don't know if the gold (or silver) is there to redeem.

Paper currency separates you from the actual thing of value, gold (or silver) in this case.  You trust someone else to hold that thing of value in "safekeeping" for you, a banker in this case, one of the least trustworthy of all people.

If paper currency is redeemable for gold (or silver), but the amount and purity is NOT stated on the currency, then it's up to the government to say how much gold (or silver) you get, and they can change the amount as they go along.  You're taking more of a gamble now.  Paper currency really is a derivative now, in every sense.

If paper currency is NOT redeemable for gold (nor silver, nor anything else), like our curency is today, not redeemable for anything, it's not a gamble on any underlying asset.   There is no underlying asset.  It's a naked derivative now, like naked shorting stock when you don't have the stock.  It's like betting on the high temprature tomorrow, or next week, or next month, or next year.

Naked shorting used to be illegal.  It wasn't allowed.

But our currency has been a naked derivative since 1971.

Wed, 08/15/2012 - 23:09 | 2709160 francis_sawyer
francis_sawyer's picture

 NIXON'S THE ONE

Campaign slogan of Nixon/Agnew vs. Humphrey/Muskie in '68 (after Bobby Kennedy got his ass shot)...

~~~

Just a bit of history for any Red/BLUE'ers out there who think that Romney or Obama really fucking mean anything, or are worth a minute of your thoughts during the next 3 months...

Wed, 08/15/2012 - 23:32 | 2709196 Bay of Pigs
Bay of Pigs's picture

When did Greenspan "disavow" his gold statement? I'm not aware that he ever did that.

Thu, 08/16/2012 - 00:05 | 2709260 sitenine
sitenine's picture

"Buy Silver Crash JP Morgan."

h/t Max and Stacy

Thu, 08/16/2012 - 00:19 | 2709277 Bay of Pigs
Bay of Pigs's picture

Wrong. Mr Lennon Hendrix

Thu, 08/16/2012 - 00:38 | 2709285 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The Call Heard Round the Blogosphere - The Start of the 'Buy Silver - Crash JPM' Movement:

http://www.zerohedge.com/article/national-inflation-association-silver-short-squeeze-could-be-imminent#comment-289461

Thu, 08/16/2012 - 01:48 | 2709387 slewie the pi-rat
slewie the pi-rat's picture

who made the birthday punch?

the gratefulDead?

Thu, 08/16/2012 - 05:40 | 2709489 GetZeeGold
GetZeeGold's picture

 

 

 

Dead 41 years......and loving it!!!

 

Thu, 08/16/2012 - 08:41 | 2709648 gold-is-not-dead
gold-is-not-dead's picture

I'm not dead, I feel fine. :)

 

 

Thu, 08/16/2012 - 00:37 | 2709307 sitenine
sitenine's picture

? Could you elaborate on that?  And Who the fuck is Mr Lennon Hendrix?

Thu, 08/16/2012 - 00:40 | 2709309 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I am your worst nightmare.

Thu, 08/16/2012 - 00:48 | 2709324 sitenine
sitenine's picture

I'm not impressed.

Thu, 08/16/2012 - 00:54 | 2709332 Bay of Pigs
Bay of Pigs's picture

Read the ZH archives pal. Max stole the idea from Mr Lennon Hendrix.

That is a FACT bitchez.

Thu, 08/16/2012 - 00:57 | 2709335 sitenine
sitenine's picture

ok.  thanks.  I heard it from Max, and was just passing it on.  Why the hostility?

Thu, 08/16/2012 - 01:02 | 2709347 Bay of Pigs
Bay of Pigs's picture

Sorry, no hostility at all. Max has done well with that idea. He just needs to give credit where it is due.

Peace and Aloha bro...

Thu, 08/16/2012 - 01:05 | 2709353 sitenine
sitenine's picture

Righton brother.

Thu, 08/16/2012 - 01:52 | 2709357 Precious
Precious's picture

Some minor 50% drop also occurred around 1915, which apparently has no scapegoat yet assigned.

Thu, 08/16/2012 - 04:55 | 2709471 malikai
malikai's picture

I just want to see if I can squeeze in here. Jeez, it's tight in here.

Thu, 08/16/2012 - 07:41 | 2709568 ZeroSpread
ZeroSpread's picture

Funny little side note - you can squeeze in here until the text reappears on the other side of the right line limiting all comments .. on a long enough squeeze you know even these shorts can tunnel across the barrier.

Thu, 08/16/2012 - 05:02 | 2709475 AldousHuxley
AldousHuxley's picture

da Joos

Thu, 08/16/2012 - 01:02 | 2709345 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

And I will never care.

Thu, 08/16/2012 - 01:03 | 2709348 sitenine
sitenine's picture

Liar

Thu, 08/16/2012 - 01:38 | 2709382 sitenine
sitenine's picture

A funny thing happens when you lie, Mr.  You loose credibility.  Thus I remain unimpressed.

Thu, 08/16/2012 - 04:56 | 2709472 Poetic injustice
Poetic injustice's picture

And you had no credibility to start with, so who cares about your opinion.

Thu, 08/16/2012 - 11:05 | 2710555 sitenine
sitenine's picture

Way to just randomly chime in there. The above message was for Mr, and I assure you that he knows exactly what I'm talking about.

Thu, 08/16/2012 - 00:49 | 2709325 Clockwork Orange
Clockwork Orange's picture

you have not been here long enough, friend.

search the archives ... you will be glad you did.

 

 

Thu, 08/16/2012 - 01:00 | 2709340 Bay of Pigs
Bay of Pigs's picture

My apologies Mr Orange. I didnt scroll down...'

Wed, 08/15/2012 - 23:39 | 2709214 fourchan
fourchan's picture

 

 

96% loss is a lagging value because the ponzie is still going on,

the true debasement is many hundreds or thousands percent worse.

and the true number is what we should be holding top of mind,

as this is where the true value of gold and silver will eventually land,

against and in counter distinction to the worthless script.

Thu, 08/16/2012 - 00:14 | 2709272 Uchtdorf
Uchtdorf's picture

And with that debasement we have received inflation of wages matched with the perfectly communistic concept of the progressive income tax. So because we "think" we make more, we conclude that we should pay taxes at a higher rate. The fraud is so deep and widespread the sheeple just can't believe they've been tooled for 100 years.

Thu, 08/16/2012 - 01:12 | 2709349 Clockwork Orange
Clockwork Orange's picture

Keynsians will (somewhat rightfully) dispute the devaluation of the currency using inflation as a 'reinvestment rate' as their guide.  

If one can earn 3% on savings, that itself will offset the devaluation of the dollar as it will keep up with inflation.

That is why heretics, uhm, I mean, educated Keynsians, dispute the math.  Assuming ones cash earns the rate of inflation, it keeps up with devaluation.

That in turn assumes that one does in fact earn the rate of inflation plus a real rate of return.  If inflation is 2% (a lie) plus a 1% real return on cash for a total of 3% ... one could keep up with the devaluation (which they do not).  

On the otherhand, for those who live hand-to-mouth, they are spending all their cash at current rates of inflation so their purchasing power is intact as long as they keep up with the rates of inflation.  

The big problem occurs when all wages earned and immediately spent do not rise at a TRUE rate of inflation and they suffer a loss of purchasing power.  Such is the situation today.  When the current drought inflates grocery bills further, then Banana-Republic Ben unleashes the next round of QE driving commodities costs and thus grocery bills and fuel bills higher, the deterioration of quality-of-life will increase.

Just check your grocery bill over the past 4 years, and watch what happens in the next 6 months. When wages do not keep up with the rate of devaluation driven inflation, the quality of living will rapidly deteriorate and the serfs will be poorer yet.

The Fed criminals imply that people spending current dollars, and not saving, are only seeing a 2% cost increase.   Therefore, they imply there is no damage.  We all know better than that as Joe Sixpack cannot keep up with mundane living expenses based on the last QE.

Further, those who actually squirrel away some savings are only rewarded with a 0.10% return on cash, well below the rate of stated inflation, and far below the escalating rate of real inflation.  

By putting savers in such a position, the only choice is to invest in risk/real assets and hope they do go up ... quite a risky proposition given the corrupt state of the commodities markets in the face of more currency creation (QE), dollar debasement, and outright fraud rampant in the 'markets' today.  

These tactics are a massive fraud perpretrated on the public, who are deliberately kept ingnorant, in the hopes that things will 'work out'.  Work out it may for those who have assets, 'invested' in the ponzi market system.  For those who have no assets, ultimately they will be screwed severely.

But, worry not, for CONgress and the Fed puppets will profit largely while revolution brews in the trenches ... even for the mathematically deficient who will eventually figure out that they are descending further into serfdom despite the claims of the Keynsians.

A sad plight it is indeed.  But it will be rectified, eventually, peacefully or otherwise.

Math is the king of all equations.

Hence, the preparations of the establishment to monitor, repress, and eventually quell the serfs.

Ugh.

Thu, 08/16/2012 - 06:59 | 2709530 merizobeach
merizobeach's picture

In the immortal words of walstreetpro2, "we all know wages are the last fucking thing to catch up!"

http://www.youtube.com/watch?v=KWu-efNN8PM&list=UUkOjiWEQs7ZgmAGS8kKBN_Q...

Thu, 08/16/2012 - 05:49 | 2709493 Freegolder
Freegolder's picture

As it happens Nixon (without realising it) finally set gold FREE from fiat money.

No longer controlled by govts as part of official money, gold is now en rout to be the world's perfect wealth reserve.

The final piece of the jigsaw is the collapse of the paper gold markets, so that gold is valued purely in its physical form.

Sometime in the next 10 years we will see this.

Don't bother with silver, it's purely an industrial metal, nothing more.

Thu, 08/16/2012 - 06:58 | 2709527 GetZeeGold
GetZeeGold's picture

 

 

 

Don't bother with silver

 

Who needs silver when you have Euros....

 

Biography

Hello from Viale Ciro Menotti, Modena, Italia. I am glad we have the Euro.

 

Welcome to the hotel Italiano. You can checkout anytime you like....but you can never leave.

 

Thu, 08/16/2012 - 01:13 | 2709360 Seer
Seer's picture

Paper currency is just a poorly written "legal" contract... enforced by the very entities that wrote and will enforce said contract...  And to think that the name of "God" is written on it! (those whose God that this is should really be bothered by this!)

Thu, 08/16/2012 - 09:08 | 2709726 ATM
ATM's picture

Not quite the actual quote.

"Money is gold, and nothing else” 

 

Testimony of J. P. Morgan 
Before the 
Bank and Currency Committee of the 
House of Representatives, at 
Washington, D. C. 
Appointed for the Purpose of Investigating an 
Alleged Money Trust in 
“Wall Street.” 
Cross-Examined by Samuel Untermyer, Attorney 
for the Committee 
December 18 and 19, 1912.
 
Pg. 48: 
CONTROL OF MONEY DOES NOT CONTROL CREDIT 
Q. I want to ask you a few questions bearing on the subject that you have touched upon this morning, as to the control of money. The control of credit involves a control of money, does it not? 
A. A control of credit? No. 
Q. But the basis of banking is credit, is it not? 
A. Not always. That is an evidence of banking, but it is not the money itself. Money is gold, and nothing else
Q. The basis of banking is credit? 
A. Yes. 

Wed, 08/15/2012 - 22:37 | 2709102 Advoc8tr
Advoc8tr's picture

I was thinking that myself ... not one single commentator has brought up the curiosity of major governments threatening other governments' sovereignty over an alleged misdemeanor crime in a third juristiction?

It is absolute proof that his fears of being extradited to the US to face capital punishment for 'leaking the truth' are well founded and the continual denial of such by TPTB are a complete baldfaced lie.

Wed, 08/15/2012 - 22:50 | 2709120 fnord88
fnord88's picture

As a long time Australian libertarian i have spent countless hours defending the USA against my left leaning friends. Arguing that despite not being perfect, there is still no better country to lead the world. Arguing that the Bill of Rights, the Deceleration of Independence and the constitution are the 3 greatest documents ever produced. That overall the US is more a force of good than evil. 

The willingness of the vast majority of Americans to ignore what made them great, the willingness to give it all up for a false sense of security, the willingness to believe whatever bullshit is shovelled down their throats by a corrupt government and a compliant media is finally breaking me however. Fuck you all, I hope you burn. It's not TPTB's fault. It's yours. You let this happen, you accepted your thirty pieces of silver and shiny Ipad, and in return you have allowed your masters to first destroy the greatest country the world has ever seen, and then the world. Fuck you all, I hope you burn. 

Wed, 08/15/2012 - 22:55 | 2709129 fnord88
fnord88's picture

or i may just be grumpy cause my girlfriend used all the hot water this morning. Please USA, restore my faith, i really would prefer you didn't all burn. I like the freedom you practiced 100 years ago.

Wed, 08/15/2012 - 23:30 | 2709143 TruthInSunshine
TruthInSunshine's picture

I've tried to limit going off topic as of late, but I am confident this is worth it, as it will be of major relief to all:

Great job, Eric Placeholder! The Honorable Jon S. Corzine is going to be cleared of any allegations of criminal wrongdoing, and then start a Hedge Fund, apparently. On top of that, if there are any criminal charges filed, it will be against a fairly low level employee of the former MF Global. You can't make this shit up:

New York Times DealBook: No Criminal Case Is Likely in Loss at MF Global

A criminal investigation into the collapse of the brokerage firm MF Global and the disappearance of about $1 billion in customer money is now heading into its final stage without charges expected against any top executives.

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

The hurdles to building a criminal case were always high with MF Global, which filed for bankruptcy in October after a huge bet on European debt unnerved the market. But a lack of charges in the largest Wall Street blowup since 2008 is likely to fuel frustration with the government’s struggle to charge financial executives. Just a few individuals — none of them top Wall Street players — have been prosecuted for the risky acts that led to recent failures and billions of dollars in losses.

In the most telling indication yet that the MF Global investigation is winding down, federal authorities are seeking to interview the former chief of the firm, Jon S. Corzine, next month, according to the people involved in the case. Authorities hope that Mr. Corzine, who is expected to accept the invitation, will shed light on the actions of other employees at MF Global.

Those developments indicate that federal prosecutors do not expect to file criminal charges against the former New Jersey governor. Mr. Corzine has not yet received assurances that he is free from scrutiny, but two rounds of interviews with former employees and a review of thousands of documents have left prosecutors without a case against him, say the people involved in the case who spoke on the condition of anonymity.

While the government’s findings would remove the darkest cloud looming over Mr. Corzine — the threat of criminal charges — the former Goldman Sachs chief is not yet in the clear. A bankruptcy trustee on Wednesday joined customers’ lawsuits against Mr. Corzine, and regulators are still considering civil enforcement actions, which could cost him millions of dollars or ban him from working on Wall Street.

Mr. Corzine, in a bid to rebuild his image and engage his passion for trading, is weighing whether to start a hedge fund, according to people with knowledge of his plans. He is currently trading with his family’s wealth.

If he is successful as a hedge fund manager, it would be the latest career comeback for a man who was ousted from both the top seat at Goldman Sachs and the New Jersey governor’s mansion.

A spokesman for Mr. Corzine declined to comment.

Even with the worst behind him, Mr. Corzine’s reputation has suffered lasting damage.

After the collapse of the firm, which left farmers and other MF Global customers out millions of dollars, Mr. Corzine became another face of Wall Street recklessness. Lawmakers called him back toWashington, a humbling return to the town where he once served as a Democratic senator from New Jersey, to seek answers and to criticize him. With a criminal case unlikely to materialize, the anger over the collapse of MF Global is likely to grow.

Typically in white-collar cases, investigators start their interviews with lower-level employees and build up to the top executives of a firm. In July, when federal authorities first approached Mr. Corzine’s lawyers, it was not clear whether he would agree to an interview. But the signs were good. In such cases, if prosecutors have damning information, they often file charges rather than extend an offer for a voluntary interview.

Though he is now expected to attend the meeting, questions remain about which government agencies will join. Because Mr. Corzine still faces scrutiny from regulators, including the Commodity Futures Trading Commission, their attendance could pose a problem. These agencies, which have a lower bar to proving civil wrongdoing than do criminal authorities, are examining whether top executives misled investors about the firm’s health and failed to protect customer money.

The C.F.T.C, the Federal Bureau of Investigation and theUnited States attorney’s office inManhattan declined to comment for this article.

As the government’s focus shifts away from Mr. Corzine, it remains interested in a lower-level employee in the firm’s Chicago office, who was known as the “keeper of the books” at MF Global. That employee, Edith O’Brien, oversaw the transfer of customer money during the firm’s final week, when the client cash vanished into the hands of banks, clearinghouses and even other customers.

Ms. O’Brien, an assistant treasurer, has declined to cooperate with authorities without receivingimmunityfrom criminal prosecution. The government is hesitating to grant her request, suspecting that Ms. O’Brien is the highest-ranking employee with potential liability, one of the people involved in the case said. Ms. O’Brien has not been accused of any wrongdoing.

If Mr. Corzine agrees to a meeting next month with the F.B.I. and federal prosecutors, the authorities are expected to question him about his interactions with Ms. O’Brien. But Mr. Corzine is unlikely to offer damning evidence or a critical view of Ms. O’Brien, another person briefed on the matter said. The statements Mr. Corzine provides cannot be used against him under the expected terms of the interview, but authorities can use it to build their broader case. And if Mr. Corzine were to arouse suspicions during the interview, he could find himself a target.

Mr. Corzine has already given his version of events publicly. In Congressional testimony last year, he detailed an exchange he had with Ms. O’Brien days before the firm’s collapse. The back and forth involved a $175 million transfer to JPMorgan Chase to cover an overdrawn account. The transfer, it turned out, came from customer money.

But internal e-mails suggest that Mr. Corzine did not know the origin of the funds. An e-mail reviewed byThe New York Times shows Ms. O’Brien explicitly stated that the money belonged to the firm, not customers. It is possible that with the books in disarray, Ms. O’Brien was not aware that customer money was in jeopardy.

A lawyer for Ms. O’Brien declined to comment.

While Mr. Corzine also testified that he never authorized or intended to authorize the misuse of customer money, his risky trading strategy helped pave the firm’s downfall.

Known as an obsessive trader who had the highest returns at the firm, Mr. Corzine frequently inhabited a desk on the trading floor. One visitor to MF Global recalled that during a tour of the firm’s Manhattan headquarters, his guide suggested that if he “stuck around” he might catch the chief executive trading a few million dollars in bonds.

As the firm’s leader, Mr. Corzine was upbeat about its future, writing an e-mail to employees in January 2011: “Let’s be an example of how to do it right and play a leadership role in restoring confidence in our industry.”

But a $6.3 billion wager on the European sovereign debt proved fatal. The size of the bet was enough to wipe out the firm many times over, and as questions about Europe’s health grew, a run on MF Global ensued. In the panic, the firm tapped customer money to stay afloat, which scuttled a last-minute deal to save the firm. Mr. Corzine resigned just days after the firm filed for bankruptcy.

Wed, 08/15/2012 - 23:31 | 2709195 aka Gil
aka Gil's picture

They are committing crimes in broad daylight with impunity. This is fascism without storm troopers and swastikas. Nice job boyz, well done. Fuck you Jon S. Corzine.

Wed, 08/15/2012 - 23:33 | 2709199 TruthInSunshine
TruthInSunshine's picture

Don't you mean The Hon. Jon S. Corzine?

Thu, 08/16/2012 - 00:49 | 2709322 Atomizer
Atomizer's picture

 

 

“This Federal Reserve Act establishes the most gigantic trust on earth. When the President Wilson signs this bill, the invisible government of the monetary power will be legalized. The worst legislative crime of the ages is perpetrated by this banking and currency bill.” 

 – Charles A. Lindbergh, Sr. , 1913

What country is not part of the Central Banking [Sleazing] Ponzi Scam? Iran. Ditto heads repeat the same WMD story to reel in the following consent. 

  • Name Calling
  • Glittering Generalities
  • Transfer
  • Testimonial
  • Plain Folks
  • Card Stacking
  • Band Wagon

http://mason.gmu.edu/~amcdonal/Propaganda%20Techniques.html 

We're going to convince the proles of new dangers so we can offset the EU debacle. We call it, killing two birds with one stone. Hahahahahaaha!

Thu, 08/16/2012 - 09:12 | 2709744 kill switch
kill switch's picture

 

This is fascism without storm troopers and swastikas. Nice job boyz, well done.

 

Yes now we have:

Infagard

Threat fusion centers

FEMA Camps

30,000 Drones being ordered by the DHS Plus 7,400,000 rounds hollow point. 175,000 rounds for socisl security..That's right, when the old folks don't get that check the SS office will not be a good place to hang around.

F.B.I. Gone rouge

NSA in Utah

And 300 other such sanboxes.

 

 

Just a thought: Where are we going to get commercial airline pilots with all the unmanned alternatives being used against us? Fly a drone you just need a joystick and a cup of joe.

 

Thu, 08/16/2012 - 10:43 | 2710418 i-dog
i-dog's picture

 

"fascism without storm troopers"

It boggles the mind that they can't, errr, refuse to, see them everywhere! And you didn't even mention the TSA!

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