Twenty years ago, I trembled as a dangerous storm called Camille churned in the Gulf of Mexico directly toward me and my family in Baton Rouge, La.
We taped the windows and brought in provisions to prepare for this ominous menace. Luckily for us, one of the century`s worst hurricanes shifted direction a few hours before landfall and slammed into the Mississippi Gulf Coast, leaving behind a war zone of devastation.
I shall never forget the cavalier attitude of some who waited for this monster. They did not respect the power of 200 m.p.h. winds. One group decided to have a hurricane party and ride it out in their luxury apartment building at Pass Christian, Miss. They all died.
I feel safer in Chicago. Hurricanes never come to Chicago, they tell me, not even the forceful remnants of one. Chicagoans do not fear hurricanes as Southerners do.
They should. Hurricane RICO blew into town Wednesday, aiming its ferocity at corruption on the floor of the Chicago Board of Trade and the Chicago Mercantile Exchange. A law aimed at white-collar crime, RICO stands for racketeer influenced and corrupt organizations.
In the realm of law and finance, RICO packs the destructive force of a Camille. Directly or indirectly, it brought about the indictment of 46 futures traders, accused of cheating their customers. Before it departs, it will sweep up perhaps three times this many, if not more, and damage or destroy their lives.
Whether it`s an abusive law-and it probably is-seems irrelevant at this point. The Justice Department unleashed RICO`s full force on Chicago after finding what it regarded as pervasive corruption from tape recordings made by FBI undercover agents. No markets, it felt, especially the world`s largest futures markets, should be permitted to operate with such flagrant disregard for their customers.
Atty. Gen. Dick Thornburgh and U.S. Atty. Anton Valukas clearly feel that Chicago`s pits reek with such criminality that nothing less than a legal hurricane is required to clean them up. Now they will use RICO to ”trade up,” to pressure traders to turn state`s evidence against the big fish at the exchanges, much in the way that RICO was used to get Michael Milken on Wall Street.
But how are the exchanges reacting? The closest parallel I can think of is that group of unfortunate people who tried to ride out Camille in Pass Christian, only to pay for failing to comprehend the storm`s deadly velocity. Perhaps the paucity of big fish in the first round of indictments has brought them a false sense of security.
To the indictments, they have countered with tepid technicalities that will neither ferret out the cheating nor give the markets protection from the consequences of having raw and ugly corruption bared for the financial and political world to see.
Chicago`s role as the preeminent risk-management capital of the world is at stake. The hog-butchering, grain-stacking city of big shoulders no longer can claim comparative advantage in contending for this title. Because of modern communications, futures no longer have to be traded close to where grain is stacked and hogs are butchered. And they don`t stack or butcher here any more.
Still, these markets are bigger and more important to the city, the region and the nation than their current stewards or their prejudices about good market operation. The Justice Department is operating under this theory, and so will Congress, as it begins to perceive the threat of losing the futures industry to foreign competitors.
In a world of rising financial risk, many international companies need a place like Chicago`s futures markets to hedge against the uncertainties of the global economy. In recent years, they have discovered the efficiencies of futures contracts over more cumbersome means of risk management. With increasing use, they also found that with such efficiency came skimming, big and small, on a scale that only Chicagoans can appreciate.
Twenty years ago, these markets were parochial dens run by parochial lords-brash, freewheeling, and wide open, like Chicago of the old days. These traditions linger, but large corporations with computers that can track trades instantly will no longer tolerate seeing their money disappear before their eyes to bucketing, curb trading, prearranged trading and the myriad of other schemes known chiefly by dishonest traders.
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Who pleaded for the Justice Department to step in and conduct the investigation? The initial impetus came from a large grain firm operating worldwide, but other companies have cheered on the prosecutors. They are saying to Chicago: Clean house.
Self-regulation will last only if self-regulation responds to this crisis-and make no mistake about it, this is a crisis. Training cameras-with no ears to hear of illegality-on traders, as the Merc announced the other day, seems inadequate, as do many of the other measures proposed or in place. One of the causes, dual trading, continues to thrive. Self-regulation needs more self-determination by the exchanges.
One bill that may emerge from Congress would authorize the Commodity Futures Trading Commission, once widely known in Washington as the industry`s paper-tiger regulator, to put its own undercover agents on the trading floors. This would be a clear admission that self-regulation has been a failure.
The exchanges can use Hurricane RICO as a tremendous opportunity for reform, to demonstrate to the business and financial world that they will act decisively to find and punish corruption wherever it exists. With this attitude, they have a good chance of keeping the futures markets here and making them the strongest, cleanest and most efficient in the world.
They also could choose to ride out the storm, knowing that all hurricanes sooner or later blow over. They have seen these reform movements rise up in the past, and they have outlasted all of them up to now, clinging to their parochial corruptions.
But this is no ordinary storm. This is RICO, the meanest, toughest, strongest storm of this century. I can only hope the exchanges do not underestimate the destructive capability it threatens for them, their reputations and the Chicago economy.