[Axhandle]

I was shocked to actually stumble across a decent article on msn.com. I'm not sure if slate.msn.com is related to the leftist slate website, but regardless this article raised some great free-market issues - about how the foundation for a successful business is trust, integrity, and competence, rather than shifty schiesters and exploitation of workers. Granted it discusses a business going down the tubes, but it explains why it happened and in the process highlights the fundamentals of successful businesses. This would almost make a good fable for a young kid beginning to learn about economics.

FYI - there are a bunch of hyperlinks in the text that don't show up when I post this at FR.

[b4its2late]

(Scandal connoisseurs will recall that Refco was Hillary Clinton's commodities broker.)

I'm shocked.

[raybbr]

Refco was a model 21st-century business—a highly digitized, high-tech services company that traded complicated financial instruments on behalf of customers all over the globe. But its meltdown shows that its real assets were not its New Economy algorithms and brainpower. Rather, this extremely modern company depended ultimately on the kind of assets that built American capitalism in the 19th century: trust, integrity, and the personal reputation of executives.

[the invisib1e hand]

refco's failure, though shocking in its speed, is equally awesome for its orderliness and nothing could be further from a "bank run" than what happened at Refco. Very few, VERY few of their futures accounts have flown and that business will apparently be picked up by another going concern about as seamlessly as possible.

The sorts of sensationalism that swirls around things like this are really nauseating.

[investigateworld]

Thanks Ax, the writer simplified enough that even my grandkid could understand.
Toddster what's your take on this?

[John123]

What happened to all the accounts of individual traders? Did they recover all the funds in their accounts?

[Cicero]

Just a minor note, but I hadn't recalled this little detail: "(Scandal connoisseurs will recall that Refco was Hillary Clinton's commodities broker.)"

[cake_crumb]

It was a trading company, not a bank. The company was powered by the Clinton school of economics. Refco's assets were based on valuation based on book cooking rather than hard currency. Its demise was so swift because investors knew Refco couldn't pay actual debts or cover assets with virtual cash.

[Thebaddog]

Did Refco have Chicago roots?

[prairiebreeze]

It's bad enough when the CEO hides hundreds of millions in debts. But the worse part of what happened at Refco, and what took them down in the eyes of customers, was the public admission (a necessary admission of course) that their accounting was tainted going all the way back to at least 2002.

[prairiebreeze]

And it had been getting more and more respectable.

This is also true. Many honest and ethical people worked hard toward that goal. All to have it taken down by a couple of slick greedy executives.

[DoughtyOne]

I personally like that bit about Hillary's cattle futures. "...and it had improved it's reputation..."

LMAO

Yeah, from scurvey bottom, everything is up!

[Jackson Brown]

What most here seem to be unaware of -- or just fail to mention -- is that the money for individual accounts were SEGREGATED from the company's....therefore no individual account was in jeopardy.

Here is one area where government regulation is called for....they audit the segregated funds -- through the bank that holds it -- quarterly to keep customer money safe.

[traviskicks]

I don't know much about this company or any more than just the story that was posted, but.... my reaction is that this is an example of the market policing itself:

"Once the trouble was announced, Refco's customers wondered whether it was wise to do business with a company whose internal controls were so weak that it didn't know its own CEO was hiding a nine-figure debt. So, the demise was swift. (Here's the nasty five-day chart.) Within two days of the announcement of the discovered debt, Refco had to shut its nonregulated capital-markets subsidiary because it lost liquidity. In other words, people no longer trusted Refco to make good on trades. Customers began to yank funds, clients started to steer business elsewhere, and employees began furiously to look around for new gigs."

From a libertarian stance, this sort of thing seems positive. Again, this is admittidly a knee jerk reaction... :)