Following the MF Global debacle is like reading one of those telephone-book-sized Russian novels. So many characters, such intricate strands of plot and subplot, so much to think about. It's easy to lose your way, to dwell on secondary issues while letting the main theme, the moral of the story, slip away.

The moral of the MF Global story? A CFTC regulator captured it. "If people are determined to misuse customer funds," he told the New York Times, "they will misuse them."

Like any attempt to distill a complicated tale, this oversimplifies. It's akin to reducing the 1,500 pages of the most famous Russian novel, War and Peace, to "Large, impersonal forces drive history but individuals' decisions still matter."

Yet oversimplify we must. If we don't try to grasp what facts mean we risk drowning in them.

When the full story of MF Global is finally written, it could easily occupy 1,500 pages. The commodity broker's demise raises countless issues: The adequacy of current regulations on the use of segregated customer funds; The role of regulators, auditors and credit-rating agencies; The lobbying of MF Global's CEO, Jon Corzine.

And more: The lack of an insurance fund for futures contracts similar to the one protecting securities accounts; The ranking of customers vs. other creditors in bankruptcy proceedings; The willingness of banks to finance ag hedgers' margin calls if customer accounts are as risky as MF Global's collapse makes them look.

There are others, too, but in the end the CFTC regulator quoted in the Times nailed it: If people are determined to break the rules and misuse customer funds, it's hard to stop them. That's what it boils down to.

Still not convinced? Try asking yourself what we learned from the scandal. What could we do to prevent future MF Global-like calamities?

Stiff jail sentences, you might be tempted to say. Well, depending on what the Justice Department investigation turns up, the MF Global perpetrators, whoever they are, could end up in the hoosegow. It's far from clear, though, that doubling the possible sentence would double the deterrent effect. Murder merits the death sentence in many states but some people go on murdering anyway.

Better regulatory enforcement is tempting, too -- but is it realistic? To monitor every ledger entry in every account would require an army of enforcers that our cash-strapped government can't afford. And short of every entry being monitored, someone determined to misuse funds can always find a window of opportunity. Investigators believe most of the suspicious MF Global transactions took place in the weekend before the broker filed for bankruptcy, when there were auditors and regulators on the scene.

Stiffening the regulations to forbid any touching of customer funds under any circumstances is yet another possibility. That might help. Then again it might not deter the determined thief -- or the desperate in-house trader who has gambled and lost and is borrowing customer funds in hopes of covering the shortfall with a winning bet later. If people are determined to misuse customer funds, they will misuse them.

The dreary moral to this dreary story is the imperfectability of man. We can build systems and pass laws to diminish temptation, to discourage human frailty's misdeeds, to keep as many of the innocent as possible out of harm's way, to compensate for the resulting injuries. We can (and should) strive to improve ourselves and our world. We can make progress. We have made progress.

Still, realism demands we approach the task with humility. There are limits to our ability to impose virtue and obliterate vice. There are unintended consequences to every step we take in the name of reform. As the MF Global story unfolds, as the twists and turns of the plot become clearer, we may learn lessons that will help us do better in the future. Or we may find that the best we can do is to insure customers against future misuses of their funds.

But stop people from making bad decisions that have colossal consequences? That's as difficult in financial entanglements as it is in Russian novels.

Urban C. Lehner

Vice President, Editorial

DTN/The Progressive Farmer

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