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A Bet for Bullard

Bruce Krasting's picture




 

James Bullard (St, Louis Fed head) was on TV this morning. He said a number of things that I thought were off base. The biggest was his comment on the collapse of MF Global.

 

 

Bullard was pretty smirky about the ending for MFG. He was “pleased” with the outcome. He actually smiled.

 

I understand why Bullard thinks this is a story with a happy ending. Here we are, three weeks since the demise of the firm and as of yet there has been no crisis that has befallen the markets. Bullard made clear that there has been no bailout of a financial firm this time around and that the system is working as it should.

Okay Mr. Bullard I'll make you a wager. A six pack of your favorite beer. Give the MFG story another month and it will be a problem. It will undermine markets. It will impact confidence in our financial system. It will impact liquidity. As those things occur it will force both Treasury and the Fed to take actions. While those actions may not take the form of any direct bailout of MFG and/or its customers there will be a significant cost to the broader economy.

I would have agreed with Mr. B if it were not for the problem of $600mm of missing client money. There has been a massive effort by forensic accountants and the FBI to locate the loot. As of last night, no one has been able to find it. Three weeks into this and no one can find it? I would call that a crisis in and of itself.

It is now clear that something has happened that should never have happened. Seg. Account money has been lost. This matter is far from over as Bullard suggests. There will be ripple effects.

I’m amazed that there has not been a market consequence to the MFG affair. It’s possible the larger issue of the ongoing collapse in Europe has, so far, masked the importance of this event.

I’m amazed that the Treasury Deportment has not spoken out after three weeks. Everyone who operates in markets understands risk. But in my mind (and in many others) I went to sleep every night knowing that the money I had had in a trading account was segregated and therefore safe. It’s not possible to do that any longer. That’s a very significant change.

I’m amazed that there has not yet been any evidence of money moving out of second tier brokerage accounts. Should we get a confirmation that money is moving, it’s likely that contagion will occur.

I have no doubt that money in seg. accounts at the likes of Merrill and Morgan Stanley is safe. That does not matter. The cheapest thing one could do is put cash outside of seg. accounts. The most expensive thing one could do is leave it there and face a loss of principal. It’s a very lopsided risk and reward.

Are we on Mr. Bullard?

.

 

 

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Fri, 11/18/2011 - 04:34 | 1890596 oldman
oldman's picture

Hey Bruce,

a few questions about a well written article:

If you think three weeks is a long time and 600million a lot of money, What did you make of the Pentagon misplacing a trillion or so abot 11 years ago? Has it ever been accounted for? Etc., etc.---------------------------------

Don't you you remember a few wallstreet firms in the early eighties who used to lose client's money for a few days or weeks in the mail or mailroom when it could have been earning double digits in a mm account?

I agree that the lost 'segregated funds' are a big deal and the evidence seems to be the apparent liquidation of gold miners and gold today, so why has there been no effect as of yet? Or maybe the geniuses that got us here are 'seeing' deflation and selling gold to buy bonds-----I don' t know

that's why I'm asking           om

Fri, 11/18/2011 - 02:04 | 1890484 TheArmageddonTrader
TheArmageddonTrader's picture

Bruce I assume your tongue is planted firmly in cheek as you say that you're sure client funds in other bigger brokerages is segregated and therefore safe. What this incident proved is that such " Chinese walls" can easily be torn through in a dying brokerage's panicked final days.

Reportedly MF's segregation passed an audit just a few days before bankruptcy and the "oops where's that $600 million" moment. Did crappy auditors not really check? Did a custodial bank seize the money? Did MF itself use the money in a desperate attempt to cover margin calls, or a last minute embezzlement? After this much time I'm expecting a convoluted tale.

Fri, 11/18/2011 - 07:12 | 1890687 Bruce Krasting
Bruce Krasting's picture

Of course I could be wrong about Morgan and Merrell.

I worked on Wall Street for a long time. I worked in wire houses. There was only one rule that we really ever lived with. Don't fuck with client money.

This is the oldest rule on Wall Street. You can cheat every which way but you can't screw a customer by stealing their money. For that you go to jail.

So I say that the other guys are clean on this. But I'm not sure any longer.

b

 

 

Fri, 11/18/2011 - 11:35 | 1891271 Elmer Fudd
Elmer Fudd's picture

"I worked on Wall Street for a long time. I worked in wire houses. There was only one rule that we really ever lived with. Don't fuck with client money. This is the oldest rule on Wall Street. You can cheat every which way but you can't screw a customer by stealing their money. For that you go to jail."

BK, I'n not so sure this is the gospel that it once may have been here in New Bananamerica.  Its really sad.

 

Fri, 11/18/2011 - 01:51 | 1890466 cdskiller
cdskiller's picture

Bruce, nothing FORCES the Treasury and the Fed to take action. They take actions to protect their friends from losses, but they have a choice. The system is not a machine. It is a cabal.

Fri, 11/18/2011 - 00:07 | 1890252 Escapeclaws
Escapeclaws's picture

Maybe the missing $600 million has joined the $20 trillion in secret offshore accounts that are laundered by prestigious London financial institutions so as to become untraceable.

Thu, 11/17/2011 - 23:58 | 1890230 Eireann go Brach
Eireann go Brach's picture

Bullard is also a Fucking CUNT!

Thu, 11/17/2011 - 21:59 | 1889963 TCB963
TCB963's picture

...and why is it with $600+ million 'missing' that Corzine is still walking the streets of NY unfettered instead of contemplating his future (or lack thereof) behind bars????

Thu, 11/17/2011 - 20:49 | 1889810 sasebo
sasebo's picture

Just another pompous, pretentious asshole. What else is new? The world is full of them. Just waiting on Dr. Paul to take over.

Thu, 11/17/2011 - 20:29 | 1889760 ZackAttack
ZackAttack's picture

A lot of shit is going to wind up like accounts at MF Global. We're entering a time where, if you don't physically have it in your hands, it really isn't yours.

Why anyone, anywhere, would have an account with a firm that does its own prop trading is a mystery to me.

You know perfectly well that if one firm did it, they're all doing it.

Fri, 11/18/2011 - 01:44 | 1890455 OCTOPVS
OCTOPVS's picture

CME Floor quote..."The only way for me to buy...is for him to sell"...MF is solely a caualty of a very very raw marketplace...

Fri, 11/18/2011 - 01:37 | 1890448 Bananamerican
Bananamerican's picture

once more, for the kids...

"the only way to win, is to not play"

Hate the playas AND the game

Thu, 11/17/2011 - 19:45 | 1889651 Nate H
Nate H's picture

my bet is that its criminal - and thats why they havent said anything yet - if it was admin or clerical we'd have heard the story. Also possible is something more systemic but I havent heard boo on that - someone up high did something very wrong is my guess. and prosecution/prison (or suicide) in near future..

Thu, 11/17/2011 - 19:21 | 1889577 Rob Jones
Rob Jones's picture

Are you sure that you spelled his name correctly? I kind of thought it began with a "D".

Thu, 11/17/2011 - 19:19 | 1889568 Tic tock
Tic tock's picture

BK, how about a bit of your color on the SNB's medicine chest?

Thu, 11/17/2011 - 23:05 | 1890095 Bruce Krasting
Bruce Krasting's picture

medicine chest? I think they are taking Prozac. They have made the biggest gamble in central bank history. The stress of this is killing them. So SRI's have been ordered...

Look at the rate. 1.24. This when the Euro is falling apart. This tells me something is afoot. I would stay away from the CHF crosses.

To me, playing Swissie from the short side is an un-natural act. But this does not feel like a time when one should be trading from the long side. So I'm ignoring it altogether.

Should they repeg to 1.30, my interest to  get long the CHF would come back. That will prove to be a tough level to hold.

Fri, 11/18/2011 - 11:38 | 1891275 Overflow-admin
Overflow-admin's picture

If they repeg to 1.3 they should expect riots. There are more than 500 lobbyists in the federal chambers trying to get it but also each day more people / citizens fighting this insanity.

Thu, 11/17/2011 - 18:53 | 1889451 Miss Expectations
Miss Expectations's picture

Okay Mr. Bullard I'll make you a wager. A six pack of your favorite beer.

Bruce, I'm betting on you.  If you're right, I'll mix myself a Rob Roy.  If you're wrong, I'll mix myself a Rob Roy.

Rob Roy became a well-known and respected cattleman — this was a time when cattle rustling and selling protection against theft was a commonplace means of earning a living.[1] Rob Roy borrowed a large sum to increase his own cattle herd, but due to the disappearance of his chief herder, who was entrusted with the money to bring the cattle back, Rob Roy lost his money and cattle, and defaulted on his loan.

http://en.wikipedia.org/wiki/Robert_Roy_MacGregor

Thu, 11/17/2011 - 18:51 | 1889445 Diamond Jim
Diamond Jim's picture

Well you get rid of Glass-Steagal and we get investment banks using bank deposit money...so it is not much of a stretch to expect Investment Hedge Companies playing with clientelle funds.......we don't need no stinkin' scruples !!

Thu, 11/17/2011 - 18:36 | 1889376 rockraider3
rockraider3's picture

mmmm.  Beer.

Thu, 11/17/2011 - 18:30 | 1889359 lizzy36
lizzy36's picture

The biggest problem with Fed governors is they DO NOT UNDERSTAND how capital markets work.

They have never spent a day on a trading floor. 

There are academics, without any real knowledge of how "market transmission" works.

Their lack of knowledge is very dangerous, especially because they are not aware of how much they don't know.

Thu, 11/17/2011 - 18:17 | 1889319 kaiserhoff
kaiserhoff's picture

Agreed on all points, Bruce.  If Bullard thinks this is working, he is a criminal or a fool.

The whole point of exchanges is to avoid counter-party risk.  There have to be prosecutions, and the investors have to be made whole.  Ben has trillions for the Jewish bankers,,,and he can't come up with a lousy 600 mil?

They are trying not to say many things.  All accountants are forensic accountants.  In this case, they have called in a team experienced in FRAUD.

Thu, 11/17/2011 - 17:59 | 1889268 the grateful un...
the grateful unemployed's picture

but we all know how the rule of pooled assets works?

Thu, 11/17/2011 - 17:51 | 1889230 SwingForce
SwingForce's picture

Hey Bruce, you say JPM & MS are safe places for your trading accounts? I say this MFG event only fortifies their impunity: These are Psychopathic Financial Terrorists we are talking about, get Max Keiser on the line. You were right the first time, (quote you), "It will undermine markets. It will impact confidence in our financial system. It will impact liquidity." Across ALL brokers, yet embolden TBTF mofo's, IMHO. And in the immortal words of Chevy Chase, "Lip balm?"

Thu, 11/17/2011 - 17:41 | 1889188 SwingForce
SwingForce's picture

Right on, Bruce! You're thinking along the lines of Ann Burnhardt http://www.zerohedge.com/news/entire-system-has-been-utterly-destroyed-mf-global-collapse-presenting-first-mf-global-casualty Best line: "they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable." Forget about the THEFT that has not been CRIMINALLY CHARGED yet, to exclude innocent participants from trading, to expose these victims to more losses and not allow them to mitigate prior losses or to possibly recoup them, AUGH!

If they don't play nice, pick up your toys and go home. Ann did the right thing.

Thu, 11/17/2011 - 17:32 | 1889149 anonnn
anonnn's picture

"Everyone who operates in markets [thinks s/he] understands [the word] risk. "'

Some who operate in markets understand and practice the the technology of "no risk"... that's where fraud/deceit/gaming/tricksters/clever-strokes dwell...from the rule-maker of the games to the loophole creators to willy-nilly enforcement by the referees.

Thu, 11/17/2011 - 17:24 | 1889100 apberusdisvet
apberusdisvet's picture

Check out the Carribean off shore money laudering banks.  They've been suspiciously absent from the raids by the FBI and IRS on secret accounts.  Oh wait; that's where all the Congressional money is hidden.

Thu, 11/17/2011 - 17:57 | 1889262 the grateful un...
the grateful unemployed's picture

this is what happened during Bush. there is no crime in running a trillion dollar deficit, if the country gets some economic growth, but when money is stolen and parked offshore there is no economic benefit. obama bought into the whole thing, status quo, they kept stealing money and that is really where we are today. the lack of economic growth is a joke, if we weren't being robbed blind by these people the economy would be doing just fine, 99% vs 1% , the 1% steal from the 99% and hide behind the Supreme Court and other jury rigged regulations.

they want to give you money to keep you quiet, because that's the way it works, we stole it, you want some?

Thu, 11/17/2011 - 17:13 | 1889030 ViewfromUnderth...
ViewfromUndertheBridge's picture

Get with the program...this is what Gensler said in the days following...the system works, bad firms fail...this is the spin, the party line. This is the best they can do.

But, the $600m has been stolen and they don't want us to know who stole it. Sure, they are belatedly giving $520m back but I bet recipients have to sign something giving up all rights and if you had a short PMs position (as a lot of the MFers did) then the ramp after the books were opened on Oct 31 means now that your (frozen) position is fucked and closed at a loss they are monkey-hammering the PMs into the OpEx and world-wide liquidity event and you are on the sidelines holding your dick.

MFers Global. You could not make it up.

Pull your funds, starve the beast. Stack the phys.

Thu, 11/17/2011 - 17:12 | 1889019 onebir
onebir's picture

"I’m amazed that there has not yet been any evidence of money moving out of second tier brokerage accounts. Should we get a confirmation that money is moving, it’s likely that contagion will occur."

+ rules 1.20 and 1.25

+ turning a blind eye to window-dressing to hide leverage

+Fed increases margins on lending to POMOs (sending absolutely the wrong signal about their credit risk)

+ allowing BoA to move derivative exposures into its deposit taker over FDIC objections.

It's almost as if they're deliberately setting things up for runs on banks and brokerages. (And this is not rocket science.)

1929 here we come!

Thu, 11/17/2011 - 17:00 | 1888942 Sutton
Sutton's picture

Bullard is such a moron.  I cringe every time I see him.

I am caught up in the MF Global mess.

Advice

Keep NOTHING in a brokerage house(Not just futures brokers, stock brokers also).

In a bank, just what is need to write checks.

The rest- mattresses, coffee cans etc.

Our grandparents knew.

Thu, 11/17/2011 - 16:57 | 1888918 dcb
dcb's picture

reality check when it comes to government officials:

"great job brownie" (bush two)

"the system worked" Janet napolitano (sp) on letting the underwear bomber through despite warnings from his father only to be restrained by the passiengers on board.

"sub prime will be contained" the bernake

on fukushima: “When I discovered it was built right over a minor fault, I threw my hands in the air. When I asked why they did it, they explained they did not want to have too long a cooling pipe from the ocean…” -Lee Furlong/Scientist/Auditor for IAEA

Green shoots: Obama

mission accomplished (bush two)

need I go on the role of these people os to lie first, see if they get away with it, and maybe when confronted with the lie say something

Thu, 11/17/2011 - 17:25 | 1889104 ViewfromUnderth...
ViewfromUndertheBridge's picture

The last duty of a central banker is to tell the truth.

Thu, 11/17/2011 - 16:42 | 1888787 Yancey Ward
Yancey Ward's picture

I agree.  I have considered simply closing out my brokerage accounts based solely on this fiasco, and I probably will before year's end.

Fri, 11/18/2011 - 04:47 | 1890598 oldman
oldman's picture

Yancey

'Year's end' was three weeks ago

Thu, 11/17/2011 - 16:42 | 1888786 OTC_Options
OTC_Options's picture

Mr. Bullard is obviously retarded and, therefore, protected by the Americans with Disabilities Act. Don't pick on him.

Thu, 11/17/2011 - 17:17 | 1889055 disabledvet
disabledvet's picture

No, no! Just because you're retarded doesn't mean you're covered under the ADA. You're "retardation" must cause some type of impact in the workplace. Clearly since he was talking to the media in a retarded way this is not a workplace issue.

Thu, 11/17/2011 - 16:35 | 1888716 tony bonn
tony bonn's picture

bullard is that classic frat boy punk bitch who serves as master of the universe....fuck him running...mf global is not going away....i do believe that the banksters that be had a grudge fuck against mf global and that bullard was sent to gloat...

Thu, 11/17/2011 - 16:33 | 1888701 DosZap
DosZap's picture

Bottom line,

WHO IS REGULATING these firms?.

They are the one's to blame.(Hint) all in D.C.

Thu, 11/17/2011 - 16:31 | 1888667 Breaker
Breaker's picture

"There has been a massive effort by forensic accountants and the FBI to locate the loot. As of last night, no one has been able to find it."

Maybe I'm naive. But I'm having a hard time with this. There were customer trust accounts and at some point they had money in them. Then that money got transferred somewhere. They have to know who got the transferred money. That said, the "who" may no longer have the money. So in that sense they may not be able to find the loot. But they know who got it.

Seems to me the "where is it" question is a red herring. As a result, noone is asking "who got it" question. Maybe because the answer is JPM, GS, BOFA, et al. In some way, the answer to "who got it" is going to be very bad for markets, imo. And that's why noone appears to be asking the obvious question.

Fri, 11/18/2011 - 00:50 | 1890354 twotraps
twotraps's picture

totally agree, there is absolutely no out of bounds.  I remember yrs ago in the futures brokerage business hearing tales about the NYMEX gold......huge customer complaints were taken care of by having the floor brokers just change time and sales much later to prove their point and rob people fo their money.  No problem.

Thu, 11/17/2011 - 16:15 | 1888545 Madcow
Madcow's picture

Grocery stores are over-rated -

Thu, 11/17/2011 - 16:12 | 1888514 Hanging By A Thread
Hanging By A Thread's picture

Suppose we have a regime change in Washington - make me wonder who would be our new Fed presdent - have to think that Richard Fisher might be on the short list

Thu, 11/17/2011 - 16:09 | 1888495 jsavage
jsavage's picture

He sounds like Bernank, cira 2007.  "Housing crisis?  What housing crisis?  I don't see no stinkin housing crisis"

Thu, 11/17/2011 - 15:58 | 1888402 twotraps
twotraps's picture

happened to catch some of the interview, he did actually smile and acted rather pleased so show that the mkt function is still there.  Very scary, great for Fed PR in that he's well spoken and calm but I agree that much more will come out of this.  
We can stop being shocked at the fucking stupidity that goes on and people just think no one will notice. 

Thu, 11/17/2011 - 15:58 | 1888401 twotraps
twotraps's picture

happened to catch some of the interview, he did actually smile and acted rather pleased so show that the mkt function is still there.  Very scary, great for Fed PR in that he's well spoken and calm but I agree that much more will come out of this.  
We can stop being shocked at the fucking stupidity that goes on and people just think no one will notice. 

Thu, 11/17/2011 - 17:35 | 1889162 Miss Expectations
Miss Expectations's picture

he did actually smile...

Liars do that.  They can't help it.   It's called duping delight.

Thu, 11/17/2011 - 15:51 | 1888347 ghostfaceinvestah
ghostfaceinvestah's picture

How many people remember that the equity market actually WENT UP immediately after Lehman went under?

Thu, 11/17/2011 - 15:59 | 1888407 a growing concern
a growing concern's picture

I wasn't keeping up with financial happenings back then. How long was the delay before the market began to process that?

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