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On MF
The MF Global story gets more bizarre by the minute. At this point one has to ask if it could become a systemic problem. At first, I did not think so. I’m rethinking that. There is no definitive information as of yet. The CFTC is suggesting that the missing client money is $633mm. It might be larger than that (Zero Hedge Link).
Some thoughts:
I was one of many who tried to stave off the bankruptcy of Drexel Burnham Lambert in 1989. Skadden Arps, (the same law firm who is advising MF today) was involved in the last month as the chess game played out. They were advisers. Their clear advice was to NOT commingle custody accounts. To commingle funds is potential jail time for any involved. Drexel went down. But client money/assets were returned.
Of course Corzine and all the other seniors at MF knew this. Skadden was giving them the same advice as they gave to DBL 20 years ago. So how can it be that three days after a chapter filing there appears to be a very big hole?
This happened with another big future’s house back in 2005. That was Refco. In that case there were significant client account losses. Of historical interest:
-Phil Bennet, the boss at Refco, went to jail for 12 years.
-Man Group bought what was left of Refco (they were good futures brokers).
-Man became MF Global. Rinse and repeat.
The history is relevant as it is more evidence that Corzine and MF management HAD to know that commingling was the ultimate no-no. It was part of their history.
My guess is that the missing customer cash was grabbed by one (or more) of the big players in the global bond market. MF did not sign off on the cash grab. The banks moved on them and their customer accounts. MF had no say in the matter.
Given Corzine’s relationship with Goldman, I put them high on the list of probable plug pulling bankers. Nomura was a place to go to finance AAA sovereign positions. One of the French or German banks could have been the warehouse for MF’s sovereign exposure. It wouldn’t surprise me if any one of them pulled the plug on the leveraged bets.
It should be noted that all of the big players talk when they are moving on collateral and closing relationships with financial firms.When the SHTF, they act as one.
MF has said that the funding for the sovereign exposure was “locked up” to maturity. That’s complete bullshit. I can tell you from first hand knowledge. When Wall Street is financing positions they always have a MAC (Material Adverse Change) provision that allows them to call the financing. If the debt is not immediately repaid it produces an event of default. That creates a cross default to all other asset positions. When they smell trouble they move first and ask questions later. They always lock up cash.
If you think this sounds far fetched consider what happened at Refco:
Refco’s forex brokerage arm, Refco FX, LLC, was holding over 17,000 retail customer brokerage accounts at the time that Refco declared bankruptcy shortly thereafter. In the bankruptcy proceedings, Bank of America and other large creditors managed to convince the bankruptcy court that Refco’s customers were actually unsecured creditors because of Refco’s failure to segregate its customer accounts from their own general funds, despite telling customers that it had done so.
Most of the broker’s 17,000 customers eventually received little or no compensation.
This is not supposed to happen. FINRA is the watchdog for this. Their words on how “safe” customer accounts are with registered brokers.
In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Even if a firm fails, its customers' assets will be safe.
So much for FINRA.
Where could this go?
I think some drop in confidence by market investors in secondary firms has to happen. Money has to leave those players. With that, will go the flow trading that comes with the accounts. Liquidity across all markets (especially futures) will be affected.
If we go down this road (we will if MF/the Banks actually used/seized clients money) the short-term consequence will be another big ramp up in volatility. Most assets classes will suffer in that environment.
Leveraging of "liquid" assets is a critical component of the global system. The repo markets are already under serious attack. The MF story could take us to a new level.
The absolute craziest outcome would be that we learn that it was Goldman who closed the books and seized the cash last Friday (someone did). It would be even crazier if this leads to a problem that gets out of hand. There’s a decent chance that it plays out along these lines.
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"... why would MFG think there were going to be consequences to using other people's money illegally and unethically when the Fed and the PPT do it every day? They might even be able to avoid any major poverty or discomfort because they know where the bodies are buried, they can just publish their poison pill letters of who what where when and how the government is manipulating us all and they will claim it was a condition of doing business as a market making primary dealer that they did what they were ordered to. Nope, no jail time. And eventually the government will make the public who were robbed whole because they do not want the truth to come out even more than Corzine does."
Absolutely, that there is the microwaved popcorn kernal of truth!
These guys always think they are privileged and can get away with anything. There's no limit to what they will try to get away with.
It's the same disease the politicians contract after they win a couple elections.
Privilege--- perhaps the most overlooked key word.
And in Corzine you have a double dose since he was also a politician and still is (was?) a big Obama bundler. That fact alone makes me think no jail time here. A quick 'plausible deniability' plea from Corzine and then some appointment to the second term Obama administration more likely.
No - Corzine gets convicted (to appease the masses) but then Obama pardons him as he exits in February 2013
The Japanese method is so much more satisfying, Seppuku. But the tried and true defenestration from a high floor as they did in 1929 would be good too.
I think the truth is something we will not be allowed to find out. I think that's why you had the 'financial stability' phone call on Monday as this was leaking out. They were trying to figure out how to keep this from sinking a big bank. Your analysis that MF had no choice and that someone called their loan and therefore got access to the cash is probably right. But I see them trying to set up a fall guy with people at MF, and not letting it get to a bank like Goldman, even if they are the culprit. Time for something to distract the sheeple, methinks.
How about some terrorism?
That's always worked in the past...
http://news.yahoo.com/israel-test-fires-missile-could-hit-iran-142651980...
About 8 days to go on that one.
11/11/11 is;
The same date everywhere in the world (we express them differently - 9/11 to the US is 11/9 in the UK, for example.)
A bookend date
The digits add upto 33
The time of the end of WW-I - 11th hour of the 11th day of the 11th month of 1918.
is that nationwide FEMA drill, scheduled for 11.9.11, or 9.11.11 for the UK, etc. still on?
busy week next. . . full moon in there too.
And wasn't the end of WWI a good thing?
11.11.11 is throughout the world: dd:mm:yy. That could be an interesting Friday.
-1
The digits add up to 6.
But thanks for playing.
Thanks Bruce.
I'd say if clients don't get their money back some serious ass kicking is gonna take place. Talk about double robbery. I hope ALL Clients get all their money back.
At some point the adults will show up
Right?
MF Global G-desk said 5 minutes ago they will be able to transfer all segregated accounts at full value as soon as the FDIC releases the accounts, probably on monday. The phones will be answered this week and next week. They can imagine there will be NO buyer for what was earlier LIND-WALDOCK. It took over six weeks to find a buyer following the last scandal a few years ago.
ATM G-desk can offset some positions, some exchanges do not accept their order.
"In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe ...
That's junior highschool level dullard talk.. Note that "in virtually all cases" begs the question on precisely "what are the exceptions?".
Trickster qualifiers as "virtually perfect, nearly always, trust me, about near certainty, good as gold, 1 in a million, can't lose", can't fail", etc ...are effective only on the handicapped/disabled or retarded/unaware "suckers" and "marks" deliberately targeted by the purveyors of flim-flam----because the victims won't question the loopholes or never get their questions answered and are forced to swallow foggy replies [Bernaysian daze?] by or other Harvardian clever strokes.
LOL! I hope you're not holding your breath for that!
The adults will be carrying guns. Not signs.
too much conflicts of interest
http://expose2.wordpress.com
Do you mean the "greys" or "reptillians" or maybe the second coming of Christ?
Maybe the Earth can get a bailout from the Solar System bank, or maybe the Bank of the
Milky Way Galaxy, or whatever increasingly large area of griftable space the devious human
"brain" can possibly imagine. The adults have long since become extinct. There is only
bloated, infantile, dependent "organic" tissue roaming the landscape looking for more nutrient
depleted "food" to gorge upon. Why would anyone bother to help at this point?
These are the adults.
Thanks to Bruce. This is a real education.
Thank you, Bruce, and keep yourself safe. We need you during these times when the flagrant and cavalier disregard for the rule of law is becoming increasingly common.
Don't count on seeing adults any time soon.
Instead expect more episodes of Dancing w/Stars and more tabloid hype about Kardashians.
College ball and other idiocy. TV is for morons and they can EASILY control the sheep with TV. Anyone who watches enables it.
You forgot an increase in rhetoric about Iran and Pakistan. Pick your next war?
central africa
They have! Time to check with the kids if you want honesty.
There's no such thing as money. Is there?
Only Gold.
@ philipat
+ $55,000
Yes gold.
Every adult over 35 knows not to comingle money and accounts. And there is a notion in law that goes something like this, maybe you heard of it, they KNEW or SHOULD have known. In other words when you are in such as position as Corzine was you have a duty to know, ignorance is not a mitigating factor for the least of us, and we all know that the people running MFG knew. Let me put it this way, if they really did not know then we have a MUCH larger problem than one bankrupt investment bank.
When the GOP leadership turned over regulation to FINRA, that is self regulation by the industry, it was only a matter of time before we would come to see that the crooks are everywhere.
When the GOP leadership turned over regulation to FINRA.....
They were only PINGING the ball over to the net to allow the DEMOCRATS to FINISH the job, which was to kill America and TRUE rule of law.