This Year’s ‘Lehman Moment’ Might Occur Soon

Econophile's picture

This originally appeared in the Daily Capitalist and was written by DoctoRx who writes our market commentary. He has 30 years of investment experience.

 

The strangely-named MF Global is now the subject of the lead article of the online NYT, with the title Regulators Investigating MF Global for Missing Money.  Here’s the lede:

Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

 

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

One of the reasons for the stock market crash after Lehman is discussed in the article.  Innocent hedge fund money (if there is such a thing!) was lost to the rightful owners in the collapse.  If indeed there has been misappropriation of customer funds at MF, how many customers are going to withdraw their funds from other commodities accounts as well as from standard stock/bond brokers, after selling their holdings first?  Especially after the frustrating decade-plus we have experienced in the financial markets, why shouldn’t people just move to direct ownership of Treasurys and into FDIC-insured bank deposits?

The story could hardly be worse.  MF Global was not just any old futures firm.  It was run by a stalwart of the Democratic establishment and the former leader of Goldman Sachs.  If his firm was guilty of what would basically be akin to embezzlement of funds owned by the firms clients, whether or not Mr. Corzine was blameless, how could one trust a securities firm run by someone who had not been a high-ranking government official?

A major “risk-off” move could be in the making.