Liquidity Scramble Begins In MF Commingling Aftermath

Tyler Durden's picture

When sharing our perspective last night on why the alleged MF Global crime of commingling client capital with the firm's deficiency capital we asked, "What happens next? Why customers at all other brokerages, all other exchanges, afraid that their money will suffer the same fate as MF, even if they transact with perfect solvent clearers and agents, will proceed to pull their money, as they know they have nobody to trust but their own prudent and forward looking actions. Which in turn will start the kind of liquidity drain that killed not only Lehman, but froze money markets, and with that brought the complete capital markets to a standstill, only to be thawed after the Fed pledged multiples of the US GDP to rescue Wall Street in October of 2008." Sure enough, here it comes. "Reports of short falls of client money ... if true would be a disaster for all the smaller brokers and banks as nobody will trust them anymore," one London trader said. Reuters continues "MF Global filed for bankruptcy protection on Monday, putting a sudden end to Corzine's drive to transform the more than 200-year old MF Global into a mini Goldman by taking on more risky bets on euro zone sovereign debt. In Australia, trading in grain futures and options was suspended by bourse operator ASX Ltd , prompting concerns about the integrity of the country's agricultural futures market. "We're sitting out here with risk that we can't cover," said Jonathan Barratt, head of Sydney-based Commodity Broking Services. MF Global was one of the largest participants in the country's agricultural futures market. And it is all only going to get worse as the liquidity outflow avalanche is realized, following the market's most recent distraction with Europe.

From: "Clients scramble for money after MF Global shock":

The London Metal Exchange said in a statement it had suspended MF Global from trading with immediate effect, following a similar move by the CME Group, which operates the Chicago Mercantile Exchange.


The news also hurt other commodity markets.


"Grains were definitely affected. Grain options volumes were miniscule yesterday compared to normal, which suggests MF Global were pretty large options players in the U.S. grains," a European commodity fund analyst said.


CME Group data showed volumes on December corn options <0#CZ1+> almost halved on Monday to 33,872 contracts, from Friday's volume of 61,714 contracts.


Fears the collapse might hurt other market players spread on what was already a dark day for stock markets in Europe, after Greece said in a shock announcement it would subject its bail-out to a referendum, deepening the sense of crisis in Europe.


"A number of Chinese arbitrage players were caught out with cash and margin at MF Global which will likely lead to lighter trading volumes (and more volatility) until the situation is resolved," RBC Capital Markets said in a note.

But don't worry: while a 30 year old UBS trader is going to jail for being a complicit scapegoat in UBS wiping out a few billion of its own money, Jon Corzine, who has successfully undermined confidence in capital markets to a level not seen since Lehman, will not only walk away scott free, but may well get a $12.2 million gold parachute.

All is well in the world.


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GeneMarchbanks's picture

Corzine in cuffs, please.



American Citizen

redpill's picture

There once was a crook named John

He failed so badly in his biggest ever con

The lynch mob was mad

When they got ahold of the lad

Soon swinging from a tree on the lawn

gmrpeabody's picture

Cuffs will do for now, Redpill.

redpill's picture

Ask G-Pap, the mob doesn't usually go for half-measures.

CharlieSDT's picture

I'd prefer he goes to bang-your-ass prison for a while before.

Harlequin001's picture

It will be interesting to see what happens to agriculturals now that the market is screwed. Should shoot, me thinks... until a new maker enters the market.

Don Birnam's picture

The TSA should place Corzine's passport on a watch list. If ever there was a flight risk, Corzine is one.

Hot Apple Pie's picture

No, these guys are destroying more lives than a serial killer or mass murderer. They should face the same penalties.

DormRoom's picture

which is why you should rotate cash from your brokerage account to your personal account, which is insured.  I don't believe investment accounts are insured.


So if there's a market crash.. you can be sure your money is where it's suppose to be.

Harlequin001's picture

and if it's not really there, they can always print some more, eh.

which is the only way you'll get your money out if the bank is insolvent, which they all are...

tmosley's picture

I prefer head on a pike, preferably on a nice bridge somewhere.

Triggernometry's picture

A halberd may seem more fitting.  In the meantime, we should start by removing the balls, and promptly feeding them, still warm.


Midieval is, midieval does

Abitdodgie's picture

Rocky mountain oysters, never had them never will.

sunnydays's picture

They advised the G20 and they invested Chinese government money.  This is going to get interesting.  Corzine needs to be put in jail right away, yet he won't.  Instead getting 12.1 million.  Simply outrageous.

Ruffcut's picture

Is this something we picked up from the chinese?  Co Ming Ling.

I just knew they were behind this.....

The Big Ching-aso's picture

I doubt it.     Some congressperson will proclaim on tv that if he gets cuffed there'll be tanks in the street.   Not to be confused with wanks in the street.

Talent like that must be retained for future generations.

CrimsonAvenger's picture

Hey, he had to govern New Jersey for four years. Hasn't he suffered enough?

William113's picture

Hmm, can anyone point out the difference in the names of these two scumbags Kwaku Adobol, Jon Corzine. Put all of them in jail.

Moneyswirth's picture

Let them fail.  Just don't ask for a bailout.  


curbyourrisk's picture

From what I understand, the commingling will play nicely into the GS and JPM of the world who might have lost money on this.  If they can prove commingly, there will be a bail out by the government of anyone who lost money. 


See...being stupid does pay.

Alea Iactaest's picture

"Do not confuse a money market mutual fund with an FDIC-insured money market deposit account"


"Increasingly, institutions are also offering consumers a broad array of investment products that are not deposits, such as mutual funds, annuities, life insurance policies, stocks and bonds. Unlike the traditional checking or savings account, however, these non-deposit investment products are not insured by the FDIC."


"The key point to remember when you contemplate purchasing mutual funds, stocks, bonds or other investment products, whether at a bank or elsewhere, is: Funds so invested are NOT deposits, and therefore are NOT insured by the FDIC - or any other agency of the federal government."



Snidley Whipsnae's picture

""Reports of short falls of client money ... if true would be a disaster for all the smaller brokers and banks as nobody will trust them anymore," one London trader said."


Perhaps the 'clients' are reconsidering physical PMs?

DoChenRollingBearing's picture

eBay / physical gold premium now at 10% to paper gold price.  A little bit higher than normal.  It IS an imperfect measure of physical / paper price, but there it is.

Troy Ounce's picture


Ignorance is bliss's picture

We have yet to see how deep the MF rabbit hole runs. Bernanke will hit the print afterburners as he watches Europe and U.S. pillars of financial ineptitude crumble.

Dr. Engali's picture

The end is nigh. Who else are you going to pull down Johnny?

Belarus's picture

Well...Europe isn't just a distraction: remember, part of MF demise was that "higher" yield seek on sovereign debt, namely Italy. 

I get the thesis: "no way does Italy go down. The ECB will print before that happesn." This of course is just a case of pre-mature reasoning and execution at best. 

The question now becomes: Who else wants the career risk by buying Italian and Spanish bonds? Righty-O. Let the slaughter continue. 

Tsar Pointless's picture

Confidence has all this rigged casino has had to work with over the past 2-1/2 years.

Now, that's gone. Out the window. And it might not come back for quite some time.

If HeliBen doesn't provide $1 trillion-plus in "economic stimulation" tomorrow...well, things might get ugly real soon-like.

OpenEyes's picture

MF Global = Black Swan

Ethics Gradient's picture

More like Brown Sparrow at the moment.

G.Pap is the one doing the swan (dive) impression.

Big Corked Boots's picture

I think Black Cygnet. Nobody knows what the Spawn of Corzine will grow up to be yet.

OpenEyes's picture

Bingo!  I suspect that the Swan is hidden in the impending unwinding of this mess.  40-1 Leverage doesn't go gently into that good night.

blindman's picture
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DosZap's picture


MF Global = Black Swan= LEAD SWAN,many more to follow.

DormRoom's picture

commodity leverage distorting prices, leading to misallocation. worse, produces economic artificial famines for millions.

MF is one player among many.

economic crimes.



Bunga Bunga's picture

This is a real catalyst for the next meltdown, not this G-Pap distraction, they spill all over the place at the moment.

"MF Global broke rules requiring it to keep clients' money and company funds in separate accounts, the head of the Chicago Mercantile exchange said Tuesday."

Looting customer accounts and cooking the books is Madoff and Enron combined. Good job Wall St! It creates the confidence I need to close my brokerage accounts.



Racer's picture

They have all been cooking the books and skimming bonuses on the 'profits' , MF is just a bit more in your face and they can't hide it so well

Joe Davola's picture

Rules?  We don't need no stinking rules!

lizzy36's picture

Until Corzines peer group step up and demand he end up in an orange jump suit, afraid to bend over in the shower, NOTHING WILL CHANGE.

Paulsons coup at Goldman was in part due to the fact the Corizone was attempting an end run on his partners on an M&A prospect. He took unreasonable risks and was decitful then, and he got a $400m reward for that behavior (when GS went public). He went on the fail the state of NJ and then pulled this crap at MF global.

This morning Cramer was defefending him "he is not a hack". Actually that is exactly what he is: A HACK. But because he is a very rich and connected hack, nobody in his peer group will demand his head on his plate.

So we will go on paying lip service to "CONFIDENCE", but until people like Corzine are forced from the sytem, by the people IN they system, confidence will continue to erode, until one day it will be impossible to resurrect.

T1000's picture

What if Corzine wasn't as stupid as people think? What if he did exactly what He was told to do. This could be the starting point in the next great collapse, and he got the ball rolling for us all.

scatterbrains's picture

any more rogue trader incidents out of other firms about to hit the news wires ya think ?

SDRII's picture

Awaiting the PD instructions manual

Josh Randall's picture

Counterparty Risk is the new STD, people will flee from it and prophylactic themselves with PM's  

vegas's picture

200 year-old firm turned into dust by Grand Poobah Vampire Squid. Nice going Jon.

I'm thinking this may be his "karma" moment. He probaly has fucked over more people than a boatload of hookers, and never paid the price. Buys some European Sovereigns for diversity don't-ya-know and BAM!

I hope they put this fucktard in a hole and feed him nothing but lima beans and vegamite. When Karma comes looking for you Jon, you got a lot to answer for, and I'm afraid it isn't going to be pretty for you.

Big Corked Boots's picture

"He probaly has fucked over more people than a boatload of hookers"

Eight million people in NJ alone. Oh, wait, he only f'ed those who pay taxes... maybe four million.

The Big Ching-aso's picture

"Trust but verify!!!"     Oh fuck it, just trust.