Must Read: Presenting The MF Global Black Box: A Minute By Minute Breakdown Of The Doomed Broker's Last Week On Earth

Tyler Durden's picture

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seek's picture

Not to mention sending CME and CFTC on a wild goose chase for an error. Everyone who touched that particular lie should be looking a federal pound-me-in-the-ass prison. The timeline makes it pretty clear we had multiple participants in fraudulent representation to regulators. I have to wonder if some 2nd or 3rd level management hasn't figured out they've been set up and are heading to Paraguay.

The thing I'm trying to puzzle out is that I'm quite convinced the conspiracy theory that the COMEX would be busted is true, and how one weaves that into this? Perhaps they knew MFG was over-leveraged and someone back-channel suggested the downgrade, creating the opportunity to liquidate? Had the IB deal gone down in time, the contracts wouldn't have been liquidated and the COMEX would go boom.

This is an interesting puzzle, like 90% of the pieces are there, but all the crucial details are in the 10% thats missing.

Oracle of Kypseli's picture

Yea. the guy that emailed: "We may have it" without giving explanation. Rouse to gain time and transfer the loot.

masterinchancery's picture

Note the repeated lies and fraudulent assurances from Laurie Ferber, GC, and other MFG officers and employees, and that Corzine actively participated in the illegal use of customers' funds and collateral. These alone are felonies.

falak pema's picture

  • 8:06 p.m.: CME receives MFGI's seg. statement for 10/28 showing a segregation deficiency of $891,465,650.

Now that is deficient to a point where efficiency becomes irrelevant. Humpty Dumpty time, all the king's horses and all the king's men...

No wonder Corzine suffers from Amnesia. I would for a hundreth of that amount. .9 billion/100 = 9 million. That's enough to give me amnesia. I'l buy that with chardonnay on ice please.

Wakanda's picture

9 mill for ??????

I forgot allready!!!

Al Gorerhythm's picture

Cool, as long as it's not hypothicated.

Zero Govt's picture

What a cracking Christmas present for fleeced MF'ing Global customers

just watched the Senate Hearing with 6 Turkeys (US Regulators) lined up for questioning and pretending to be on the ball ...should have been shooting... there's still time to stuff and cook them you know!

Wakanda's picture

Don't serve that rotten meat.

WestVillageIdiot's picture

One's opinion of regulators can only be truly formed after seeing them in action.  It is a fucking disgrace.  It is part political correctness, part affirmative action, part confusion and a huge dash of incompetence sprinkled on the top.



redpill's picture

Don't forget the corruption cream filling.

WestVillageIdiot's picture

No wonder my souffle collapsed.  I forgot to add corruption into the recipe.  Thank you for correcting that.  I will not make the same mistake again. 

DeadFred's picture

Souffle??? Real men make quiche.

Oracle of Kypseli's picture

Try ordering quiche wearing a red speedo in an Alabama beach.

TheSilverJournal's picture

The people are only concerned about inflation because the largest burden of inflation is on those who receive the newly created money last. The true deflation concern is assets deflating enough in value to cause the banks to go bankrupt.

What is all of This Concern about deflation?

disabledvet's picture

interesting theory. "we had the inflation first" now come's the collapse. the government stats have lied about it....witha quality follow on from the real estate clowns. now that the tax cut is going to be paid for by Fannie and Fred "the game is up." Uncle Salami is truly "broke" in the sense that their is no "peace dividend." I'll skip with the DC stuff cuz it's over this site's head...suffice to say do not be surprised to see European calamity spill into US debt markets leading to total financial mayhem. AVOID COMMODITIES RIGHT NOW. The government has to do it's thing first...and what that "it" is will define just what in the famous words of Bill Clinton "what the meaning of"

TheSilverJournal's picture

The US debt markets are leading to calamity on their own. The US is in fundamentally worse shape than the Euro. For example, if the ECB gets together and prints Eurobonds and kicks the can down the road, the US has much less road than the Euro. But if any large European country defaults, then yes..the calamity would spread everywhere and the world fiat ponzi would crumble.

Commodities, in particular the money commodities is what you want to buy because currency is being destroyed. The only way to postpone the ponzi collapse longer is to print massively greater amounts of currency.

flattrader's picture

The sovereign who collapses last "wins."

TheSilverJournal's picture

Those who get out of the ponzi earliest, get out best. That goes for every level from the individual to the sovereign and everything in between. The longer the sovereigns stay involved in the ponzi, the worse the imbalances become.

Americans are suffering because artificially cheap money is destroying productivity. Mis-pricing money causes resources to flow into unproductive areas. The return of market-priced money will expose the malinvestments that have been created by artificially cheap money being pumped into the economy and cause short-term pain, but will also cause a boom in productivity because resources will once again be allocated much more efficiently.

Postponing the pain by providing more artificially cheap money only causes more malinvestments and therefore even greater pain in the future. Bankers and politicians enjoy their control over the printing press and do not want to be blamed for the pain, which is why the pain will likely be delayed until so much artificially cheap money is created that the USD becomes worthless.

omniversling's picture

Help please for a non-trader...could someone please explain how the leverage:asset value equation works? Am I right in understanding that in an deflationary period it's the reduction in (on the book?) asset values that can tip heavily leveraged entities to go under?

I read regularly that an entity with leverage of 50:1 only needs a drop in asset values of 2% to go 'flatline', or a leverage of 25:1 going sameway with a 4% drop in asset values. Could someone flesh that principle out for me?

And who decides 'asset values' (is that something like being 'marked to market' -ie agreed or certified value- as opposed to the 'claimed' value of an asset?).

Presumably that's the kind of info or data that auditors or rating agencies use to decide if a company/instituion/bank is solvent?

And isn't this all profoundly theoretical if there is so much 'off books' derivative and rehypothecation action happening, where 'assets' may in fact already be liabilities?

Thanks ZHeads

TheSilverJournal's picture

Our currency system itself is profoundly theoretical. The only thing that's behind the world's currencies is faith. If people lose faith, then the currency is finished. If the amount of currency that's being printed heads towards infinite, then the currency is finished. If the US defaults, then all currencies will collapse because the USD is the world's reserve currency.

Doomer's picture

Let's say you borrow $50 million to buy $50 million in assets, using $1 million in assets you aleady have as collateral.  If the asset value drops by 2%, then it is only worth $49 million, and your $1 million in collateral is no longer yours.  If you don't have another $1 million to pledge as collateral, you have to pay back the loan, and you are broke.  What's worse is if your collateral also dropped in value; then you are really fucked.

plubans580's picture

A simple example:

You have $100 that you want to invest, and you decide you want to invest on margin (i.e., using leverage).  So, you borrow $1000 from your broker and post your $100 as collateral for that loan. You buy $1000 of some asset from your broker using that borrowed money.  You have $1000 of assets for your $100 of capital. You are leveraged 10x or 10:1 (depending on what notation you prefer).

Assume that the asset drops in value by 10%. You decide you think it's going to drop further, so you sell it for $900.  Your broker still expects that you will pay them back the full $1000 loan, so you give them the $100 in collateral and the $900 from the sale.  You now have $0: 100% of your capital was wiped out by a 10% drop in the value of the investment.

Deflation/inflation don't have anything to do with this, except in an indirect way - the central issue is the rise and fall of asset prices.


The mark-to-market vs mark-to-model issue is especially relevant for bonds because of the interplay between the effects of both credit risk and interest rates on the price of bonds.

Assume that a particular company wants to raise some money and so they issue a bond.  You decide that you want to loan them $1000 and that you want to be paid 1% per year as compensation.  So you now own a 10 year bond that yields 1% per year.  

How do interest rates have an effect?

Assume that one year later - due to external circumstances - interest rates everywhere have gone up.  As a result, that same company is now issuing 10 year bonds that pay 2% per year.  If you want to sell your 1% bond, no one is going to buy it from your for $1000, since they can put that same $1000 towards a 2% bond that will pay them more over the life of the bond.  So if you want to sell it, then you will need to offer a discount so that at the sale price, the buyer will get a cash flow comparable to that of the 2% bond ( for details).

How does credit risk have an effect?

Assume that one year later, the company is nearing bankruptcy, and it does not look likely that they will be able to pay back the bond at all. There might still be some people willing to lend to the company, but they won't charge them 1% anymore - it will be a much higher rate.  In this case, if you want to sell you bond, you will again need to discount it heavily so that the buyer feels like they are getting a much higher interest rate.

So when does mark-to-market get applied?

If you are an active bond-trader and you never plan on holding any bonds to maturity, then you will want to value your portfolio on a mark-to-market basis since your intend to profit based on your ability to predict the price fluctuations that occur as a result of changes in interest rates and credit risk.  

If you are a hold-to-maturity, long-term investor, then you probably won't want to use mark-to-market accounting, because you don't care about the price fluctuations: all you care about is that you're going to get your $1000 back at maturity, and you're going to get your 1% per year in the meantime.  However, if your $1000 bond is trading at $300 because people think the issuer is going bankrupt (and thus won't pay back the bond), then it seems wrong to claim that you own an asset that's worth $1000. At least in this case, investors can express their frustration by selling the stock. This is why many banks are currently trading at a price-to-book value of less than one: investors don't believe that each dollar worth of assets claimed on the balance sheet is acually worth a whole dollar.

The solvency question is less complicated. If a bank owes someone money, and the bank can't pay it, they are insolvent. If they can pay, they are not insolvent. So solvency isn't really a judgement, it's more of a state of reality.

PianoRacer's picture

If we've already taken personal posession of all of our capital and thus have no counterparty risk, can we still read the article?
Somebody tell me what it says. 

The Fonz's picture

Loosely translated it says "Put your shit in your safe".

bilejones's picture

I too am fully diversified, some's under the mattress the rest is buried in the yard.

Thisson's picture

It's amazing that it only took 3 days from the downgrade to the collapse of the entire firm.

trav7777's picture

things happen quick...leverage is like that.

tmosley's picture

But you'll be able to catch it before it happens, right Trav?


Chicken_Little's picture

I hate to break into such a great comment area, but the US Embassy just sent me this and I have no idea what it's about. I'm a registered Ex-Pat  in Pattaya.

This message is to alert you that on Friday, December 16th, a large group-possibly as many as 1200 people-will gather in front of the U.S. Embassy on Wireless Road. The exact time of the demonstration is unknown, but most of the demonstrators are expected to arrive between 1300 and 1600 hours. Although this gathering is expected to be peaceful, if you plan to be in the vicinity, you should be mindful that any large gathering holds the possibility of risk, and that traffic around the Embassy will be impacted. It is also possible that access to the Embassy will be restricted. Demonstrations are unpredictable and can turn violent without warning. For this reason, we encourage you to monitor local media for information about possible demonstrations and to avoid the vicinity of demonstrations. Information about the demonstration may also be available on our website as well as through Facebook and Twitter.

Tyler(s), please get on this. Thx much :)
Oracle of Kypseli's picture

Pataya is dangerous place to start with. Fun for middle aged men, but don't forget to use protection. My advice: Get over to Phuket and Phi Phi islands for a while.

Bringin It's picture

Oracle - please stop with the advice before you hit something idyllic.

JPM Hater001's picture

Somewhere in the middle there Lucifer stopped by for a quick meeting.

Sycophant comes to mind here.  "Yes John.  The Rothchilds sent me personally to tell you what a star you have become."

Legolas's picture

7 p.m.: CME's Emergency Financial Committee approves a rule change releasing members qualified by MFGI, such that those members could become qualified and guaranteed by another clearing member in order to resume trading.

Unbelievable.  Absolutely unbelievable.  Who does CME report to?

Why would they do that? 

Mr Lennon Hendrix's picture

CME is a corporation which is regulated by fascist parties such as the SEC.

Occams Aftershave's picture

are we to believe that in the entire chronology, which never once includes the word 'corzine', that he was absent and not involved in any of this final death rattle?

NotApplicable's picture

CME folks got his phone number, but can't remember if they called him.


Infinite QE's picture

its the golden rule of GS, LDL. Lets Discuss Live.

trav7777's picture

I know people who were sent to federal prison for bribery...caught due to wiretaps.

NOBODY in this business ever puts anything in writing.

Manthong's picture

This is all so last month... can't we just get on with the Christmas rally?

toadold's picture

Does anybody else get the feeling that Corzine not only screwed the customers but also has messed it up for his fellow predators?

Papasmurf's picture

When only a few bankers remain, it not much matters who eats who last.  We are in the end game for vulter capatilsim.

Bringin It's picture

Who is giving you the 2 red arrows??  and why??

NotApplicable's picture

I think we've gone beyond the phase of caring about anything, as it's apparently show time.

Congress Critters have passed the Enabling Act, so we're just a signature away from the official police-state.

What's funny is that this showed up not in headline, world, national, or political news, but as the last item in the business news.

nmewn's picture

Yeah, I'm eagerly awaiting the GW admonishment for O'Bama not to sign it.

What a red herring show that'll be ;-)

Mr Lennon Hendrix's picture

Given the Super Class' history, I would guess a false flag is coming next year.