MF Global is almost a “forgotten” topic, at least for the ones that were not affected by the stupidity of the organization. We will most probably never hear about what actually happened. What seems to have happened though, is the fact MF Global were involved in creative planning when it comes to capital requirements. From NYT.
Under pressure from regulators last summer to increase its capital cushion, MF Global moved some of its risky European debt holdings to an unregulated entity in an effort to avoid having to raise extra money, according to a new report. The revelation raises new questions about MF Global’s actions in its last months — in particular, how it responded to regulators. The brokerage firm had previously disclosed that it had met the capital requirements, but never mentioned that it had transferred some bonds rather than raising additional money. The shift was detailed in a report by Louis J. Freeh, the trustee overseeing the bankruptcy of MF Global. The report is separate from the one issued Monday by James W. Giddens, the court-appointed trustee charged with recovering money for MF Global’s customers.
“This strategy allowed the MF Global Group to transfer the economic benefits and risks,” thus reducing the “regulatory capital requirements,” the report by Mr. Freeh said.
Renewed Hope that Jon Corzine, President Obama’s Top Tier Campaign Bundler, Will Face Criminal Charges-Tavakoli
Up until now, President Obama’s campaign has given the appearance of an endorsement of Jon Corzine, the former CEO of MF Global, a former New Jersey governor, a former New Jersey U.S. senator and major campaign contribution bundler for President Obama. At least this is the interpretation of many who viewed the list (as of April 30, 2012) of President Obama’s money raisers through the first quarter of 2012. With no clarification or footnote, Jon Corzine is shown as having raised more than $500 thousand in the roster of 2012 Volunteer Fundraisers. The re-election campaign has not disclosed the exact number. I requested further information from the campaign and received this response:
“Corzine’s money was returned but the money he raised a year ago was not and thus it qualifies him to be on the bundler list. He is not part of the campaign any longer, this [Obama for America and Obama Victory Fund 2012 Volunteer Fundraisers] list is cumulative.”
That may be. The campaign responded it told the press this in January, and the press has forgotten. Really? It told the press in January and now the campaign is blaming the press for its interpretation of a list released in April titled “2012 Volunteer Fundraisers.” If the campaign wants to eliminate ambiguity, it can put it’s assertion that Corzine “is not a part of the campaign any longer” on the list in writing for all to see. But that would make it clear it is distancing itself from Corzine. It seems to me that President Obama’s campaign is trying to have it both ways: deniability as it gives the appearance of support for Jon Corzine. Both President Obama and Vice President Biden have publicly praised Corzine during Corzine’s previous campaigns:
The markets and the world could be facing “anything” this year. January 2012 thoughts by Sprott Asset Management;
2011 was a merry-go-round of more bailouts, more deferrals and more denial. Everyone is tired of the Eurozone. It’s not fixable. There’s too much debt. The politicians don’t know what’s going on. Nothing has structurally changed. We’re still on the wrong path. There’s more global debt than there was a year ago, and it’s the same old song: extend and pretend, extend and pretend,… around and around we go,… and it isn’t fun anymore.
Just as we wrote back in October 2007, and again in September 2008, we feel compelled to state the obvious: that the financial system is a farce. It’s a complete, cyclical farce that defies all efforts to right itself. This past year continued the farcical tradition with some notable scandals, deferrals and interventions that underscored the system’s continuing addiction to government interference. With the glaring exception of US Treasuries and the US dollar (which are admittedly two of our least favourite asset classes), it was not a year that rewarded stock picking or safe-haven assets. Many developments during the year bordered on the ridiculous, and despite some positive news out of the US, we saw little to test our bearish view. If anything, our view was continually re-affirmed.
What actually happened to MF Global will probably be kept a secret for long. Risky bets with clients money or not, somebody was in charge of running the bank. Mr Corzine, once highly rated banker, was in charge, but obviously mismanaged the operations. This is a classical stor on greed and big egos, that run in the financial industry. While MF Global was going bust, Mr Corzine was shopping chateaus in France. From Vanity Fair.
In an exclusive report from three of Vanity Fair’s premier business writers—contributing editorsBryan Burrough, William D. Cohan, and Bethany McLean—the February issue delivers a sprawling account of the personal and professional battles of Jon Corzine, the former Goldman Sachs C.E.O. and ex-politician whose helming of MF Global resulted in a notorious $41 billion filing for bankruptcy and a $1 billion loss in firm equity. According to the piece, for the fiscal year that ended in March 2011, MF Global recorded day-one gains of $85 million on the former New Jersey governor’s risky trades on European sovereign debt and other assets, thanks to an accounting ploy. Because there were barely any expenses associated with such trades, the gains were almost pure profit. “Corzine would later tell investors that he made a $6.3 billion bet on sovereign debt, but the company’s filings made it look like he had a much bigger long position at the end of June 2011—$11.4 billion, offset by ‘short’ positions of almost $5 billion,” Vanity Fairreports. One analyst says: “If those trades had not been there, MF Global would have been forced to sell or go out of business.”
Despite the fact we had the Fannie Mae and Freddie Mac, Lehman and AIG, the “system” has not changed. It is still possible to not know where the money of MF Global clients is. Regulators are chasing, but are not catching anything. It is still astonishing, the MF Global “event” could happen. Regulators obviously do not talk to each other, and therefore there is nobody responsible. With regulators not able to keep track of where the money is, we can’t but ask ourselves how the regulation of the HFT will proceed? Video with Nomi Prins on the MF Global below;
MF Global is somehow “escaping” the main stream media. This is a huge scandal and people have lost life savings due to reckless behavior. Remember, this is not happening in some small country majority of people can’t even pronounce the name of, this is happening in the US, today. Another great piece by Tavakoli.
Shortfall estimated at $1.2 billion or more (up from $600 million)
“Repo-to-Maturity” is a “Total Return Swap-to-Maturity,” a Type of Credit Derivative
Probable Shortfalls Throughout 2011
Regulators Waive Required Tests for Jon Corzine
Jon Corzine to Credit Derivatives Head: Next Time “Double Up”
JT Note: Subsequent to this report Jim Parascandola told me that he was never told to increase the size of any position, albeit his trades were profitable.
Questions About How MF Global Became a Primary Dealer
MF Global Wrote Rubber Checks for some Electronic Checks for Others
Tip-Offs for Some Customers?
CFTC’s Gary Gensler Didn’t Act
MF Global Debacle Damages a Key Global Market
Full reading below.
Too much time has passed for anyone to still reasonably expect that the “discrepancy” is just a timing difference or a misallocation between accounts, according to several sources who prefer to remain anonymous because of the sensitivity of the situation. All of the statements made on the record by those in a position to know point to assets taken out of the firm and now gone for good.
CFTC in bankruptcy filing October 31 according to The Financial Times: The CFTC, in a court filing, revealed MF Global’s general counsel Laurie Ferber emailed the regulator at 7.18pm Monday – hours after the bankruptcy filing – to say that it had “discovered a significant shortfall in its segregated funds account”.
Joint statement of CFTC and SEC on November 1: “Early this morning, MF Global informed the regulators that the transaction had not been agreed to and reported possible deficiencies in customer futures segregated accounts held at the firm.”
The CME Group on November 2: “CME completed its on-site review last week. [Reportedly Monday.] At that time, the results of our review indicated that MF Global was in compliance with its segregation requirements. It now appears that the firm made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011.”
Jon Corzine, who admitted to being the architect of MF Global’s fateful proprietary trading strategy, neglected to manage some fundamental riskswhen making the speculative bets on European bonds for the “house” account, according to an industry veteran who prefers to remain anonymous given ongoing business ties to some of the firms affected. The first risk Corzine ignored is liquidity risk – you have to stay flush long enough to see the trade to profitable maturity. It doesn’t matter if Corzine made a good trade, just whether he can live to see it make a profit.
Full must read article here.
Futures are still trading, despite the Cash markets closed, and going lower. The European Stoxx and Dax futures have now taken out the Bail Out levels completely, just as we suggested in early European Trading. We believe the market has made the Top we have been waiting for, and the psychological set up is very interesting. A nasty correction is around the corner. Both Bulls and Bears have been run over, and the latest rally shook out the last bears, and attracted many new momos. MF Global imploding, Greece basically pulling the plug, are all ingredients for the dynamics to continue playing out. Below some “after hours” chart updates.
SPX “falling out” soon?
European futures below.