Yesterday was another pathetic questioning in the MF Global scandal. It is rather clear, the financial industry is a highly unregulated area, poorly overseen by the regulators. The story is always following the same path, the CEO, the CFO, the board did not know anything. The Risk manager seems always to have been asleep. The same goes for Soc Gen, UBS and now MF Global. We can’t but wonder what do these high fliers get paid for? While staying at the Ritz Carlton, Corzine was asked some more questions during yesterday’s hearing. One of the better “live” articles on the matter, by National Hog Farmer. To be continued, that’s for sure;
Committee questions on Tuesday, a trio of MF Global executives may have thought they’d slipped the noose. In the face of increasingly exasperated committee member questions, the executives – responsible for the eighth-largest bankruptcy in U.S. history and the odd, potentially criminal, loss of an estimated $1.2 billion in customer funds – exhibited amnesia symptoms, reciting a wide range of variations on “I don’t recall.”
But immediately after the executives were dismissed, the CME Group’s Terrance Duffy gave testimony under oath that contradicted former MF Global head Jon Corzine’s claims of ignorance regarding the disappearance of customer funds.
In the days just prior to MF Global’s demise, CME – tasked with auditing MF Global’s futures business – had auditors reviewing the firm’s segregation reports. The Oct. 26 and Oct. 27 reports, said Duffy, showed the firm in full compliance.
It seems many just learnt a new word last week; re-hypothecation, and are truly devastated by the meaning of the phrase. So the funds at your bank can be deposited as collateral for exchange of cash or other assets, that further can be used for speculation?
Yes, this happens every day, or how else do you think people can finance their day to day trading operations? At BIG banks, one can only hope the Risk Manager is doing a good job. At MF Global, it is rather obvious that at least the Risk Manager was not doing a proper job, while the managers all seem confused about where the money is. With this lack of competence at a big bank, you can imagine what the procedures are at a smaller bank. The best piece on OPM we have read lately. By Armstrong Economics;
The shocking collapse of MF Global with the amount of missing client funds now rising to $1.2 billion, is so devastating, we are at the precipice of complete financial disaster. The United States boasts far too much of its greatness and “liberty and justice for all” but its actions reveal nothing but greed, distain, and contempt of the rights of man that include his right to property. Jon Corzine was a bond trader at Goldman Sachs and has been known as an aggressive trader all along. He intervened at the SEC and changed the direction of MF Global. What is at stake now is exposing the political corruption of the New 3York media, courts, Justice Department, Commodity Futures Trading Commission, Securities Exchange Commission, and political process has come together in such a way that the fate of the nation is truly hanging in the balance. Why do I make such a bold statement?
Guest Post by Macro Story.
“Those that fail to learn from history, are doomed to repeat it.” – Winston S Churchill
Hard to believe that the following post can be written just three years after the 2008 financial collapse. What is even harder to believe is how the majority either fail to or simply refuse to acknowledge the events unfolding and the comparisons to that historic moment in the global economy.
In 2008 we were forced to learn about various financial terms like subprime MBS, CDS and capital calls . Today we have commingling, sovereign debt yields and my favorite rehypothecation. So what does it all mean?
Think of the global economy as the construction of a house. On the surface is a beautiful home adorned with towering windows, magnificent roof lines and vibrant lighting. Hidden beneath the surface is the foundation working diligently to maintain the structure.
Builders go through painstaking efforts to maintain the integrity of the foundation. Assuring there are no air pockets or voids in the concrete that will crumble with time. The foundation is the basis in which a home is built and is analogous to the formation of credit in which an economy is built. Credit formation is truly the structure that supports the global economy.
Another classical soap opera in finance is continuing. According to latest stupidity, Corzine, did not know pretty much anything about nothing. Nor does he have a clue where the money is. We can’t but ask ourselves what he did at MF Global, if he did not know the above. This is unfortunately a repeating story in the financial world. People take too much risk, and when it goes bad, they start the blame game.To be continued….
Is Finance run by Psychopaths? Below from Corzine’s I know nothing speech;
Recognizing the enormous impact on many peoples’ lives resulting from the eventssurrounding the MF Global bankruptcy, I appear at today’s hearing with great sadness. My sadness, of course, pales in comparison to the losses and hardships that customers, employeesand investors have suffered as a result of MF Global’s bankruptcy. Their plight weighs on mymind every day – every hour. And, as the chief executive officer of MF Global at the time of itsbankruptcy, I apologize to all those affected.Before I address what happened, I must make clear that since my departure from MFGlobal on November 3, 2011, I have had limited access to many relevant documents, includinginternal communications and account statements, and even my own notes, all of which areessential to my being able to testify accurately about the chaotic, sleepless nights preceding thedeclaration of bankruptcy. Furthermore, even when I was at MF Global, my involvement in thefirm’s clearing, settlement and payment mechanisms, and accounting was limited.
A couple of interesting points on MF Global by Tavakoli.
MF Global imploded this week due to proprietary “repo-to-maturity” transactions that are in substance total return swaps, a type of credit derivative. MF Global failed to meet margin calls on credit derivatives linked to risky fixed income debt. Regulators haven’t learned much from American International Group’s (AIG) and Long Term Capital Management’s (LTCM) debacles. Like the “repo-to- maturity” transaction, a total return swap is an off balance sheet transaction treated as a sale, but the total return receiver, MF Global, is long both the price and credit default risk of the reference assets. The total return payer, not MF Global, is technically the legal owner of the reference assets. The attraction of this arrangement is financing and leverage. Naturally, ratings downgrades will trigger increased margin calls. This is all business as (un)usual.
Full MFG reading.
Many readers have asked for the 08/11 updated comparison chart. Here it is. Note how we flirted with the 200 day moving average. The market turned perfectly, within the negative trend channel.
MF Global instead if Lehman, and voilá, we have the perfect storm set up. We doubt the Greek people will support the austerity in the referendum vote coming up. Eurozone crisis 2.0 has just started, and will end in tears, unless we get another really BIG bail out….
Guest Post by Macro Story.
In two previous posts (Europe Behind The Scenes Part 1 and Part 2 found here) I discussed that behind the scenes financial markets and thus the global economy was experiencing stress. On the surface the iceberg may not be much of a concern but below it is often formidable.
A few developments this evening point towards the first real stresses beyond the control of the current EFSF “plan” including the plan itself.