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Economy
In reply to the discussion: Weekend Economists Go for the Gusto February 24-26, 2012 [View all]Demeter
(85,373 posts)87. How JP Morgan And George Soros Ended Up With MF Global Customer Money
http://www.clearingandsettlement.com/2012/01/how-jp-morgan-and-george-soros-ended-up-with-mf-global-customer-money/
In recent testimony before a Congressional committee, MF Globals former chief Jon Corzine as well as other MF Global executives said repeatedly the didnt know where the failed brokerage firms $1.2 billion of missing client money was. In fact, MF Global executives knew exactly what happened to the money, as do the regulators who oversaw the firms bankruptcy. The so-called segregated customer funds were repeatedly, and legally (through re-hypothication), used as collateral for MF Global loans for 100:1 leveraged bets on European sovereign debt.
Rehypothication is the 800lb gorilla (Editors note: make that the 2,000 lb gorilla)...
A substantial portion of MF Globals commodity clients cleared their transactions through the Chicago Mercantile Exchange and Comex, owned by CME Group (ticker: CME). The question now looming over CMEs stock is whether the company will be liable for customer losses, as the Commodity Customer Coalition, a group that says it represents some 8,000 investorsincluding many hedge fundswith exposure to MF Global are not going down without a fight.
Rather than being treated as a bankruptcy of a commodities brokerage firm under sub-chapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (sub-chapter III) for the purposes of its bankruptcy, and this is why the MF Global customer money in so-called segregated accounts disappeared. In a brokerage firm bankruptcy, the customers get their money first, while in an equities firm bankruptcy, the customers are at the end of the line, meaning MF Globals creditors, namely J.P. Morgan and other trading counterparties, got their money first, just as AIGs CDS (credit default swap) counterparties (mainly Goldman Sachs) got their money first when the U.S. government bailed out AIG.
To add further insult to injury for MF Global clients, the firm reportedly unloaded hundreds of millions of dollars worth of securities to Goldman Sachs, and others, who then reportedly flipped these securities within a day to George Soros funds.
What the debacle implies is that nothing has really been learned from the 2008 financial crisis, and that there really is no safety in any paper investment when push comes to shove. Brokers and investment banks are effectively running leveraged ponzi schemes running in the trillions of USD with your collateral then refuse to offer you liquidity on the collapse of the trade because they wont face a brokerage. This has very wealthy individuals as well as non-too-big-to-fail market participants seriously reconsidering the risks of regulatory malfeasance during such systemic black swan events. In such cases, be prepared for commodities and equity brokers, investment and commercial banks to freeze your funds, enforced by central banks or other regulatory authoritiesi.e., a de facto banking holiday, while not only will your purchasing power be reduced by currency devaluations, but you will also be asked to again bail out the banksters with your tax money.
In recent testimony before a Congressional committee, MF Globals former chief Jon Corzine as well as other MF Global executives said repeatedly the didnt know where the failed brokerage firms $1.2 billion of missing client money was. In fact, MF Global executives knew exactly what happened to the money, as do the regulators who oversaw the firms bankruptcy. The so-called segregated customer funds were repeatedly, and legally (through re-hypothication), used as collateral for MF Global loans for 100:1 leveraged bets on European sovereign debt.
Rehypothication is the 800lb gorilla (Editors note: make that the 2,000 lb gorilla)...
A substantial portion of MF Globals commodity clients cleared their transactions through the Chicago Mercantile Exchange and Comex, owned by CME Group (ticker: CME). The question now looming over CMEs stock is whether the company will be liable for customer losses, as the Commodity Customer Coalition, a group that says it represents some 8,000 investorsincluding many hedge fundswith exposure to MF Global are not going down without a fight.
Rather than being treated as a bankruptcy of a commodities brokerage firm under sub-chapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (sub-chapter III) for the purposes of its bankruptcy, and this is why the MF Global customer money in so-called segregated accounts disappeared. In a brokerage firm bankruptcy, the customers get their money first, while in an equities firm bankruptcy, the customers are at the end of the line, meaning MF Globals creditors, namely J.P. Morgan and other trading counterparties, got their money first, just as AIGs CDS (credit default swap) counterparties (mainly Goldman Sachs) got their money first when the U.S. government bailed out AIG.
To add further insult to injury for MF Global clients, the firm reportedly unloaded hundreds of millions of dollars worth of securities to Goldman Sachs, and others, who then reportedly flipped these securities within a day to George Soros funds.
What the debacle implies is that nothing has really been learned from the 2008 financial crisis, and that there really is no safety in any paper investment when push comes to shove. Brokers and investment banks are effectively running leveraged ponzi schemes running in the trillions of USD with your collateral then refuse to offer you liquidity on the collapse of the trade because they wont face a brokerage. This has very wealthy individuals as well as non-too-big-to-fail market participants seriously reconsidering the risks of regulatory malfeasance during such systemic black swan events. In such cases, be prepared for commodities and equity brokers, investment and commercial banks to freeze your funds, enforced by central banks or other regulatory authoritiesi.e., a de facto banking holiday, while not only will your purchasing power be reduced by currency devaluations, but you will also be asked to again bail out the banksters with your tax money.
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I'm going to go cook for the Kid, before I get too inebriated (or depressed by the news)
Demeter
Feb 2012
#10
I'll Drink to That! Congratulations on your survival and wishes for a speedy recovery!
Demeter
Feb 2012
#34
Marshall Auerback: German Economic Striving at the Expense of Workers and Neighbors Will Backfire
Demeter
Feb 2012
#53
Politico: Schneiderman Caved to Administration Pressure on Mortgage Settlement...
Demeter
Feb 2012
#42
Schneiderman's sell-out has been among the more depressing developments lately ...
bread_and_roses
Feb 2012
#74
I wish that times was tomorrow. Tens of thousands of people in the streets......
Hotler
Feb 2012
#97