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Demeter

(85,373 posts)
87. How JP Morgan And George Soros Ended Up With MF Global Customer Money
Sun Feb 26, 2012, 09:53 AM
Feb 2012
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 Global’s former chief Jon Corzine as well as other MF Global executives said repeatedly the didn’t know where the failed brokerage firm’s $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 firm’s 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 (Editor’s note: make that the 2,000 lb gorilla)...

A substantial portion of MF Global’s commodity clients cleared their transactions through the Chicago Mercantile Exchange and Comex, owned by CME Group (ticker: CME). The question now looming over CME’s 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 investors—including many hedge funds–with 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 Global’s creditors, namely J.P. Morgan and other trading counterparties, got their money first, just as AIG’s 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 won’t 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 authorities–i.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.
THE FDIC ISN'T DRINKING--THEY'VE SHUT DOWN TWO BANKS ALREADY Demeter Feb 2012 #1
Little Falls? CatholicEdHead Feb 2012 #8
$106.3 M TOTAL LOSS for the 2nd half, $157.6M for all of February Demeter Feb 2012 #32
First rec! hamerfan Feb 2012 #2
Bank of America Breaks With Fannie Mae By NELSON D. SCHWARTZ Demeter Feb 2012 #3
India call centres 'used in US debt collection fraud' Demeter Feb 2012 #4
Monsanto Agrees To Pay Up $93 Million In Agent Orange Settlement Demeter Feb 2012 #5
The only thing I missed when I realized I couldn't drink was beer Warpy Feb 2012 #6
Well, I hope you can survive this weekend without getting bent out of shape Demeter Feb 2012 #9
There's always virtual beer! DemReadingDU Feb 2012 #15
I don't drink either, and I really don't like beer at all Tansy_Gold Feb 2012 #19
With Sale, Phila. Reporters Fear Loss Of Integrity Demeter Feb 2012 #7
Newt and Santorum get lost? Fuddnik Feb 2012 #24
I'm going to go cook for the Kid, before I get too inebriated (or depressed by the news) Demeter Feb 2012 #10
For good beer head to Wisconsin CatholicEdHead Feb 2012 #11
Ann Arbor has some microbreweries and they go on tour Demeter Feb 2012 #33
Gotta pull a draft from the local keg Po_d Mainiac Feb 2012 #12
troubleshooting beer Po_d Mainiac Feb 2012 #13
Beer sense Po_d Mainiac Feb 2012 #14
That's OK Fuddnik Feb 2012 #18
Ohio FBI Website Hacked DemReadingDU Feb 2012 #16
I got an early start. Fuddnik Feb 2012 #17
My tolerance tonight is worse than usual Demeter Feb 2012 #20
Musical Interlude while buying a round.... InkAddict Feb 2012 #21
Good companion video CatholicEdHead Feb 2012 #22
Yay, isn't technology great! DemReadingDU Feb 2012 #27
I'll Drink to That! Congratulations on your survival and wishes for a speedy recovery! Demeter Feb 2012 #34
Drinking mama juana this weekend. hay rick Feb 2012 #23
Musical Interlude hamerfan Feb 2012 #25
Musical Interlude hamerfan Feb 2012 #26
I like beer Loge23 Feb 2012 #63
happy beer morning to all xchrom Feb 2012 #28
Greek farmers offload crops at cost price xchrom Feb 2012 #29
Yep. All the Middlemen Are Gonna Get Cut Out Demeter Feb 2012 #35
Greece sets stage for Friday bond swap Demeter Feb 2012 #37
the hot mess just keeps getting hotter and messier. nt xchrom Feb 2012 #38
G20 must protect the IMF from Europe Demeter Feb 2012 #40
Athens told to change spending and taxes Demeter Feb 2012 #50
Berkshire Profit Declines 30% on Derivatives xchrom Feb 2012 #30
Buffett Says He’s ‘On the Prowl’ for Large Acquisitions to Build Berkshire xchrom Feb 2012 #44
Berkshire has found Buffett’s successor Demeter Feb 2012 #80
Indonesia, Malaysia beat growth expectations xchrom Feb 2012 #31
Thailand Best After China Among Emerging Markets xchrom Feb 2012 #92
Schäuble concedes third Greek bailout on the cards xchrom Feb 2012 #36
So much for German Discipline Demeter Feb 2012 #39
i have this idea that austrian/chicago/german schools of economics have failed xchrom Feb 2012 #41
German bank chief hits at Greek debt deal Demeter Feb 2012 #47
+1 xchrom Feb 2012 #51
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
"Don’t Tell Us It’s Not a Class War" bread_and_roses Feb 2012 #79
This whole Greek "Crisis" Is Just Messing with Ignorant Minds Demeter Feb 2012 #82
Charles Eisenstein: It's Time for A Better Narrative Demeter Feb 2012 #43
Berlusconi Victorious: Court Ends Corruption Case Demeter Feb 2012 #45
Apple yields to governance reform call Demeter Feb 2012 #46
AIG bullish on earnings capacity Demeter Feb 2012 #48
Madrid presses EU to ease deficit targets Demeter Feb 2012 #49
Why I Broke Up With Bank of America Demeter Feb 2012 #52
Is Congress Going to Double the Interest on Your Student Loan? Demeter Feb 2012 #54
Going to have it out with Reality now Demeter Feb 2012 #55
A buddy of mine has a four month old German short-haired pointer... Hotler Feb 2012 #56
... xchrom Feb 2012 #57
The Legendary Fudd was a real boozehound. Fuddnik Feb 2012 #65
A toast to Fudd. Hotler Feb 2012 #72
Hear, Hear! Demeter Feb 2012 #83
... xchrom Feb 2012 #91
German tax collectors volunteer for duty in Greece xchrom Feb 2012 #58
ARE THEY ALL FRICKING INSANE??? Demeter Feb 2012 #59
... xchrom Feb 2012 #60
Maybe they'll bring bier! Loge23 Feb 2012 #66
Musical Interlude hamerfan Feb 2012 #61
German beer songs (and some that aren't) Demeter Feb 2012 #62
No insightful economic news, but there's this: Loge23 Feb 2012 #64
Musical Interlude hamerfan Feb 2012 #67
Musical Interlude, corollary hamerfan Feb 2012 #69
Musical Interlude hamerfan Feb 2012 #68
Beer I Have Drunk and Enjoyed Demeter Feb 2012 #70
I never knew there were so many beers DemReadingDU Feb 2012 #73
Those are only the ones that I've Tried and LIKED Demeter Feb 2012 #84
The definitive song! hamerfan Feb 2012 #71
buongiorno xchrom Feb 2012 #75
i'd like to call everyone's attention to this thread xchrom Feb 2012 #76
This Week in Poverty: Deal on Unemployment Benefits Leaves Out Poorest Demeter Feb 2012 #88
the poor -- the growing numbers of poor -- for now are fucked. xchrom Feb 2012 #90
I wish that times was tomorrow. Tens of thousands of people in the streets...... Hotler Feb 2012 #97
Which is why they inserted certain provisions into the NDAA. Fuddnik Feb 2012 #99
New Citigroup Looks Too Much Like the Old One: Jonathan Weil Demeter Feb 2012 #77
Bankers escape big penalties in FDIC failed bank cases Demeter Feb 2012 #78
Responding to Critics, S.E.C. Defends ‘No Wrongdoing’ Settlements Demeter Feb 2012 #85
Chris Whalen: JPM and the Banks Have the MF Global Money And the Status Quo Is Protecting Them Demeter Feb 2012 #86
How JP Morgan And George Soros Ended Up With MF Global Customer Money Demeter Feb 2012 #87
Crook: Greek Deal Leaves Europe on Road to Disaster xchrom Feb 2012 #81
Well, the beer I started Friday is nearly gone... Demeter Feb 2012 #89
Hardware Startups Look to China xchrom Feb 2012 #93
Canada looking for Irish workers xchrom Feb 2012 #94
a little eddie izzard comedy to go with your beer xchrom Feb 2012 #95
Eddie Izzard Dress to Kill - War xchrom Feb 2012 #96
Thanks for post Eddie. He is way funny. Hotler Feb 2012 #102
Eddie Izzard Jesus Vs The Dinosaurs xchrom Feb 2012 #98
.... Hotler Feb 2012 #101
Guinness & molasses beer bread Hotler Feb 2012 #100
Yay! That is SO good! Nt xchrom Feb 2012 #103
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