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- Superior Biotechnology Leads to Superior Drugs
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- Doug Casey on Taxes and Freedom, Part II
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- Fitch Downgrades Japan
- Doug Casey on Taxes and Freedom
- Greeks Run on Banks as Euro-Confidence Wanes
- To the Class of 2012
‘NO ONE’S MONEY IS SAFE’
MF Global Collapse Spotlights Practice That Heightens Systemic Financial Risk
The swift implosion of MF Global highlights a common practice used by aggressive speculators, one that experts say makes the broader financial system vulnerable to another crisis. It’s called rehypothecation, and it allows a firm to essentially pledge the same limited collateral to arrange fresh loans.
MF Global is believed to have used client funds as collateral to borrow money to make bets on the risky sovereign debt of Portugal, Spain and Italy, leading to a daisy chain of securitization, Thomson Reuters Business Law Currents reported. It’s akin to using a single home as collateral for several loans and then investing that money to earn dividends before payments are due on the loans.
In recent weeks amid the turmoil of the debt crisis, European banks appear to be taking measures to restrict their exposure via these collateralized loans made through rehypothecation and have shortened the daisy chains of loaned securities. Clamping down on lending, they have instead deposited assets at the European Central Bank where the assets cannot be recommitted, Bloomberg reported on Thursday. They kept an average of $356 billion at the central bank over the last… Continue reading
HSBC Sues MF Global Over $850,000 of Gold
An HSBC Holdings Plc (HSBA) unit sued the MF Global Inc. brokerage trustee to establish whether he or another person is the rightful owner of gold bars worth about $850,000 and silver bars underlying contracts between the brokerage and a client.
Five gold bars and 15 silver bars underlie eight Comex contracts between the brokerage and its client Jason Fane of Ithaca, New York, the unit of London-based HSBC said in a court filing yesterday. Both parties have asserted claims to the bars, creating difficulties for HSBC, which is storing them, the bank said. HSBC asked a judge to decide who the rightful owner is.
“HSBC has received conflicting instructions regarding ownership and disposition of the property,” it said. “Accordingly, HSBC is exposed to multiple liabilities with respect to the disposition of the properties.” The unit is HSBC Bank USA National Association.
Bullion is selling for about $1,717 an ounce on the Comex in New York, up about 21 percent this year, as investors bought the metal to protect their wealth from Europe’s escalating debt crisis, and reached a record $1,923.70 in September. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.
‘Bars Are Mine’
“These bars are… Continue reading
Corzine: ‘I Simply Do Not Know Where The Money Is’
Read: STATEMENT OF JON S. CORZINE BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES
A contrite Jon S. Corzine will express both sorrow and a firm defense of his actions Thursday in his first public appearance since the collapse of MF Global Holdings Ltd. in late October.
“Recognizing the enormous impact on many peoples’ lives resulting from the events surrounding the MF Global bankruptcy, I appear at today’s hearings with great sadness,” Mr. Corzine plans to say in testimony prepared for a hearing by the House Agriculture Committee, which subpoenaed the former MF Global chief executive Friday. A copy of the testimony was released early Thursday on the panel’s website.
The testimony Thursday is sure to be contentious. Mr. Corzine, who resigned as chairman and CEO of MF Global after its Oct. 31 bankruptcy filing, is a Democrat and former U.S. senator and governor of New Jersey.
He will face an intense grilling by the Republican-led committee, creating an atmosphere fraught with political drama. Mr. Corzine, 64 years old, received President Barack Obama’s support in 2009 for his unsuccessful campaign for re-election as governor, and more recently held a fund-raising dinner for Mr. Obama.
$1B in MF Global Funds MIA
FBNs Charlie Gasparino on the amount missing from MF Global growing to more than $1 billion and former CEO Jon Corzine hiding out since he left the firm.
Corzine subpoenaed by House committee on MF Global collapse
Jon Corzine is in demand in Washington, with one committee subpoenaing him to testify, another getting ready to vote to do that, and a third negotiating with his lawyers about appearing.
The House Agriculture Committee voted Friday to subpoena Corzine, compelling the former governor U.S. senator to appear next week to discuss the financial collapse of his former firm, MF Global.
Corzine’s spokesman declined to comment Friday on the subpoena or the invitations from the two other congressional committees.
MF Global was a futures broker that filed for bankruptcy after Corzine bet $11.5 billion on European sovereign debt in his bid to rebuild profits. The Agriculture Committee is involved because farmers rely on futures contracts to hedge their risks, and the Commodity Futures Trading Commission is part of the committee’s jurisdiction.
The subpoena was supported by both Republicans and Democrats on the House Agriculture Committee, and chairman Frank Lucas, R-Okla., ranking member Collin Peterson, D-Minn., sent out a joint statement.
“The circumstances surrounding… Continue reading
CME Knew of MF Global Fund Shortfall Before CFTC Regulators
Nov. 16 (Bloomberg) — Examiners from CME Group Inc., the world’s largest futures exchange, found unexplained wire transfers at MF Global Inc. and a $900 million shortfall in client funds during the weekend the failing broker was talking with possible buyers, a person briefed on the matter said.
CME, which was the overseer of MF Global, noticed the shortfall by Oct. 30 — about a day before U.S. regulators said they were told of the missing funds and the broker filed for bankruptcy protection, according to the person, who spoke on condition of anonymity because the review isn’t public.
The futures exchange hasn’t publicly disclosed when it first suspected funds were missing. In a Nov. 2 statement, CME said MF Global didn’t inform CME or the Commodity Futures Trading Commission about the shortfall until Oct. 31. Transfers at MF Global were made “in a manner that may have been designed to avoid detection,” CME said in the statement.
Laurie Bischel, a CME spokeswoman, declined yesterday to comment further on the timeline of the exchange’s oversight of MF Global.
CFTC chairman Gary Gensler was informed of the shortfall in a 2:30 a.m. telephone call from MF Global executives on Oct. 31, Gensler said on Nov. 3.
CME found that the wire transfers involving client funds took place after Oct. 26, when the exchange had conducted a review of MF Global that found the client accounts were properly segregated, the person briefed on the matter said.
Acquisition Talks
Discrepancies over missing customer funds doomed a potential acquisition by Interactive Brokers Group Inc., said Hans Stoll, an Interactive Brokers director and a professor of finance at Vanderbilt University in Nashville, Tennessee. The deal could have averted the bankruptcy filing.
“The board certainly considered that purchase and stepped away from it at a point where it became clear there were lots of uncertainties about the accounts and segregated funds,” Stoll said in a Nov. 1 interview.
MF Global sought bankruptcy court protection after making bets on European sovereign debt and getting margin calls. The firm listed liabilities of $39.7 billion and assets of $41 billion in Chapter 11 papers.
The probe of MF Global’s cash movements is being conducted by the Justice Department, the CFTC, the Securities and Exchange Commission and the bankruptcy trustee’s staff in cooperation with the Securities Investor Protection Corp., James W. Giddens, the trustee, said on his website.
Fluctuating
The CFTC began investigating the missing funds on Oct. 31 and has issued subpoenas, including to PricewaterhouseCoopers LLP, the auditor of MF Global Holdings Ltd., the parent company of broker-dealer subsidiary MF Global Inc. The amount of missing funds has fluctuated since Oct. 31, and the CFTC is currently investigating about $600 million that should have been held in segregated accounts, according to a separate person with knowledge of the regulatory probe.
The agency took the rare step of publicly announcing its investigation, saying it was in the public interest to confirm the enforcement action. Gensler recused himself because of his ties to Jon S. Corzine, MF Global’s former chief executive. Gensler and Corzine worked together at Goldman Sachs Group Inc.
“This isn’t just a lost and found inquiry; it’s a full-on effort to get to the bottom of what appears to be a massive hide-and-seek ploy,” CFTC Commissioner Bart Chilton, a Democrat, said Nov. 10
The Koch Brothers and MF Global – Friends to the End
So much about the collapse of MF Global, the international commodity firm, has revisited the worst sins of the 2008 financial meltdown. There’s been outsized betting with other people’s money using Wall Street created derivative instruments. Ongoing investigations now show that leverage in these wagers had even eclipsed the worst of the Lehman failure. As in 2008, there’s been the total lack of oversight from regulatory agencies, as customer funds were diverted and used as collateral for Corzine’s wagers and 50,000 accounts are now being moved without the cash that they came in with.
But perhaps the most stunning piece of news we’re getting in the wake of the MF Global collapse is in the clients of the firm who managed to get away scot-free, with no freezing of accounts or capital — particularly the accounts of the mega-cap independent oil company Koch Industries, run by the politically active Koch brothers.
A recent report in Reuters has described the billions of dollars of client accounts that were withdrawn from MF Global in the last few weeks before their collapse, including 8 accounts from Koch industries engaged in oil trade that were transferred to Mizuho Securities after years of a steady and profitable relationship with MF. The Reuters piece concentrates on the possibilities of legal “clawback” of client money if the bankruptcy does not allow remaining client accounts to be made whole.
The Reuters piece misses the point.
