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The first of many....
SO happy! Sanity may be creeping back!
REPUBLICAN TAKES VA BY 18%...
REPUBLICAN TAKES NJ BY 5%...
Dem Wins New York House Race..
09 Exit Polls: Voters Approve of Obama, Wary of Economy
sanity? like bush?
George Bush is not part of the discussion anymore. This is a backlash over concern for deficit spending and the handling of the economy.
RS, can you read? Est71 said a return to sanity. I would like to know what sanity.
and i'm no fan of the economic team, and certainly not of how the bank situation has been handled and wasteful incentive programs, but i doubt you'd like to see what would have happened without any spending, fiscal and monetary. why was the spending necessary? because of 8 years of obama's profligacy? remind me to throw up some info on Bush's tax cuts. but i'm sure you'll have some simple explanation there. even with the easing unemployment is close to 10%.
you're clearly not of a historian's bent. W. will be part of the discussion forever. as much as the republicans would like to see it otherwise. so will newt, cheney, ashcroft, etc. this isn't the kremlin, you can't just airbrush out of history those you didn't care for.
you bore me.
Corzine was just a horrible governor. Forget the party lines, the guy was just not qualified.
> remind me to throw up some info on Bush's tax cuts.
Yes, because it was the tax cuts that cratered the economy.
Many of the guilty parties (or at least their wives) are still in office. Barney Frank, anyone?
Next year's elections should be excting. Hopefully Gov. Paterson will stay in the race and get the nomination to run for a second term. He should NOT drop out under any circumstances. Doing so would be an insult to the people of NY.
The Republican National Committee
There was a time that this place was about real estate, not the usual partisan politics. But, then again, since even the Dining In section of today's NYT has chummy article about the Obamas, there is no safe haven from grandstanding political opinion.
SO happy! Hannity may be creeping back!
What the heck does this have to do with "Anti-Democratic". Democrats as a whole have a much higher approval rating than Republicans.
This is about local issues. Period. It has nothing to do with the Democrat party or Obama. I live in NJ at the moment, and voted for Christie. I am a liberal democrat who normally favors democrats, I approve Obama (like most people) and would vote for him again. Corzine was an awful, awful governor.
I have to give you taht montclair18. There were other issues at play with Corzine. clearly.
I thought I'd like Corzine when he was elected to the senate... I wanted him to win.
Took a couple years, but then I realized he was just AWFUL.
Corzine is proving he's as good a CEO as he is governor
The crisis at MF Global Holdings Ltd. deepened Wednesday, as the trading firm, reeling from exposure to European sovereign debt, hired bankers to explore a possible sale and scrambled to shore up confidence among customers.
The decision Wednesday by MF Global's board came as the New York company has been rattled by more than a week of bad news. MF Global's shares have plummeted 57% in the past eight trading days, while yields on its bonds have soared to distressed levels. On Monday, Moody's Investors Service cut its debt rating to one notch above "junk" status.
But Riversisider, they only did EXCHANGE traded derivatives. No CDS! You should love MF.
CDS is not the issue.
Too many of these Wall Street guys don't understand risk. They look to make a quick few bucks before the next tail risk event. At least in the case of MF Global they didn't put the tax payer at risk. Why do these people seem so much smarter when they work at Goldman...Whoops Corzine wasn't smart there either.
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.
The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.
Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.
Yeah its bad. In RE-speak, its like if Archstone went bankrupt and failed to segregate all their tenents deposits...nationally. And lost all the money. Or a bank holding thousands of peoples' downpayment in escrow did the same.
Thanks for the translation. You are a real lifesaver.
Wonder who signed off on the transfer. The CEO and the Board of Directors never takes responsibility. It's alwasy a rogue trader/employee. Forgot who said it but there are no rogue employees , just rogue banks.
The Federal Reserve is among those feeling the pinch from the collapse of MF Global, which only eight months ago was added to the Fed’s list of 22 primary dealer banks
“At the very least these applications will undergo a much more stringent vetting procedure,” Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The lesson of history after these sudden financial bankruptcies is that regulators come down harder than ever.”
The Fed had tightened conditions for selecting dealers in January 2010, increasing capital requirements from $50 million to $150 million.
WASHINGTON (AP) — MF Global, the failed securities firm led by former Goldman Sachs chief Jon Corzine, admitted using clients' money as its financial troubles mounted, a federal official says.
Here's the fun part about this. In August Jeffries under-wrote an investment grade bond offering by MF Global(rated by Moody's & S&P). The bonds had an unusual clause. Seems Corzine was considered so valuable and there was talk about a position in the Obama administration that the bonds promised to pay a higher interest rate if Corzine left MF Global.
Please they should have paid him to leave!
Also how did the rating agencies not catch 40 to 1 leverage which did MF in. This is Lehman style leverage in a company with far less flexibility.
Big lawsuits will surely follow. They'll be looking at rating agency due dilligence, underwriter due dilligence and the actions of key MF global directors, senior traders and managers.
what part of bankruptcy is fun?
New York -- The key point to be made about MF Global is that a primary dealer in US government bonds failed with the Obama Administration and the US Treasury apparently clueless. Only on Friday when bankruptcy counsel had been retained did the Fed of New York pull dealer lines from MF Global.
Enter Corzine in the spring of 2010, who had just lost his job as New Jersey’s governor to Chris Christie. He was brought in by his old pal and former Goldman partner Chris Flowers, whose firm had invested in MF Global. Fairly quickly, Corzine accumulated a massive net long sovereign debt position that eventually totaled $6.3 billion, or five times the company’s tangible common equity as of the end of its fiscal second quarter. I’m told Corzine’s move was highly controversial within the firm. But no one overruled him, maybe because after all, he was Jon Corzine. In a mark of just how much Corzine mattered to the market, in early August, MF Global filed a preliminary prospectus for a bond deal, in which the firm promised to pay investors an extra 1% if Corzine was appointed to a “federal position by the President of the United States” and left MF Global.
Buying European sovereign debt may not have been just a bet that the bonds of Italy, Spain, Belgium, Portugal and Ireland would prove attractive. An additional allure may have been the way MF Global paid for the purchases, and thereby, the way the accounting worked. MF Global financed these purchases, as its filings note, using something called “repo-to-maturity.” That means the bonds themselves were used as the collateral for a loan, and MF Global earned the spread between the rate on the bonds, and the rate it paid its repo counterparty, presumably another Wall Street firm. The bonds matured on the same day the financing did.
The key part is that for accounting purposes, MF Global’s filings say the transaction was treated as a sale. That means the assets and liabilities were moved off MF Global’s balance sheet, even though MF Global still bore the risk that the issuer would default; that means the exposure to sovereign debt was not included in MF Global’s calculation of value-at-risk, according to its filings. And that also means MF Global recognized a gain (or loss) on the transaction at the time of the sale. The filings do not say how much of the gain was recognized upfront. But if it were a substantial portion, then these transactions would have frontloaded the firm’s earnings. That, in turn, may have helped cover the fact that MF Global’s core business was struggling.
Once the regulators and rating agencies began to zero in on all of this, it didn’t matter that the trade itself may not have been that risky. (The debt all matured by the end of 2012, and MF Global, of course, had financing in place until it matured.) But it was European sovereign debt, after all, and the trade was huge—and it appears that part of the concern may have been the accounting, and certainly the lack of disclosure. On September 1, MF Global said in a filing that the Financial Industry Regulatory Authority (FINRA) was requiring it to “modify its capital treatment” of the European sovereign debt trades. According to an affidavit filed by MF Global’s president on the day of the bankruptcy, FINRA was “dissatisfied” with the September filing and “demanded” that MF Global announce that it “held a long position of $6.3 billion in a short-duration European sovereign portfolio financed to maturity.” Words like “dissatisfied” and “demanded” aren’t good in the context of a regulator!
By the time the market opened on Monday, October 24th, MF Global’s stock had already fallen 62% from its high of almost $10 following the announcement that Corzine was joining the firm. Then, Moody’s downgraded the firm’s debt, citing MF Global’s “inability to generate $200 million to $300 million in annual pretax earnings and keep its leverage within acceptable range.” In other words, Moody’s was concerned about the real profitability of the business. The next day, MF Global reported its $6.3 billion position, per FINRA’s demand, and also reported that it had lost almost $200 million in the quarter ended in September—in large part because the firm had reduced its deferred tax assets by $119.4 million, a sign that the accountants were saying there wouldn’t be a return to big profits any time soon. By the end of the week, all three rating agencies had downgraded MF Global debt to junk. Moody’s wrote that its downgrade “reflects our view that MF Global’s weak core profitability contributed to it taking on substantial risk in the form of its exposure to European sovereign debt.” MF Global’s stock finished the week down 67%.
Of course, if Corzine made the trades for an accounting play, there’s a deeper question of why he would feel the need to do this. And isn’t that always the question in situations like this?
In the end, Jon Corzine was little more than an unsupervised rogue trader.
about 12 hours ago
ignore this person
what part of bankruptcy is fun?
Is bankruptcy a raw subject for columbiacounty?
Riversider, the US Treasury and Obama don't run the Fed, so pinning them to MFG as a prmary dealer is moot.
This is a sad situation. Just wonder where the heck the regulators were in supervising MFG's activities - maintaining segregated funds is a no-brainer in this business.
The CME accuses MF of deception.
the longer corzine takes to come out and say something is making him look worse and worse.
Marco. Corzine is being muzzled by his lawyers. Him coming out and talking is all downside very little upside.
MF Global Holdings Ltd. (MF) may have transferred customer money last week following an audit by CME Group Inc. (CME), which has regulatory authority over the futures broker.
The transfer “may have been designed to avoid detection in so far as MF Global did not disclose or report such transfers” to the Commodity Futures Trading Commission or CME Group, the Chicago-based exchange owner said today an e-mailed statement.
WASHINGTON -- A regulator investigating the collapse of Jon Corzine's securities firm, MF Global, said Thursday that the firm's failure to separate its clients' money from its own assets violated "the core foundation" of investor protection.
Gary Gensler, chairman of the Commodity Futures Trading Commission, told a Senate panel Thursday that "the most troubling aspect about the MF Global situation is the shortfall of customer money at the firm."
MF Global admitted to regulators early Monday that it had diverted hundreds of millions in client money. The company filed for bankruptcy protection Monday. The CFTC and the FBI are investigating whether it broke government rules or criminal laws.
Last year, the CFTC proposed tightening restrictions on the type of investments in which brokers can park their clients’ money.
For example, the agency proposed banning the internal transactions. It also proposed prohibiting brokers from holding the money in bonds issued by foreign governments.
The agency said it was trying to safeguard customer funds. The financial crisis, it said, “has highlighted the fact that certain countries’ debt can exceed an acceptable level of risk.”
MF Global argued against those changes. The existing rules “have not, to our knowledge, resulted in any” firm’s “inability to provide customers their segregated funds upon request or to continue as a solvent entity,” the firm wrote in a letter co-signed by another brokerage firm.
“We believe the proposed amendments could decrease significantly the income” firms “derive (and could potentially derive) from prudently investing in customer segregated funds,” MF Global wrote.
MF Global clients are now waiting to find out what happened to their money and how much they will recover.
Just three months ago, Mr. Corzine’s firm assured regulators that the proposed rule could cripple the futures brokerage industry by hurting their profitability. In a letter, MF Global told regulators that they were trying to “fix something that is not broken,” adding that the firm was not aware of any brokerage firm like itself that was unable to “provide to their customers upon request any segregated funds.”
MF Global’s clients, including hedge funds, individual investors and agricultural firms, now know a different reality, as the clients struggle to locate their missing funds. And regulators are pushing to again move forward on the rule. But for MF Global, the rule will come too late.
Just one year ago...
This is prescient.. @ the 4 minute mark
If I was an MF GLobal client who lost my money, I would be paying a nice visit to Corzine's Hoboken condo...
and then what would you do?
hey, columbiacounty, did the doctor find the source of that incessant squeak?
does this make you feel real?
About Corzine and the thinking his bets would eventually work out--Howard Marks quote below....
Never forget the six-foot tall man who drowned crossing the river that was five feet deep on average.
The important thing to remember about investing is that it is not sufficient to set up a portfolio that will survive on average.
Great piece on MF Global. couple of points.
* The Gasparino story about MF globa's outdated accounting system is crap
* There's a lot going on behind the scenes
* JP Morgan probably has the money, but customer accounts were most likelyfraudulently issued as collateral
* There's a huge fear MF GLOBAL will result in a loss of investor confidence. How do you know your assets are safe with a broker?
My account with MF is frozen.and unfunded as per my commodity broker who was fired yesterday. Apparently the money is gone.Another lawsuit.
The game is so corrupted it's no fun anymore.
So here is a little advice: this may have seemed paranoid a while back but not anymore.YOU ARE NOT THE OWNERS OF YOUR STOCKS.that's right. you are the beneficiaries of it. the legal owner of your portfolio is DTCC (Cede andCo,the "street").
So I suggest you transfer the certificates in your name (if your broker agrees, which is not a given).It seems far fetched but times are uncertain.I just experienced a nasty episode that i thought was not possible.
Oh and gold and silver (physical in your possession).and good luck.
sorry to hear that midtowner. If you don't mind me asking, how much did you lose?
I think your entitled to recover up to $500,000 from SIPC.
Good background piece on how the MF global transfers
McClellan has more than $110,000 tied up in MF Global, which he doesn't know if he will get back.
"Using the excess collateral in clients' funds to trade is not illegal, but to my mind it's immoral. There is a huge risk," he said.
Futures commission merchants, as brokers in the industry are known, have always been allowed, with certain restrictions, to invest customers' so-called "excess margin," or the funds in their accounts over and above the collateral required to maintain trades. The brokers then book any profits for themselves.
Segregation simply means that customer deposits can't be mixed with the firm's own money or used to cover firm expenses. They must always be available for customers to trade with or withdraw at a moment's notice. In other words, customer segregated money isn't some big cookie jar for the firm to dip into when it is short on cash.
"That is what is so shocking about MF Global's situation," said Michael Greenberger, a former director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC) and now a law professor at the University of Maryland.
MF Global's standard agreement with customers permitted the firm to "borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan or invest any of the collateral" in customer accounts. The language is typical of agreements throughout the industry, said one longtime futures trader and industry consultant who did not want to be identified because he does work for CME Group.
The largest customers might be able to get that language tweaked in their favor a bit, perhaps with an agreement to split revenue earned on the customer deposits. But smaller investors generally have to accept the firm's plans for the use of excess cash in their accounts.
Trading in commodities has exploded over the past ten years, increasing by more than 600 percent according to some estimates, and bringing in a new breed of 'Mom and Pop' investors hoping to protect themselves against, and benefit from, the rising costs of food and energy.
The practice of firms using customer excess cash to make money has been a basic source of revenue for the industry for decades, if not centuries. In fact, it is revenue from those investments that has allowed the firms to cut their commission rates to attract more business.
The practice is codified in U.S. law and regulation, which until 2000 limited use of the funds to basically U.S. Treasury and state and municipal obligations. Over the next five years, the rules were eased to permit firms to use customer money to enter into repurchase agreements and buy foreign bonds, money market funds, and assorted securities.
When the financial crisis prompted second thoughts from the U.S. Commodity Futures Trading Commission, the industry fought to stop proposals to cut back on how much the firms could do with customer money.
Mitowner, I think this is where you gave MF GLOBAL the right to screw you..
8. CONSENT TO LOAN OR PLEDGE
You hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.
One less high-profile clause concerns the segregation of margin. The legislation requires dealers to notify counterparties at the beginning of each uncleared OTC trade that they have the right to require “segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty”. It sounds minor – and sensible – but the clause could end up having a marked impact on the price of derivatives.
The issue centres on the dual use of collateral by banks. While many participants see it first and foremost as a way of reducing credit risk, collateral has come to be seen as a key funding mitigant for banks. “There are two benefits to having collateral posted. One is to reduce credit risk, and the other is funding,” says Harry Harrison, head of rates trading at Barclays Capital in New York.
Specifically, collateral is often used by banks as a source of funding on derivatives transactions – typically through rehypothecation, where the assets are reused, sold or lent out to a third party. In a survey on margin published by the International Swaps and Derivatives Association in April, 82% of large dealers reported rehypothecating collateral received in connection with OTC derivatives transactions. If collateral is segregated and not available for rehypothecation, banks have to assume they need to raise funding to meet the cashflows over the life of the trade using their own internal funding curves – and new liquidity regulations are leading to higher long-term funding costs for banks (Risk September 2010, page 13).
In theory, this should feed through to clients in the form of higher costs. “Ultimately, if you give your money to a High Street bank on deposit but it can’t reuse that money in its operations, the interest rate it offers will be far worse than if you allow it to use the money and lend it out to other clients and businesses. In the same way, there is an opportunity cost to not being able to use initial margin clients post to us, and it’s a cost we have to look at on a case-by-case basis,” says Haroon Sana, global head of rates sales at Deutsche Bank in London.
In the most extreme cases, where all forms of collateral are segregated, banks would have to add the same funding charge that would be seen in a one-way credit support annex (CSA) agreement. In other words, dealers would have to assume they would need to fund all margin calls themselves, without getting the funding benefit from collateral posted by the counterparty – something that could have a dramatic impact on pricing.
Protection of client assets has become a hot issue since the bankruptcy of Lehman Brothers in September 2008. With little segregation of margin and frequent use of rehypothecation in certain jurisdictions, a number of hedge funds were dismayed to discover they had to file an unsecured claim for the recovery of the assets. In particular, $35.2 billion worth of client assets was locked down as a result of the collapse of Lehman Brothers International (Europe) (LBIE), a London-based broker-dealer subsidiary. More than two years on, $14.1 billion of client assets still has not been returned, according to the latest report by PricewaterhouseCoopers, the administrators of LBIE. As a result, hedge funds are more cognisant of asset segregation by their prime brokers in general.
I guess Corzine was out to copy Lehman..
"We knew the jig was up," one hedge fund manager told me, "early in 2008 when hedge funds had trouble getting their money and securities back from Lehman, supposedly a "prime" broker, because Lehman had "rehypothecated" them." That is, Lehman had used its CUSTOMERS' collateral as security for its own debts. This is a practice that is legal (just barely), but is probably neither ethical, nor a good business practice. It smacks of "commingling" customers' funds (and interests) with your own.
Regulators have unearthed more details about MF Global Holdings Inc.'s activities in the days before its bankruptcy filing that suggest the securities firm shifted hundreds of millions of dollars in customer funds to its own brokerage accounts, according to people familiar with the matter.
MF Global's internal records indicate that the company moved segregated customer funds in transactions as large as hundreds of millions of dollars at a time, these people said. The money was transferred out of the unit that houses the assets of futures-trading customers and went into the accounts of MF Global's brokerage, people familiar with the situation said.
n the last days before MF Global’s collapse, the firm was borrowing cash from its customers without backing the loans, a serious violation of Wall Street rules that regulators believe contributed to $600 million of missing money, say people briefed on the investigation into the collapse.
Investigators have now zeroed in on the suspect borrowing at the commodities and derivatives brokerage firm, which at the time of its collapse was run by Jon S. Corzine, these people said. At least some of the borrowed customer cash was used to pay off bad bets made by MF Global, regulators suspect, meaning the money is not simply missing. It is gone.
I spoke today with a friend who is recently MF'ed unemployed.
He was a close associate of Corzine.
He told me that every advisor was begging him to clear out of his positions and he IGNORED all of them.
Huberious know it all shit head. Jersey clearly had a toxic effect on his capacity for critical thinking.
Prehaps it's no so easy to make money without the the kind of information known today as insider trading.
We were so close to having a Secretary of Treasury Corzine...
Jon Corzine bet $11.5 billion on European sovereign debt in his bid to rebuild profits at MF Global Holdings Ltd., almost twice the net amount disclosed to investors, and relied on short-term hedges that left the firm exposed to larger losses if they couldn’t be rolled over.
Although the trades didn’t require pre-approval by the board, directors (MF) later questioned Corzine’s investment, according to a person familiar with the discussions. After challenging the size of the bets and the concentration on a small number of countries, the board set dollar limits on the amount of sovereign debt its chairman could buy. Corzine came back to the board at least once to get the ceiling raised.
Some risk managers and traders at MF Global shared the directors’ concerns, according to a former employee with knowledge of the matter. The risk-management department began asking for daily prices of credit-default swaps on sovereign debt to keep track of how the market viewed the underlying bonds, a second person said.
Even after nine years in politics, Corzine never shook the trading bug. He was a prominent presence on MF Global’s trading floor, frequently leaving corporate meetings to check on the markets, according to one person familiar with the firm. He had a reputation for knowing where prices were minute-by-minute, an unusual level of detail for the CEO of a global financial institution.
MF Global had been dipping into client funds for weeks before its failure – rather than just in its final days as had been previously reported – say US authorities investigating the broker-dealer’s collapse.
Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.
Just watched most of the testimony. Kind of surprised he spoke, but he deftly said nothing. Suspect he lied on a few items, but we'll see.
I heard some of it to. JC seemed pretty confident that MfGs clients would get their money back. But he probably was just being appeasing.
With all these crisis, subprime, Lehman, AIG, MF Global, isn't it interesting that there are no bad guys, no criminals, nothing. It was just an honest mistake.
Fuld, Prince, O'neal, Cayne, Blankfein, and now Corzine are a few that should be held more accountable for sure.
is that an original thought?
Brooks, the savings and loan crisis was but a fraction of the sub prime crisis and yet the number of convictions isn't even close.
this is what happens when the 'smartest guys' in the room can't make money by chicanery.
if anyone wants to see the whole thing.
for what's it's worth i found the agriculture committee to be more thoughtful than many of the other house committees.
So Jill Sommers states laws were broken, but the man on top who has Sarbanes Oxley expsure knows nothing. I love when laws are broken but nobody is guilty.
why do you love this situation? it seems like its a bad thing for everyone.
Seems anytime something goes wrong we learned the cfo or risk officer was fired or quit or let go...
Michael Roseman, MF Global's chief risk officer, warned Corzine in meetings between the two of them as well as in huddles with others present that the company didn't have enough cash on hand to withstand a fallout from its position in Italian, Portuguese, Spanish and Belgian bonds, according to the Wall Street Journal. Still, MF Global's board allowed the firm's exposure to European debt to grow from $1.5 billion at the end of 2010 to $6.3 billion right before the company declared bankruptcy at the end of October.
so...if the guy gets fired, you criticize. if the no one gets fired you criticize.
what is the common denominator?
"I never intended to break any rules.”
This could mean anything, but consider that this canned response was formulated word for word by Levander. I think what Corzine was saying was that he may have authorized some actions in the later stages of MFG’s existence that ultimately led to the expropriation and loss of customer funds. He is trying to establish that whatever he may have said (or signed), he did not understand the consequences. Whether this is true or not, I don't know. We might find out at some point that some clown in the treasury department at MFG asked JC a question in the middle of the panic:
“We could re-hypothecate the seg accounts and plug the gap tonight! Should we do that?”
And Jon could have looked up and said:
“Do what you can!”
The problem with the “I never intended” defense is that it doesn’t work for a CEO who should have know better.
look no further than the March 2011 departure of Michael Roseman from MF Global (MFGLQ), which is now infamously in bankruptcy court. (The company’s former chief executive, ex-New Jersey senator and governor Jon Corzine, is scheduled to testify before the House Agriculture Committee today, telling them, among other things, that he doesn’t know why $1.2 billion in client funds are missing.)
Roseman left his position as MF Global’s chief risk officer after raising concerns about the big bets that the company was making on European bonds, at Corzine’s behest, according to an excellent article by Aaron Lucchetti and Julie Steinberg in Tuesday’s Wall Street Journal. Those warnings, of course, proved prescient — concerns over the size of those investments (they reached $6.4 billion at one point after Roseman’s departure) and the underlying risk led to MF Global’s ultimate downfall. Roseman was told in January that he would be replaced, according to the WSJ, and stuck around a few months to smooth the transition
But investors knew nothing about this conflict. Presumably, it would have been good to know that the official in charge of assessing risk — and warning against untenable risks — had summoned up the courage to challenge his ultimate boss, and even, as the WSJ tells it, to take his case to the CEO’s bosses, the board.
Instead you get bland language like this lone sentence from the 10-Q the company filed on February 3:
“Mr. Michael Roseman, our prior Chief Risk Officer, received notice from us on January 31, 2011 that his employment will end on April 1, 2011. Mr. Roseman’s separation will be in accordance with the terms of his employment agreement.”
The only other indicator that something might be wrong was the fact that MF Global paid Roseman $1.35 million as he left. But this is all MF Global’s July proxy had to say on the subject:
“Mr. Michael Roseman’s employment with the Company ended effective March 31, 2010. In connection with his separation from the Company, Mr. Roseman was paid severance totaling $1,350,000 under his employment agreement. Mr. Roseman’s severance payment was calculated by adding his fiscal 2011 target cash bonus amount ($500,000), his fiscal 2011 target equity bonus amount ($500,000) and his fiscal 2011 salary ($350,000). All of Mr. Roseman’s unvested restricted stock units vested as of March 31, 2011.”
This is where reading between the lines becomes so critical. Executives who quit of their own volition, especially non-CEOs, rarely get big bucks on their way out the door. Often, that’s a sign that they went unwillingly. And yet, it offers no hint as to why he left: Poor performance? Personality conflict? Someone’s brother-in-law needed a job? There are a million potential reasons, good and bad, for easing someone out, and investors shouldn’t be left to guess.
Come on .. he knew...
(Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
Under the U.S. Federal Reserve Board's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client's liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.
But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500).
This asymmetry of rules makes exploiting the more lax UK regime incredibly attractive to international brokerage firms such as MF Global or Lehman Brothers which can use European subsidiaries to create pools of funding for their U.S. operations, without the bother of complying with U.S. restrictions.
In fact, by 2007, re-hypothecation had grown so large that it accounted for half of the activity of the shadow banking system. Prior to Lehman Brothers collapse, the International Monetary Fund (IMF) calculated that U.S. banks were receiving $4 trillion worth of funding by re-hypothecation, much of which was sourced from the UK. With assets being re-hypothecated many times over (known as “churn”), the original collateral being used may have been as little as $1 trillion – a quarter of the financial footprint created through re-hypothecation.
BEWARE THE BRITS: CIRCUMVENTING U.S. RULES
Keen to get in on the action, U.S. prime brokers have been making judicious use of European subsidiaries. Because re-hypothecation is so profitable for prime brokers, many prime brokerage agreements provide for a U.S. client’s assets to be transferred to the prime broker’s UK subsidiary to circumvent U.S. rehypothecation rules.
Under subtle brokerage contractual provisions, U.S. investors can find that their assets vanish from the U.S. and appear instead in the UK, despite contact with an ostensibly American organisation.
Just so bad. Suprised RS did not post article on how COO said he knew nothing. No one knows anything. Unreal.
Yet their testimony varied in subtle ways
Corzine said he did not direct anyone to misuse the money. Abelow said he does not recall directing anyone to divert the money. Steenkamp said clearly that he did not "authorize, approve or know of any transfers of customer funds" out of their accounts."
Jason, I think Steenkamp just did took one out of the Seargant Schultz playbook, " I know nothing, nothing"
This needs to be treated like a criminal investigation. It's very simple did MF Global break the law, and were high ranking officials guilty of same. The congresional hearings are a joke
the question is what is worse: your inane ability to state the obvious, your incessant posting of material that you don't bother to read or your blatant fabrication of fact to suit your view of the world?
Hmmmm...RS may be right. CME calls Corzine a liar, basically.
seeing a Goldman Alum in handcuffs..... priceless.
Sen. Pat Roberts, R-Kan., said a revelation from a Senate witness on Tuesday "tossed a bomb" near the end of the day-long hearing about $1.2 billion in missing client money from bankrupt company, MF Global.
The chairman of the CME Group, Terry Duffy, told the Senate Agriculture, Nutrition and Forestry Committee investigating MF Global that former CEO Jon Corzine was aware of loans that may have used customer money, contradicting Corzine's two testimonies to Congress and authorities investigating missing clients' funds.
If you see part ii of today's hearing Corzine seemed to imply that his firm fully disclosed the risks of his firm, implying customers had it coming. This was challenged by a Senator, that said, despite thinking the firm was shaky, customers had an expectation their money was safe. I'll have to watch part iii for jason's last minute surprise..
I never said MF was not a bad actor. I just said it was not a DERIVATIVE trade. It has always seemed incompetent at best, and now veering on overtly criminal. But a repo is still not a derivative. Not all firms imploded because of derivatives. Joe Jett traded US Treasuries.
this is where I disagree, the total return swap and the repo to maturity are so similar in effect that the technical distinctions are of no importance. It's been written about that what probably attracted MF Global to the repo to maturity vs total return swap was that it achieved the same goals without the same red flags to the regulators. The leverage , credit risk, and balance sheet treatment were quite similar.
Shorting a stock and a put can be similar. Does not make a short sell a derivative. You can do various combinations of shorts and longs along the bond yield curve to replicate what future or swap would do, but that does not make those trades derivatives.
Anyway, this quote from the WSJ is hilarious: ""This isn't the Dark Ages," said Sen. Debbie Stabenow (D., Mich.), the chairman of the committee. "MF Global didn't keep their books with feather quills and dusty ledgers."
While Mr. Duffy clearly aimed to throw the attention on what Mr. Corzine knew of the illegal transfers, subsequent guidance (or lack thereof) from CME has softened the accusation. They are now saying that the information they received indicated Mr. Corzine knew about the loans, but not whether they knew these loans were illegal or improper. They cannot comment on that, they said.
Shorting a stock and a put can be similar. Does not make a short sell a derivative.
Both instruments are done over an exchange with clear margin requirements and both have clear daily pricing. Bad example.
But one is a derivative and one is not. Great example.
Why aren't the #OWS people protesting Corzine? Where is Occupy Hoboken?
Shorting a stock and a put can be similar.
I hoped you were kidding with this bad example
A put is a bet on an underlying instrument with a time expiration, The short directly involved the underlying instrument with no expiration. The time component alone changes the p&l and risk.
With the total return swap and repo to maturity the timing, control of asset, balance sheet question are the same.
A better comparison would be CDS vs insurance, which are more similar with the exception of regulation, and the question of whether one could buy insurance on something one does not have an interest in, like my taking out a life insurance contract on Angela Merkel naming me as beneficiary, or purchasing a fire policy on the deli across the street.
Where is Occupy Hoboken?
isn't that where they are commuting from?
occupy hoboken is different.
they complain about parking
occupy hoboken had a late night they'll try to swing by after lunch. but don't hold them to that or anything.
Under bus throwing explained:
"As CME Group grew, federal regulators were relying on the exchange operator to be their eyes and ears on the ground. But in several recent assessments, the CFTC said that CME failed to adequately staff its oversight arm, while some of its fines lacked the necessary bite to scare repeat offenders. Combined with the rapid growth in trading volume and complexity of financial products, these staff cuts "could impair the effectiveness of an exchange's compliance program and impede enforcement," federal regulators warned in a 2010 audit of the company."
Valid point, the CFTC is under-funded, an relies on a for profit regulator , and one that throws a lot of lobbying dollars around. That said, the worst that can be said is the CME missed the warning signs of what MF did or didn't do.
The reporting afterwards pointed out that this smoking gun announcement by the CME is a bit more complicated, which means we can't just to conclusions, other than it's far more likely MF did something illegal than the CME..