Here is what I think and what I hear based on news and information from a variety of sources.
Obviously I cannot know the exact details or all the facts. And this becomes a little more speculative than normal, but that is the consequence of the lack of information and the cover up.
The facts are what the official investigation should uncover. Whether we find out what actually happened is another matter altogether.
We still cannot find out who had the customer assets, which is shocking. People know who it is, but they will not say. And here is the reason why.
There is a determined smokescreen that has been thrown up around this by MF Global and the financial industry.
The regulators and Justice Department are trying to discover the facts and then figure out how to deal with it. There is a public relations spin machine that is attempting to shape the perception of this event, with a variety of objectives and concerns, some at odds with each other.
First the good news, the customers will probably be paid. There may be a delay and it may involve some loss.
The Wall Street pros are trying to settle this behind the scenes in a way that masks the outrageous abuse of stewardship and systemic weaknesses. They are terrified of triggering a loss of confidence and a run on the system if people think that ownership of even Treasuries on account with Wall Street is a thin facade of security and not safe.
It is all about loss of confidence and disposition of responsibility.
The government and the financial system do not wish to expose their failure to properly protect customer money. Those who are lobbying against further financial regulation and investigations are concerned that a major scandal and lapse in 'self-regulation' would provoke a public reaction and a demand for greater transparency and safeguards.
And although this is more vague and speculative, the scandal is only the tip, a whiff of a much greater problem that no one wishes to even discuss, involving a broader misappropriation of assets and gaming of customer accounts.
They plan to blame it on 'accounting errors,' and sweep it under the tarp, as it were. But the sticking point is this: who pays, and how do you explain it?
There is no chance of finding a single rogue trader, so the effort will involve painting MF Global as a 'rogue broker.' By the way, the scandal involves their London trading operation as far as the transactions gone badly, but the details are not clear. They appear to have been 'set up' by another entity.
The regulators led by Jill Sommers and Bart Chilton are trying to understand what happened, but a smokescreen has been thrown up around this while the monied interests squabble about who will make good for the money.
A large institution took the customer funds as a loan collateral, but does not wish to disgorge the proceeds of the liquidated assets, because the loss would be theirs. And the details are politically sensitive.
A cover story is under construction but the major impediment is the argument about how the loss will be apportioned and the extent to which the public's demand for accountability will be satisfied.
The similarity of this to the 'settlement phase' of LTCM is striking, except of course that the Fed has not called the players together and forced a resolution and allocation of the losses amongst the players. This is why there is a delay.
The scandal involves public 'outsider' money, and has political implications, so the reluctance to accept the losses is greater, and at the same time 'touchier.'
This is why there is so much delay and confusion.
By the way, I hear that attorneys had to file an emergency motion in court this morning to prevent JP Morgan from jumping ahead of MF Globals segregated account owners in the disposition of assets.
As you may recall JPM is a major holder of MF Global unsecured debt, somewhere in excess of 1.2 billion. People obviously have wondered if they were the recipient of the segregated customer funds that were posted as last minute loan collateral, or whether that was done to secure an additional loan from another party.
Perhaps this indicates that JPM is not the holder of collateral, because to liquidate it, and then try to jump in front of customers when they attempt to collect as well, would be a monumental act of sheer piggery.
Many are interested in the identity of who may have provided last minute funds. Its a real financial detective story. Maybe some of the usual suspects are already queuing up for the book rights.
