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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.
And it appears that investor outrage is prompting a reaction amongst the regulators, as well it should. It is good to see that the CFTC is taking this seriously, and it is always good to hear from the 'can-do commissioner' Bart Chilton of the CFTC.
And it probably doesn't hurt to have SIPC on the hook for the funds as well.
Jon Corzine is a prominent Democrat who was said to be a candidate to replace Tim Geithner as Treasury Secretary.
Massive hide and seek ploy. This is getting interesting.
Bloomberg
MF Global’s Missing Funds May Be ‘Massive’ Ploy: CFTC’s Chilton
By Silla Brush
Nov 10, 2011 5:31 PM ET
The $593 million shortfall in client money at MF Global Holdings Ltd., the broker that filed for bankruptcy on Oct. 31, appears to result from a “massive hide- and-seek ploy,” Bart Chilton, a commissioner at the U.S. Commodity Futures Trading Commission, said today.
The agency took the rare step of publicly announcing its investigation, which began on Oct. 31, saying it was in the public interest to confirm the enforcement action. Jill E. Sommers was named as the senior commissioner during the probe, after Gary Gensler, the agency’s chairman, recused himself.
“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,” Chilton, a Democrat, said in an e-mail.
“It’s a distinct possibility, some would say probability, that somebody has done something with the money, and that it’s not going to be ‘all of a sudden discovered’ with an innocent explanation,” Chilton said. “If that’s the case, it’s patently illegal. I don’t know yet. Our investigation will uncover that, and we’re aggressively pursuing this.”
Gensler recused himself from the investigation because of his history with Jon S. Corzine, the former head of MF Global. Gensler worked with Corzine at Goldman Sachs Group Inc. and during his time as a Senate aide, while Corzine represented New Jersey as a U.S. senator.
‘Get to the Bottom’
“I have complete confidence in the dedicated men and women in enforcement to carry out the necessary investigation to get to the bottom of what happened,” Sommers, a Republican, said in a statement.
The probe of MF Global’s cash movements is being conducted by the U.S. Justice Department, the Commodity Futures Trading Commission, 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.
The CFTC also began a review of futures brokers to determine if client funds are properly segregated. The initial review will include between 10 and 12 futures brokers and the CFTC hasn’t set a deadline for the review, a person familiar with the review said.
Diana DeSocio, a spokeswoman for MF Global, didn’t respond to requests for comment. Steven Goldberg, a spokesman for Corzine in New York, said he had no immediate comment."
A bear raid today ran the stops, and a few miners were selectively taken out and severely beaten down.
But all of it was within the range of the current trends. So it was easily ignored, except perhaps to round out some positions and add a few less familiar ingredients to the moveable feast of the shorter term portfolio.
I have mixed feelings on silver. I am less constructive of it in the short term than I am of gold as a safe haven play. But longer term silver is going to outperform gold by a considerable margin. It is just a more challenging trade to hold and maintain one's day to day serenity.
Speaking of serenity, I hear that Mary Schapiro and her crew are not worrying much about MF Global, but more about Money Market Funds (MMF).
They are considering a solution to the 'breaking the buck' situaton with money market funds, and their nasty exposure to Europe. Why worry about breaking the buck, just take the NAV and make it moveable! So you put money in an MMF, and you're not sure how much you'll get back.
"SEC Chairman Mary Schapiro said Monday that the agency plans to propose new requirements for the MMF industry within the next few months. They include the addition of capital buffers and a change from constant net asset value (CNAV) to variable net asset value (VNAV) funds."
Presumably the increased risk of capital will obtain a higher return, like maybe three tenths of a basis point instead of one tenth, as long as you are willing to roll the dice on the return of principal.
Oh yeah, that will work for most savers. This must be the Bank Transfer Day in Reverse movement. It should be good for bank deposits and US Treasuries. And maybe closed end gold funds.
SEC Money Market Reform
Technical trade off the bottom of the trading range.
Europe is still the driver of the financial markets.
If you think this volatility is bad, wait until next year. It will probably make this trading environment look like a 1950's snoratorium.
People forget, and no where do they forget more quickly than in the swings between greed and fear on Wall Street.
