Barclays and Others Seeks Bulk Claim Purchases from MF Global Customers

I have spoken to one customer of MF Global who has already accepted an offer of 91 1/2 cents on the dollar for his claims. He could no longer bear the waiting and the uncertainty, and wanted to move on. Others have indicated that they are going that to accept offers as well.

Although the sums of money involved may not seem substantial to those on Wall Street and in Washington, to the retail customers and their families it represents a significant amount of their savings and liquid net worth.

It was weighing heavily on their minds.

While I am glad to see the customers obtaining their funds, I cannot again help but note the disgraceful manner in which the government, the exchange, and the regulators, the CFTC and the SEC, allowed this theft of customer funds to unfold, especially the manner in which the Banks twisted the aftermath to their own advantage.

And Jon Corzine and his good friend Barack Obama should be ashamed.

Reuters
Barclays, Seaport eye bulk buys of MF Global claims
By Nick Brown and Ann Saphir
Mar 15, 2012 9:26pm EDT

(Reuters) - Barclays PLC and the Seaport Group have separately begun working to group together thousands of MF Global customer claims with an eye toward acquiring the claims in bulk, according to an attorney, and to a term sheet obtained by Reuters.

Barclays and Seaport, which have been in talks with customer groups to acquire claims at more than 90 cents on the dollar, are looking at ways to bundle smaller claims to make bigger bulk purchases, according to a term sheet from customer advocate group the Commodity Customer Coalition.

The coalition, which negotiated the offers, sent the term sheet to thousands of customer constituents this week, saying offers from Seaport and Barclays were contingent on the size of the claim.

Seaport has said it will only take on claims worth $100,000 or more, according to the sheet.

Trace Schmeltz, an attorney for the coalition, told Reuters on Thursday his firm, Barnes & Thornburg, will work with Seaport to find ways to bundle.

"They asked if we'd do it, and we have a team in place to help them," Schmeltz said.

Meanwhile, Barclays this week cold-called R.J. O'Brien, the futures broker with the most former MF Global clients, to seek the firm's help in reaching potential sellers.

"They asked to have a meeting with us to share with us the plan that they have in mind," the broker's chief executive, Gerald Corcoran, told Reuters at the Futures Industry Association's annual meeting in Boca Raton, Florida, on Tuesday. "If we can do it, we will facilitate" communication between Barclays and customers interested in selling their claims, Corcoran said.

Some $1.6 billion of customer funds originally parked with MF Global went missing after the broker's failure last October. James Giddens, the trustee charged with recovering client funds, has paid back about 72 percent of the money in commodity trading accounts.

Customers with foreign exchange claims have so far received nothing from the trustee.

More than 27,000 clients have filed claims with the trustee to retrieve the balance in their accounts, and it is these claims Barclays and others are after.

A spokesperson for Seaport did not return a call seeking comment. A Barclays spokesman declined to comment.

According to the coalition's term sheet, Seaport has offered 91.25 cents on the dollar to acquire claims for customers who traded on U.S. exchanges, and 66.25 cents for claims belonging to customers who traded on foreign exchanges.

Barclays has offered 91 cents and 66 cents, respectively, for U.S. exchange and foreign exchange claims belonging to institutions. It has offered 90 cents and 65 cents, respectively, for U.S. exchange and foreign exchange claims belonging to individuals.

Royal Bank of Scotland has made an offer for institutional accounts equal to Barclays', but the coalition is not touting RBS' offer to customers because the bank refused to take on individual accounts, according to the sheet.

A spokesperson for RBS could not be immediately reached on Thursday.

Bill Moyers Journals: 'Crony Capitalism' Part Two with Gretchen Morgenson

Here are a few of the reasons why there is no genuine financial reform, and as a consequence, no robust, sustainable recovery.



This is part of the same show in which Bill interviewed David Stockman.

I was looking at some figures today, and the Obama recovery is very weak compared to the performance of the Roosevelt Administration for example.

But this makes sense. Obama is more Hoover than Roosevelt, a moderate Republican, moreso than a progressive Democrat.

If Obama is a radical in the manner of Saul Alinsky, then Tim Geithner is a mathematician in the manner of Albert Einstein.

Tavakoli: An Anecdotal Peek at the Mispricing of Counter Party and Derivatives Risk

Here is an entertaining excerpt from Janet Tavakoli, Collateralized Debt Obligations & Structured Finance, John Wiley & Sons, 2003. She reiterates the incident in the expanded second edition, Structured Finance, 2008.

This is a nice example of the mispricing of risk and the related fallacy of netting in the derivatives markets which I discussed the other day, Critical Mass: The Mispricing of Desrivatives Risk and How the Financial World Ends.

It makes the assumption about risk in Black-Scholes look like a firecracker.

Not everyone has a Tavakoli-class analyst watching their back. I suspect that there are a lot of unintended bagholders blissfully walking around out there. They are one flick of a button away from financial evisceration. They just don't know it.  The implosion of MF Global was just a taste.

And that is what keeps the Fed and the ECB awake at night.

"One well-known, well-respected, American investment bank asked me to consider protection from one of their “transformer” vehicles. They asked if the bank I worked for would intermediate a credit default swap transaction. Requests for intermediation are common. Many banks need an OECD bank counterparty for regulatory capital purposes. If the structure is right, the intermediation fee can allow the intermediary bank to earn a reasonable return on the minimal capital required, and all parties are satisfied.

The investment bank sent over their documentation. It was a paltry two-page document, whereas monolines will send a small booklet and make their lawyers available to discuss language details. When I looked at the document, I realized that the transaction was unsuitable. The following diagram shows the gist of the proposal, without embarrassing those who should be.

The investment bank assured me they would give me proper credit default swap documentation incorporating whatever language I wanted. If a credit event occurred, the bank would look to the SPE to make payment under the terms of the credit default swap, and I could design the terms.

I declined.

The investment bank invited me to a meeting at their offices. Four tailored Armani suits or better appeared at the meeting. If life were a fashion war, the investment bankers would be winning. They were confident and took victory postures. They attempted to persuade me to do the transaction. I continued to decline. I could sense their building frustration. They couldn’t understand why they weren’t getting my agreement. After all, they were taller, they were louder, and they were in the majority.

So what was the problem?

I picked up a cookie – the meeting didn’t have to be a total loss - and explained. I didn’t want to play their shell game. The problem was that my counterparty for the credit default swap protection would have been the SPE, a shell corporation. The only asset of the SPE was an insurance contract. The SPE would only receive a credit default payment after the insurance company determined its actual recovery after taking the matter through bankruptcy proceedings. The SPE had no way of assuring timely payment under the terms of the credit default swap confirmation.

The transformer wasn’t even worth the price of the child’s toy of the same name for the purpose they were suggesting. Sure, the SPE would have ultimately got paid and the bank would ultimately have received payment, but that wasn’t the point.

The point was that the SPE did not have the resources to perform under the terms of its transaction with the bank. It could not pay on a timely basis, no matter how cleverly crafted the credit default swap confirmation. If a credit event occurred, the bank would have to fund the credit default payment to the ultimate protection buyer until the SPE finally received its payment from the insurance company. The investment bank only offered the usual credit default swap intermediation fee, but the bank had additional risk beyond the credit default swap agreement.

It’s possible that the well-dressed guys weren’t aware of this until I pointed it out. The implications of that are ugly enough. But if they were aware, the implications are even uglier."

I hear that the bankers in question were annoyed because they were just doing God's work.

Coyle: I want to tell you my secret now.  I see dead people.

Malcolm: Dead people like, in graves? In coffins?

Coyle: Walking around like regular people. They don't see each other. They only see what they want to see. They don't know they're dead.

Gold Daily and Silver Weekly Charts - A Rendezvous With Destiny

"In this world of ours, in other lands, there are some people who, in times past, have lived and fought for freedom. And they seem to have grown too weary to carry on the fight. They have sold their heritage of freedom for the illusion of a living. They have yielded their democracy.

I believe in my heart that only our success can stir their ancient hope. They will begin to know that here in America we are waging a great and successful war. It is not alone a war against want and destitution and economic demoralization. It is more than that; it is a war for the survival of democracy. We are fighting to save a great and precious form of government for ourselves and for the world...

There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny."

Franklin D. Roosevelt, 1936


“I am the victim of an error of judgement.

Now that I look back, I realize that a life predicated on being obedient and taking orders is a very comfortable life indeed. Living in such a way reduces to a minimum one's need to think.”

Adolf Eichmann