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Teenagers and children can’t wait. Time for grownups to take over.

By: ashland_avenue (Diary)  |  November 1st, 2011 at 11:58 AM  | 

RESIZE: AAA

Five days ago, I wrote a snarky little item here suggesting that troubles at Chicago based MF Global brokers could represent one more failure for former NJ Governor Jon S. Corzine.

I didn’t know or care whether MF would file or escape bankruptcy proceedings.  It was pretty clear even then that stockholders of the firm would face harsh consequences.

What was unfathomable less than a week ago was the idea that hundreds of millions of customer moneys could be unaccounted for at the troubled firm.

Thus, at cnbc.com:

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.   http://www.cnbc.com/id/45113687

And at NYT:

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.  http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/?hp

The collapse has led to disruptions in Chicago trading pits, where many market participants either cleared their accounts at MF or depend for settlements on others that did.

The MF denouement came at least in part because of Corzine’s view that MF should put more of its capital at risk.  Several billions of assets were positioned at risk in European sovereign bonds.  Enough so that a decline in the bonds’ value might have been enough to eliminate the MF capital.

I don’t so much mind the idea of putting one’s capital at risk.   We bear the consequences of bets gone bad, even if it’s bankruptcy.   Here’s what is unacceptable:  How does the former governor of a major state, the former CEO at Goldman Sachs, stand at the helm of an enterprise which puts $700 million of customers’ money at risk.

Want a translation for  ‘at risk’?  Say you had no margin debt, no securities in your account, just cash, and want it transferred to another firm.   Today, if your account was at MF Global, the answer back would be:  Wait a while, we can’t find it.

Remember, this is the industry in which Madame Secretary of State,  when she was just someone’s wife, put less than the legal minimum into a commodities account and saw it spun up to $100,000.  The money she made came from somewhere, presumably becoming a debit in the house’s trading account.

But, losing track of hundreds of millions of dollars in a short period of time takes more than just a tip from management.

Most likely, customer funds were wired out to settle the firm’s margin calls with counterparty firms worldwide.  Something like customer funds were wired out to Bernie Madoff’s favored spots.

Again, how does an ex-GSCO CEO, a former governor, stand by as this happens?

We should have known when he had the bodyguard/driver take the official vehicle past 90 mph on state roads.  A guy who couldn’t wait.

On April 12, 2007, Governor Corzine and 25 year-old aide Samantha Gordon were injured in an automobile accident on the Garden State Parkway near Galloway Township while traveling from the New Jersey Conference of Mayors in Atlantic City to Drumthwacket, his residence in Princeton, to meet with radio personality Don Imus and the Rutgers University women’s basketball team.[126]

The New Jersey State Police determined that Corzine’s SUV, driven by a state trooper, was traveling in excess of 90 MPH (147 km/h) in a 65 MPH (105 km/h) zone with its emergency lights flashing when the collision occurred.[127]  http://en.wikipedia.org/wiki/Jon_Corzine

Like I said, no problem with guys or companies putting their own capital at risk.  States and fiduciary organizations, however, should be run by grown-ups.

President Obama’s recent slogan seems to be ‘We Can’t Wait.’   Sounds a bit like Jon Corzine stepping into MF Global, doesn’t it?  We have to be big right now.  We can’t wait.

My suggestion to those who oppose the President and his party?  Teenagers and children can’t wait.  Time for grownups to take over.

 

 

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  • ashland_avenue

    From Zerohedge.com:

    The story could hardly be worse. MF Global was not just any old futures firm. It was run by a stalwart of the Democratic establishment and the former leader of Goldman Sachs. If his firm was guilty of what would basically be akin to embezzlement of funds owned by the firms clients, whether or not Mr. Corzine was blameless, how could one trust a securities firm run by someone who had not been a high-ranking government official?

    A major

  • Repair_Man_Jack

    He was Obama’s WS bag-man, and in return, he got regulatory favoritism.

  • Ausonius

    Despite warnings, Corzine was “betting big” on European debt, believing in typical leftist fashion that socialists will not let socialists go bankrupt, because “other people’s money” can always be found, or worse, money can just be printed without consequences.

    See:

    http://news.businessweek.com/article.asp?documentKey=1377-aIzwloKBSaz8-3HGDSC3K7LPK88JLD633SSGQ6Q

    An excerpt:

    “Corzine, 64, who helped run Goldman Sachs from 1994 to 1999, sought to transform MF Global into a midsize investment bank after arriving there in March 2010. He increased the firm’s risk and used its own money to trade, including investments in European sovereign debt that rattled markets….

    MF Global is the fifth-largest financial-industry public company bankruptcy by assets, coming after Lehman Brothers Holdings Inc., Washington Mutual Inc., CIT Group Inc. and Conseco Inc., according to BankruptcyData.com. It’s the eighth- largest bankruptcy by assets of any public company, according to the research group.

    MF Global owns $6.3 billion of Italian, Spanish, Belgian, Portuguese and Irish debt, the company said in an Oct. 25 presentation. Concerns that it might lose money on the holdings amid Europe’s debt crisis led to demands from regulators to boost capital, credit downgrades, margin calls and bankruptcy, MF Global President Bradley Abelow said. ”

    See also for the investigation:

    http://online.wsj.com/article/SB10001424052970204528204577009473406903312.html?mod=ITP_pageone_0

    So apparently betting that socialists cannot go bankrupt, because they are above the physics of economics, is a bad bet! :)

  • ashland_avenue

    Thanks for comment, RMJ. Not clear that everyone knows the approval as Primary Dealer meant (among other benefits) that MF would be able to support more leverage espec in government bonds.

    I am still not clear on how they were able to ‘lose’ ie lose track of nearly three quarters of a billion dollars.

  • Repair_Man_Jack

    NT.

  • Ausonius

    I am suspecting that the federal regulators – who are now “shocked, shocked!” a la Claude Rains – looked the other way, and if things worked out, then there would be no(t much of a) problem.

    But with Europe tanking across the board, it’s whoops time.

    See:

    http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/

    Salient excerpt:

    “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.”

  • ashland_avenue

    Oh, to be a speechwriter with material like this!

    The President’s friends all over nation are camping out with expressed intent to Occupy Wall Street.

    (Turning to the audience) Is it just me, or isnt there a message when a former Democrat governor is at the helm when the firm he was repositioning loses track of three quarters of a billion dollars?

    Don’t we owe it to these drug smoking, liquor drinking, neer do well students camping in Zuccotti Park to let them know the bad guys on Wall Street are Democrats?

    That the folks who lent millions of dollars to a bankrupt energy-saving truck terminal are Donks?

    That the folks who eviscerated 1,100 Green Energy jobs at Solyndra are Donks?

    That the guy who lost, and when I say lost, I mean lost track of, nearly three quarters of a billion dollars was a Wall Street Donk? Ex CEO of Goldman Sachs and he couldn’t find over $700 million in his care?

    Who did he think he was, Bernie Madoff?

    You know, I hear that police in NY and possibly elsewhere are sending the true down and out homeless to get free food and stuff at Zuccotti Park, and that the OWS don’t want to share their food.

    Should we tell the OWS kids that they’re misplaced or let them rot in the filth of a downtown park?

    ……I feel the same way. Maybe after a few weeks of subzero weather we’ll fill them in.

  • ashland_avenue

    Q: What’s two plus two?

    A: What do you want it to be?

    Q: You’ve got the job.

  • ashland_avenue

    In all seriousness, give me a couple days with the firm’s trading account statements and I’ll find you the money.

  • Ausonius

    The pride that leads one to believe in the impossibility that one cannot fail, fall, or be mistaken.

    Although usually used in discussions of literature, History has too many sad examples of this quality in real life.

    Unfortunately, hubris today among the Democrats and the Leftists can have the effect of dragging us all down to ruin, especially because too many of them believe we deserve to be dragged down to ruin.

  • ashland_avenue

    Something about this just doesn’t add up. Anyone who knows basic brokerage accounting could look through ‘money lines’ for a few days and quickly know what’s happened.

    That management says they’ve ‘lost track’ of funds can mean only one of two things: Either, they are utterly without controls so that folks at the top don’t have a grasp of the reality, or they are complicit.

    Here’s my best idea: Go find Ace Greenberg to come in as a consultant for a week or two. Possibly no one in America knows trading account interpretation better than he does.