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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.
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. 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.