MF Global #2
One explanation for where the missing $600 million of customer funds held by MF Global went is that MF needed the money to collateralize its bad bets on European sovereign debt.
There is another, bigger, example of similar misuse of customer funds, perpetrated with the knowledge and consent of the Obama administration. The Federal Reserve recently allowed Bank of America to transfer $75 TRILLION of derivatives obligations over to its bank holding company. BOA wanted to move the derivatives exposure over to the bank holding company because the counterparties to their-
derivatives investments, or, rather,
gambling debts, or, maybe
as Warren Buffett used to call it, financial “time bombs” (before Buffett became part of the problem)…
wanted BOA to put up its customer deposits as collateral.
Hold it, isn’t that what MF Global did?
By the way, when a company goes bankrupt, under current law for some really bizarre reasons, derivatives debts are senior to other debts of that company.
You would think that Dodd-Frank in its 2,000 pages of glory, would have prevented banks from transferring gambling debts (sorry, derivatives obligations, I keep getting these things confused) over to their bank holding companies. Even if Dodd-Frank had required that derivatives bets should be subordinated in the event of bankruptcy, that would have brought some sanity to the $600 trillion derivatives market. But, sadly, no, it’s cronyism as usual for Dodd, Frank, Obama, and the other Democrats who passed Dodd-Frank without a single Republican vote.