The amount of customer money missing from the collapsed trading firm MF Global may be more than $1.2 billion — double previous estimates — the trustee dismantling the firm’s brokerage unit said on Monday.
MF Global blew up like the HMS Hood and took $1.2 Bn in customer funds down to Davy Jones’ Locker along with it. The Chicago Mercantile Exchange now has a problem. The CME did not directly cause this debacle, but has seen fit to throw in $300 Mn. in an effort to stem the damage.
The Mercantile Commission has a problem because MF Global’s use of customer funds to meet margin calls against its proprietary accounts has badly damaged the faith of people who regularly trade in the commodity futures market. The people affected by this thievery are not big-shwinging-Wall Street [redacted]s. They are typically ranchers and farmers who use commodities markets as a conduit to get the crops they grow and the livestock that they raise off their farms and into the economy.
Take these people out of the market, and the systemic ethical problems starting in the corner offices of Wall Street could become a significant economic problem on Main Street. Cheat too many people in the agricultural commodity markets, and my five-year-old kid may not get his Corn Flakes next month – seriously. I almost think this old quote from the 1980s could serve as Pope Benedict’s advice on trading cattle futures.
It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse.
(HT: Benedict XVI)
A lot of the non-theist participants here at Redstate will simply have no faith in the first sentence above. However, I feel well-provisioned with anecdotal firepower to support Benedict’s second assertion. It begins with the Street-Level Reality of Kansas Rancher Tim Rietzke. He offers the following observations to Reuters.
“I would be hedging some feeder cattle right now, but I’m not going to do it. I’m leaving them exposed to the cash market and I don’t like that,” Rietzke said. “I have no confidence in the market, because it could happen at any other brokerage,” Rietzke told Reuters from his 8,000 acre ranch near the southwest Kansas town of Coldwater.
This realization extends up the chain to people who are attuned to higher levels of financial dealing. Broker-dealers have quit the business out of disgust for what their industry is becoming. Ann Barnhardt, who dealt primarily in agricultural commodities, went out of business despite the fact that she enjoyed reasonable success and was earning her keep. She posted the following heartbroken explanation on her professional website.
I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse….The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.
Yet nobody rebukes Jon Corzine. Nobody brings prosecution. #OccupyGradeSchool ignores Corzine’s very existence. In fact, some in the media tell us we should give Jon Corzine a pass because he was a good progressive. Those of us who rebuke Jon Corzine for, you know, blatant theft, are laughed at and looked at askance. It reminds me of a critical juncture of Jesus’ entry into Jerusalem soon before his crucifixion.
Some of the Pharisees in the crowd said to Jesus, “Teacher, rebuke your disciples!” “I tell you,” he replied, “if they keep quiet, the stones will cry out.”
We are there. Our economy is coming closer to actually failing. No, I don’t mean I’ll pay more for gas than I like, or that I’ll lose more money out of my badly-bludgeoned 429 Account. I mean farmers and ranchers will not sell their food to commodities exchanges because they no longer trust the brokerages not to loot their accounts to meet proprietary account margin calls. Jon Corzine may well have just broken the system that gets next week’s supper to the grocery store. What more could you expect from Barack Obama’s Wall Street Guy?