MG Global Debacle Is the Tip Of The Iceberg

It has been almost 3 weeks since MF Global dropped a very scary halloween bankruptcy surprise on the markets. And just like a halloween trick, most observers just thought this was an isolated incident and is how the capital markets should work. Boys will be boys, right!?! Well when you make grave investment errors, Mr Corzine, your account and funds will go boom and everyone eats it big time!

Well not so fast. MF Global clients didn't make the bad trades, Mr. Corzine and MF Global did. There is now no doubt that MF Global illegally mixed segregated funds -client funds- with their own brokerage funds and lost the farm. Client funds were stolen by MF Global and yet, there is no one in jail, no one has been accused of fraud and MF Global paid their London office bonuses before filing bankruptcy. WTF!?! News like this usually would drop the markets like a steaming hot pan of burned potatoes. Guess what?!? Didn't happen. Just business as usual on Wall Street.

Logic would tell you that you have to think that with the recent history of all of the accounting frauds like Enron, AIG and Lehman Brothers and  ponzi schemes like Madoff, Allen Stanford and Mutual Benefits in Flordia,  insider trading on Wall Street and in the US Congress, and misappropriation of customer funds which is commonly called embezzlement (Quite the list of ugly achievements for the 2000's! And there are plenty more) that the public would be up in arms demanding justice and change?  Well they aren't, except for a few hardy individuals in the widely disparaged OWS movement. The complacency of the American public regarding their financial future is disturbing. They are, in my opinion, either blissfully oblivious or blatantly ignoring the financial news from Wall Street and Washington and are completely unaware of the risk of their inaction. The signs are clear and here now! What is coming is a financial tsunami that will completely alter our lives and our futures. We will be living in a financial first world economy one day and the next, we will find we have dropped down in a free fall to join the financial ranks of Zimbabwe and the Weimar Republic in the third world. Americans will not deal with this reality very well and yet, this is becoming a cruel fact because we, the American People, are not demanding change from our elected officials on all levels of government and demanding that Banks and Wall Street stop bribing Congress with campaign contributions. The ownership of Congress by the Banks and Wall Street continues to let the monsters like Mr. Corzine rape and pillage at will, without the fear of handcuffs and major jail time. Senator Dick Durbin clearly stated in a radio interview in 2009 that despite having caused the 2008 financial crisis, Banks and Wall Street firms "are still the most powerful lobby on Capitol Hill. And they, frankly, own the place."

Yep, The Banks and Wall Street just got bolder and are stealing money from clients accounts out in the open and getting away with it. And now you have brokerage firms calling the markets rigged and quitting the business.

From Barnhardt Financial Management

BCM HAS CEASED OPERATIONS 

POSTED BY ANN BARNHARDT - NOVEMBER 17, AD 2011 10:27 AM MST

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: 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. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

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I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

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Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. 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.

Whole letter on their website here:

So what does this mean?   That there are people of ethics and morality on Wall Street? Some, maybe, but this is the beginning of the end of the world as we know it. You have, right here, today, a Wall Street broker who is calling the game rigged and that all client capital is a potential loss. This is a broker who is telling you that Washington will not follow the letter of the law and put the thieves in jail. The rule of law is lost and MF Global is a very clear sign that no one in the CFTC, SEC, FBI, Justice Department or Congress gives a damn.

Euroland is fixing to detonate, Italian banks are begging for funds of last  resort. The London Stock Exchange has become their last chance at funding, using client margin accounts, and what happens if the Italian banks go bust, and they will, and can't pay? They go MF Global, margin calls abound in a financial contagion, which waterfalls through banks around the world and your money goes POOF!