November 16, 2011

MF Global And The Grand Theft Nation of America (Guest Post)

By Russ Winter 

Monday marked two weeks since the news broke that MF Global “removed” unencumbered segregated funds from customers’ accounts. Segregation simply means that customer deposits can’t be mixed with the firm’s own money or used to cover firm expenses. They must always be available for customers to trade with or withdraw at a moment’s notice. During that time MF Global customers have found themselves locked out of reduced equity in their accounts. Worst of all, even MF Global customers who held no open futures positions and only cash and unencumbered assets, have found those assets under the control of the bankruptcy trustee.

The trustee is struggling to find the money, calling the record keeping “sloppy” There are stories that JP Morgan and others “might be” involved in the ratlines. To any thinking person, this has all the hallmarks of a systemic-loss-of-confidence event. This is well put in a letter sent to bankruptcy judge Martin Glenn, who is handling the MF Global bankruptcy. There has been little good coverage on this in the Lame Stream Media. Forbes, and especially Robert Lenzner, has stayed on this story. Lenzner writes convincingly that the CFTC has a loophole that actually permits firms to gamble clients’ segregated accounts. Most of the real coverage is, as usual, in the blogosphere.
In Re: MF Global, Inc. Case No. 11-02790 (MG) (SIPA)
Re: The reputation of the United States
Dear Judge Glenn:
Our firm is a registered introducing broker with the CFTC. I have written to you previously on behalf of our customers. Here is a comment this morning from one of our former customers in Europe: “I will never do business in the United States of America again.”
The system to protect futures accounts is broken. And the whole world knows it. What started as a failure of one FCM that quickly gave a black eye to the CFTC and especially the CME has now made our United States of America a very bad joke to commodity futures traders all over the world.
The problem this morning is not just excess margin equity. The problem this morning is the reputation of the United States of America.
Thank you very much for your time and for listening.
Very Truly Yours,
HL Camp, Proprietor, HL Camp Futures

The CME Group has first line regulatory responsibility for insuring basic fundamental protections for customers. To say that they failed is putting it lightly. Now after fiddling while Rome burns and no doubt witnessing the beginning of a run on other firms, the CME has decided to respond with a financial guarantee of sorts to see if they can unplug the log jam. Assuming that the vast majority of people still expect rule of law and decent conduct, this is put up or shut up time.

The litmus test will be how much equity shows up in the accounts of actual customers. And more importantly, can those customers access that money or transfer to other firms. Anything else is a charade. One might speculate that these clowns would have the outcome calibrated and that this is more than a PR gimmick. Gimmicks now will have deep and long lasting blowback effects. You should note that so far governmental strategy has been to try and let this one quietly die. No doubt that’s because MF Global’s chief mucky muck Jon Corzine was often mentioned just three months ago as Presidente Hopium’s replacement at Secretary of Treasury for Timmy ” Turbo Tax” Geithner. The “regulator” at CFTC is another corruptos, Gary Gensler, a Goldman Sachs crony and associate of Jon Corzine.

I had a residual account at MF Global. I was originally referred to Lind Waldock by Charles Schwab (who apparently failed their due diligence on MF Global). I had used Lind Waldock for years. Then suddenly it became Refco, then recently MF Global. Many MF Global accounts were Schwab referrals. I noticed the commissions were too high, and was gravitating to OptionsExpress which is a Schwab company with cheaper commissions for futures trading. I had some positions left at MF Global and rather than go offline for a week transferring the account I was letting the positions run off.

As one of the most ardent financial industry critics and skeptics out there, nothing surprises me anymore, but I had no inclination that this firm was about to collapse, let alone throw segregated customers accounts into the ratline. I might add that thinking this is an outlier rogue firm and is not a widespread issue would be highly wishful thinking on anybody’s part. That said, I obviously had or have have little or no ability to advise others about the risk of one or more of the financial criminals putting your savings or capital into the ratlines. Just trust your heightened instincts. I would be particularly leery of TBTF banks and financial firms. I have always felt a Lehman Bros multipled ten fold lies out there.

At the time of MF Global’s failure I had equity of about $19,200, against positions requiring $9,800 maintenance. This hurt because it was excess equity that MF Global looted. As it stands this weekend and before the CME proposal, I had $8,752 equity in my account, meaning the trustee is still accounting for 60% or $10,500 of my money. This will hardly put me in the poor house, but I certainly feel violated. I am now able to trade online (was not the case the first week), which I did to rollout some Treasury shorts parked at MF Global to March contracts using OptionsExpress. In addition I have $1,515 in open trade equity from gains since the new firm RJ O’Brien received the account. This is supposedly unencumbered. Right now my maintenance requirement for a remaining position is only $2,700, but last time I checked I could neither request the excess or transfer the account, which I am initiating.

More importantly it will be revealing to see if the CME action is just a PR gimmick or something more serious. I have seen no reporting on just how severe the hole for MF Global clients has been in real time, so I will report any changes in my account status and experiences, and would encourage other to do the same.

The following item showed up this weekend on RJ O”Brien’s site:

Announcements

PLEASE NOTE THAT RJO ANTICIPATES BEING ABLE TO RELEASE FUNDS AND ACCEPT TRANSFER REQUESTS BEGINNING MONDAY 11/14 FOR ACCOUNTS WITH CME, ICE.US, MGEX AND KCBT. ACCOUNTS WITH NYSE/LIFFE OR CFE POSITIONS WILL BE TRANSFERABLE ON TUESDAY 11/15 DUE TO A FINAL CASH ALLOCATION THAT WILL OCCUR MONDAY EVENING.

The fact the US is clearly in grand theft nation mode in addition to utilizing cover ups, kick the can tactics, and bought government, should be highly disconcerting and bearish. If this doesn’t put people in the streets, wait until a huge high profile theft hits. The problem now is that the criminal ratlines are controlling markets. This is no more sustainable than the Soviet Union was sustainable.

My game theory up to now was that if banksters took the haircuts on insolvent’s debt, that the market could be bought at 900-1000. It is obvious that the opposite is taking place, and that the criminals are in full court loot mode. The kleptocrats even have their boyz in place with the insolvent of Europe, with Draghi at the ECB and Monti as the Italian Prime Minister, the new Greek guy “what’s his name”. I smell large scale privatizations, and inside jobs coming. Therefore I have lowered by projection on the S&P to the 500 area and expect a series of events to finally burst the confidence game.

About The Author - Russ Winter is a veteran investor, financial writer, world traveler, and he blogs at Winter Watch(EconMatters author archive here)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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