Wall Street criminality rolls on with no one held accountable

They're not going to stop until they have control of everything and we have nothing. That's because there is zero fear of punishment as the lawmakers, judges, prosecutors and cops are all bought.

MF Global: The Untold Story of the Biggest Wall Street Collapse Since Lehman

There are plenty of lessons to be learned from MF Global, all of which we can count on Congress to ignore at the behest of Wall Street money until the next financial crisis.

Read it at AlterNet

MF Global: The Untold Story of the Biggest Wall Street Collapse Since Lehman
by Pam Martens

A disturbing pattern at JP Morgan: unauthorized use of customer segregated accounts

There was a JP Morgan connection with the MF Global collapse. Apparently, Corzine (MF Global's CEO) ordered the transfer of customer funds to JP Morgan during the crisis. It looks like JP Morgan may have used those funds to cover overdrafts in MF Global's accounts.

Ms. Genova told the subcommittee in her prepared testimony that J.P. Morgan discovered on Oct. 28 overdrafts in foreign-exchange clearing accounts managed by MF Global's U.K. affiliates. Mr. Corzine and other officials at MF Global were notified about the overdrafts, she added. MF Global assured J.P. Morgan that the overdrafts would be covered, according to Ms. Genova's testimony.

Recently we heard that the CFTC was charging Mark Fisher's firm (MBF Clearing) with improper use of customer funds. However, we find out that Fisher transferred customer funds to JP Morgan during the Lehman meltdown and according to Fisher, "JP Morgan assured him that the funds were in customer segregated accounts." That ended up not to be true.

“During the financial crisis, we decided at MBF to move money out of money market funds — including the reserve fund, which broke the buck — and move it to the safest bank in the world, JPMorgan, in the safest instrument available, U.S. government bonds, and that’s where we kept all this customer money,” he said.

Now we find out that JP Morgan is getting hit with a $20 million fine by the CFTC (slap on the wrist) for improperly using customer funds of Lehman Brothers.

The CFTC charged that J.P. Morgan, between 2006 and 2008, counted customer Lehman customer funds as if they were Lehman funds, for the purpose of facilitating transactions on behalf of Lehman proprietary accounts.

Looks like JP Morgan has a habit of using the customer funds of client firms to cover overdrafts. Clearly an illegal pattern here, but once again, JP Morgan (Jamie Dimon) gets away with it scott free. Meanwhile, the customers of those firms are out their money. It went to JP Morgan.

Was MF Global the canary in the coal mine?

Nine weeks after its bankruptcy, the general public still hasn’t quite realized the implications of the MF Global scandal. 

My own sense is, this is the first tremor of the earthquake that’s coming to the global financial system. And how the central banks and financial regulators treated the “Systemically Important Financial Institutions” that had exposure to MF Global—to the detriment of the ordinary, blameless customer who got royally ripped off in its bankruptcy—is both the template of how the next financial crisis will be handled, and an accelerator that will make the next crisis happen that much sooner.

Read the rest Gonzalo Lira
A Run On The Global Banking System - How Close Are We?
(h/t Zero Hedge)

Here's the clincher:

 ...I want to discuss one narrow aspect of the MF Global bankruptcy: How authorities (mis)handled the bankruptcy—either willfully or out of incompetence—which allowed customer’s money to be stolen so as to make JPMorgan whole.

From this one issue, it seems clear to me that we can infer what will happen when the next financial crisis hits in the nearterm future.

More indication that distrust of the financial system is growing, and that doesn't bode well.

Barry Ritholtz on MF Global and systemic risk

Watching the MF Global saga unfold, I had to wonder: “How was it possible for a broker dealer to tap segregated client monies to speculate in risky assets and lose billions?  

MF Global’s story, as you will soon understand it, raises serious concerns for any investor. That the activities that led to MF Global’s collapse were possibly legal (!) is stunning. The details are complex, but follow them through to the end and you will see all of the problems of our system — political corruption, excess leverage, focus on short-term profit at the expense of survival — in one sordid affair.

The MF Global story contains six elements that I found astonishing:

Read the rest at The Washington Post
The systemic risk revealed by MF Global’s collapse

by Barry Ritholtz

MF Global and Bear Stearns

Is the failure of MF Global similar to the failure of Bear in that it is signaling deep problems with liquidity in the shadow banking system? Here are three posts that explain some of the issues (first post) and details (second and third posts).

Danger Lurks in the Shadows
by Mark Thoma at Economist's View

Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?

by Tyler Durden at Zero Hedge

Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else
by Tyler Durden at Zero Hedge

"Tyler Durden" is a pseudonym used to keep authors who do not wish to reveal their identities anonymous. The author of this post seems quite knowledgeable about shadow banking. Take it for what it is worth.

UPDATE: Here is a short explanation of re-hypothecation

MF Global and the great Wall St re-hypothecation scandal
by Christopher Elias (UK) at Thomson Reuters New & Insight

An open letter to the CME

Since MF Global was a clearing member of the CME it is likely that the CME knew about the firm's financial difficulties and its positions and did nothing about it.

Here is a pretty hard hitting letter written by someone named Warren Pollock:

Open Letter to the CME To: Terrence A Duffy, Chairman CME Group As illustrated by the failure of MF Global, I am of the opinion that, the CME has not met its basic obligations to the marketplace as a “public fiduciary.” Our society depends on “basic finance” to provide “utility function” such as banking, hedging, insurance, and/or capital formation. Presently, we have an “innovative system” that degrades the integrity needed for “basic finance” to perform as required in a well-structured economy. Worse yet, our “innovative” financial system impedes the effectiveness of the greater “physical economy.” The “physical economy,” consisting of all those individuals and entities tasked with meeting actual need. The "physical economy" consists of many of your customers including farmers, manufactures and electric companies. Our society needs people working in the "physical world" to create jobs more desperately than it needs the continuity of the CME. Must we endure another market catastrophe to figure this out? Read rest of the letter here.

Has the CME become more of a liability than an asset to our financial system? I am speaking here as a former member of the exchange.

Koch Bros tipped off to MF Global problems, quietly pull accounts before anyone else could

Oil trader, Dan Dicker, writes on Huffpo that the Koch Brothers pulled money out of MF Global back in August, well before MF Global's problems were known. Dicker suggests the Koch's got tipped off.

Koch Bros and their "crony capitalist" empire continues to run wild!

Deregulation zealots stike again! Wall Street pushed rule change that blew up MF Global.

Laurie Ferber was MF Global's General Counsel, whch meant she was charged with looking out for the firm's interest. However, she may have been responsible for MF Global's failure more than she would like to admit.

That's because she pushed for a regulatory change that allowed Wall Street firms to massively leverage up on risk. Changes to the CFTC's Regulation 1.25 gave brokerages like MF Global the ability to use customer funds in highly risky strategies.

In December 2000, the CFTC agreed to amend Regulation 1.25 “to permit investments in general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds” -- in other words, riskier investments that could make more money for Wall Street. Then, in February 2004 and May 2005, Regulation 1.25 was further amended and refined to the liking of Ferber and the banks. In the end, the door was opened for firms such as MF Global to do internal repos of customers’ deposits and invest the funds in the “general obligations of a sovereign nation.” Read full story in Bloomberg here.

Another stark example of how Wall Street has continued to work hard to tear down the regulatory structure. That's the same regulatory structure that kept the financial sector out of trouble for 40 years.

But in the last 30 years that regulatory structure has come under attack by "free market ideologues" from the world of finance: Greenspan, Rubin, Summers, the IMF, the World Bank and a corrupt academia that has embraced the role of paid-for propaganda arm of the Street.

The attack continues with the recent gutting of financial reform and "de-funding" of the CFTC.

At least this time MF Global was allowed to die and taxpayers were not asked to bail it out, but next time it could be different.

David Kotok on MF Global, Chutzpah & the New York Fed

...The MF Global affair is doubly muddied up by alleged fraud and misuse of client funds.  We cannot blame the NY Fed for an alleged fraud.  But we can ask if the sanction for a primary dealer that fails the “transparency” and the “accuracy” tests should be limited to getting kicked out of the club.  Maybe the $150 million minimum regulatory net capital requirement should be expanded, and maybe the shareholders and debt holders of a primary dealer should be told they are subordinated to claims that will include financial penalties for failure to comply with NY  Fed rules.  Maybe the NY Fed should take on an escrow safety-cushioning function in the same way a landlord holds a security deposit for a tenant.  Maybe this whole system of New York Fed actions and primary dealer status needs reexamination.  Maybe the system needs a chutzpah scan to remove the viruses. 

Was the MF Global risk taking apparent?  Many say no.  But there are some very smart and skilled folks who say otherwise.  One of them is Janet Tavakoli.  Janet nailed it.  For readers who are not familiar with Janet, see her website: www.tavakolistructuredfinance.com.

Here is an excerpt from a note that Janet wrote on November 3.  We are fortunate enough to see her superb and timely work.  We talked with Janet on Friday.  She walked us through the evidence that was missed by many.  Janet, you are awesome!

Janet wrote: “The fact that MF Global was exposed to default risk and liquidity risk because of these trades and that they were linked to European sovereign debt was disclosed in MF Global’s 10K for the year ending March 31, 2011, a required financial statement filed with the SEC.  The CFTC and other regulators had the information right under their noses, but it appears they didn’t understand that they were looking at a leveraged credit-derivative transaction that could lead to margin calls that MF Global would be unable to meet....”

 Read the whole post (long) at Zero Hedge, David Kotok on MF Global, Chutzpah & the New York Fed -- Parts 1 & 2, posted by Chris Whalen

Is MF Global the canary in the coal mine?

MF Global’s demise came about as a result of a huge, highly leveraged position in Italian bonds.

Corzine was the former Co-CEO of Goldman. You gotta believe he talks to all the top players and hedge funds on the street. And we all know that they all trade pretty much the same way. (Case in point…how many other hedge funds were short Treasuries and long gold, just like John Paulson’s fund, which ended up costing him BIG? Lots.) Given this, it’s hard to imagine that MF Global is the only firm that has a big Italian bond position.

Don’t be surprised if we hear news emerge a couple of days from now that another big hedge fund or worse—some major bank—has the same position on and is in trouble.

Here we go again. Corzine blows up MF Global and walks away with $12 million

How many times do we have to see another sickening replay of this all-too-pervasive Wall Street scam?

Jon Corzine, "Master of the Universe," former NJ Governor and before that, Co-Chair of Goldman Sachs, puts MF Global into bankruptcy becuase of one, highly risky, bet-the-farm trade that he should have known wouldn't work.

Now there will be thousands out of work and what happens to him? He walks away with a $12 million "golden parachute."

And people wonder why the Occupy Wall Street protesters are upset? Seriously??

Read here.