The Entire System Has Been Utterly Destroyed By The MF Global Collapse

Zerohedge ^ | 11-17-11 | Tyler Durden

[Excellence]

The girl’s got guts. And brains. And a soul.

[CutePuppy]

This is a tempest in a tea cup.

First off, the article / letter is posted in ZeroHedge, which is a joke of a "financial" website (along with The BusinessInsider, MarketInsider and bunch of similar pseudo-"financial" websites; SeekingAlpha has been an exception - so far - because it actually often presents serious analyses of economic issues, markets, sectors and individual stocks, and only occasionally strays into political realm).

Second, the MFGH bankruptcy judge Martin Glenn and a trustee James Giddens are really working full speed on trying to unfreeze the customers accounts money which were supposed to be segregated from investment funds within the custodian account(s), but were illegally commingled by Corzine to lever up and cover his positions in the trades that went against him, without sufficient capital to meet collateral requirements and margin calls. All the money in these accounts will be eventually returned to account-holders - who have the priority claim before the trading accounts and the remainder of the firm will be liquidated and/or sold - but it will take some time for trustee and investigators from several agencies to do the forensics and allocation.

Ref: Losing House Money - NYP, By Mark DeCambre and Kaja Whitehouse, 2011 November 17

Third, Ann Barnhardt has shown herself to be either an idiot or hypocrite or both.

The entire system has been utterly destroyed by the MF Global collapse.

Complete nonsense. MF exposure is less than $7B in a multi-trillion-dollar derivatives market. 1998 implosion of LTCM / Long Term Capital Management had exposure of about $1T and took involvement of NY Federal Reserve Bank and 9 largest WS banks (with notable exception of Bear Stearns) to backstop / collateralize and unwind LTCM's positions, accounts and the firm itself). The downfall of LTCM was excessive leverage - about 100:1; Corzine in 2 years at MFGH leveraged it to 33:1 of investable assets. Both invested in reasonably "safe" paired trades that they could not hold to maturity because of capital / margin requirements. LTCM presented a "systemic" danger, MFGH is a small-potato firm that doesn't even make a ripple in derivative markets; the only consequence is hold on the money of people who had custodial accounts at MF, which is painful but only temporary.

If she "survived" 1997-1999 LTCM derivatives and currency markets crises, and 2007-2009 liquidity and credit crunch crises, she should understand that MFGH is no "systemic risk."

I could no longer tell my clients that their monies and positions were safe in the futures and options markets - because they are not.

"Safe" from what? Mismanagement, bad trades or investment decisions? Politicians, crooks and liars?

Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise.

This one takes the cake! She knew who Corzine was, yet "parked" her money with Corzine's firm, MFGH, and was not disgusted with his politics and corruption until he went bust and her account got frozen?! Obama has been elected in 2008; did she just wake up or did she figure this out only when her trading account may have gone belly up? If it was not a surprise, then everything was fine with Corzine and Obama until now? Who forced her invest with Corzine?

What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse.

Really, Madoff fiasco with regulators was not enough for her? Besides, how can "horrible" regulators allow trading through busted MF positions, without collateral, when pretty much these accounts would then be liquidated (simply, counterparties don't have to accept ask or bid, knowing the position MF was in. It's a standard MO with busted firms.

The idea is to freeze positions immediately (just like Bruce Bent at Reserve Primary and then Federal Reserve stopped electronic withdrawals, when the panic liquidity drain started at mutual funds in 1998 post-Lehman collapse) and see if liquidity or temporary collateral or guarantee / backstop can be secured (e.g., TARP, LTCM) and wind down / settle the accounts in a more quiet, not panic atmosphere. That way the trading accounts customers (and she, too) may end up with minimal losses instead of the wipeout.

I think Ann just wanted to be in front of the line and get out of her trades, but her account got frozen just as many much larger accounts. So now she is freaking out and tries to make a political case out of newly-discovered "systemic risk" and "Marxist Obama regime"... several years too late, unless she slept through Obama's election and Corzine's appointment to be the top dog of MFGH.

There are a lot more inconsistencies and discrepancies in her letter, but this should be enough to see that after she went bust, she just looks for excuses and sympathy on political grounds, because she is not likely to get it anywhere else. Let's not jump on the wrong bandwagon.

The lady doth protest too much, methinks...