A stunningly good article about continued rampant criminality on Wall Street, approved by our venal, corrupt elected.
MF Global: The Untold Story of the Biggest Wall Street Collapse Since Lehman
Excerpts:
Only on Wall Street can you bankrupt a company; misplace $1.6 billion of customers’ money; lose 75 percent of shareholders’ money in two weeks; speed dial a high priced criminal attorney and get a court to authorize the payment of your multi-million dollar legal tab from the failed company’s insurance policies; have regulators waive your requirements to take licensing exams required to work in the securities and commodities industry; have your Board of Directors waive your loyalty to the firm; run a bucket shop out of the UK; and still have the word “Honorable” affixed to your name in a Congressional investigations hearing.
This is not a flashback to the rotting financial carcasses of 2008. This putrid saga has been playing out in five Congressional hearings since December with the next episode scheduled for Tuesday, April 24, before the Senate Banking Committee under the auspicious title: “The Collapse of MF Global: Lessons Learned and Policy Implications.” (The title might more appropriately be, “MF Global: Lessons Never Learned and Policy Implications of a Wild West Financial System Just One Trade Away from the Next Taxpayer Bailout.”)
Proprietary trading, of the heads we win, tails you lose kind, has cost Goldman Sachs and Citigroup serious reputational damage with customers. And yet, no lessons have been learned. Off balance sheet bombs are still lurking all over Wall Street and the SEC continues to stall on outlawing proprietary trading at securities firms holding customer accounts.
Eighteen days before the firm failed, the Treasury, Finance Group, and a Senior risk officer prepared a hypothetical death spiral scenario for the firm titled “Break the Glass.” Disturbingly, the following sentence appears in the document:
“How quickly do we want to send cash back to clients, what is the message if we do not send immediately, what is the strategy if we want to keep the customer and wait until the storm passes…”
The checks that were mailed to customers who wanted their money out of MF Global after its credit ratings downgrades and announcement of a record quarterly loss bounced.
While customers on this side of the pond are left in the dark as to how the sanctity of segregated accounts was bulldozed at MF Global, a recent filing by KPMG, the administrator of the bankruptcy proceeding in the UK of a subsidiary, MF Global UK Limited, provides more fodder for Congressional hearings. The subsidiary was running an operation in the UK called spread betting. That practice was known as bucket shops in the US in the 1920s and is outlawed here. It involves making bets on the price direction of financial stocks, commodities, indexes, and other financial derivatives without the trades ever being placed on an exchange. No security asset is owned by the customer.
There is an old saying by Wall Street cynics: “Where are the customers’ yachts?” Today, the public can’t even find the customers’ funds.