MF Global committed fraud. The purpose of this short post is to delineate a couple of things that have been circulating, and to try and provide a bit of clarity.
MF didn’t default on the $CME or anyone else’s clearing house. The phrase, “no one has lost a penny due to default of our clearinghouse” still applies.
However, MF did screw over its entire customer base. By doing that, it threw into question every client/firm relationship in the industry. Is your money safe with your clearing firm? Brokerage?
I haven’t gotten a letter from my broker telling me their practices regarding segregated funds. Am I supposed to trust them after this?
As far as the legal ramifications, only time will tell. Right now it looks like the exchanges will be in the clear legally. They will most definitely get sued. Lawyers from both sides will go on fishing expeditions to try and pry any useful information they can and to bring in as many parties as they can to try and extract as much money as they can from the situation. That’s how the sharks work. They smell blood and are in a frenzy right now.
Traders have been crushed by this. They can’t get to their money. Money is the lifeblood of the marketplace. Without it, markets stop. So far, volume is pretty good. Certain pockets have been affected. However, because there is so much going on with Europe and the SuperCommittee, there is a lot of risk and positioning that needs to happen so people are trading. If this would have happened in a non volatile year like 1994, volume might have been a lot different.
CME has mishandled the public perception of the crisis. Instead of talking, they shut up. They released legalese documents. This is the time to get out in front of your customers. They needed to be very aggressive and proactive. The best thing they could have done was send their employees and representatives out and simply listened. Collect information. Show that they care. Instead, they are left with a situation where each customer feels like they are on an island and they will fight with MF, Lawyers, CME and everyone else for a fixed piece of pie.
Corzine committed fraud in my opinion. It was a cardinal sin. The one thing you don’t do is touch your customers' money. What he did is no different than bank robbery.
Lots of people are saying insider trading is blameless. It happens, and the market isn’t really changed because of it.
My significant other had a thought. What about the people or funds that bought? Say Spencer Bachus, Nancy Pelosi or Dick Durbin walked out of a meeting and shorted stock, or sold out of their holdings.
They had to sell them to someone. There was a buyer. Trading isn’t done in a vacuum. The buyers of their position may have been you, or your pension fund, or your government body. They screwed over the entire market place.
Trading supposedly entails a little risk. The Congresspeople took the risk right out of the trade. They were guaranteed winners as soon as they logged into their account, picked up the phone and placed the order.
But, because the theft (that’s what insider trading really is) is a faceless crime, we tend to not want to punish it like a burglar.
MF Global seems faceless to. The number is so huge. But, as Peter Brandt correctly states Corzine and the CFTC undermined the entire market mechanism and the public trust. They should be in jail without bail.
John Corzine and the people that conspired with him at MF have stolen people’s money. No different than the insider trading. How can you trust any clearing firm again? ($CME, $ICE, $NYX) All of a sudden, counter party risk has been injected into the system.
Ponder that as you watch the budget super committee fail to get a deal and Obama fail to lead-all the while the value of your savings tank with the market.