Wednesday, November 02, 2011

MF's Illegal Use of Customer Funds

You'd think it would be a business news sensation. Perhaps earning a picture on the front page of the Wall Street Journal.

A former co-head of Goldman Sachs, former US Senator from and Governor of New Jersey, gone missing. His residence staked out and the FBI reportedly examining the books of MF Global.

More detail regarding not just a 'missing' $600-900MM of funding in the company's books, causing Interactive Brokers to walk away from a bid to buy MF Global, but the misuse of money in that general amount from customer accounts.

I wrote this post a few days ago regarding the rather mild story of MF Global's Corzine-led big bet on European debt.

Now the story has become much deeper. At least the Wall Street Journal managed a brief piece yesterday suggesting that Chris Flowers, Corzine's backer as CEO of MF Global, has lost his golden touch of late. But no reminder of the connection which the Journal exposed in its January piece on Corzine's appointment as CEO of the firm.

Curiously, this wasn't a big story this morning on CNBC. As a frequent guest host, you'd think they'd have discussed it. But I'm being sarcastic- CNBC is a heavily liberal-leaning network, so it was and is unlikely to do much more than broadcast stories the staff has already read in the New York Times or Wall Street Journal. Bloomberg wasn't much better.

At least I had the satisfaction of watching Bloomberg use the headline of this recent post nearly verbatim on Friday morning.

Of course, MF Global's rapid demise begs the question of how US financial regulators can possibly handle a large, allegedly 'too big to fail' institution, when they were caught flatfooted by the broker's situation. As a registered Fed dealer, one wonders where that regulator was? Not just because of the excessive risk in the European bond positions but, now, the news of misusing customer funds in an attempt to avoid collapse.

It's as if the umpires of a AA minor league baseball game gone wrong are suddenly sent to handle a World Series. If regulators can't identify and measure such outsized risk as MF Global took, not to mention the funny business with customer funds, how are they ever going to manage to pre-emptively flag and liquidate an excessively-risky Citi, BofA or Chase?

Answer- they can't and won't.

Meanwhile, it should be an interesting week for breaking news on Corzine and MF Global.

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