Can You Survive It Being Over?


Karl Denninger

And by “over”, I mean really, truthfully over.

Look folks, there’s really nothing more-serious than grabbing client funds internally.  It’s black-letter wrong, and it appears to have happened in the case of MF Global:

The filing came as MF Global told regulators of potential “deficiencies” in some customer accounts, according to a statement by the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission. Regulators are investigating whether hundreds of millions of dollars are missing from client accounts, according to a person with knowledge of the matter.

The “mainstream media” outlets this morning are talking about this being a “risk management” issue.  Nonsense.  This is a trust issue and Corzine is a former Goldman guy and the former governor of New Jersey.

The political connections are deep as well:

 President Obama is desperately putting his Wall Street stock in an unlikely old buddy.

The beleaguered president has recruited former Goldman Sachs head honcho Jon Corzine to shore up re-election funds from the banking industry, which is furious over Obama’s financial regulations.

Corzine, the former governor of New Jersey who was blasted out of office by Republican Chris Christie in 2009, has attended secret meetings with the president and has been working on Obama’s 2012 campaign for months, The Post has learned.

The Democrat, who now leads Manhattan-based brokerage MF Global, has been tasked with scraping up the very little banking-industry support Obama can still get.

Nice.  Oh, that’s from July, if anyone’s interested.

The obvious questions that this little “incident” raises are too many to count but at their core go straight to the credibility of our entire financial system.  None of them are pretty.  Our markets are responding pretty much as you’d expect and coupled with the European situation which is also a matter of confidence and lies we’ve lost 70 S&P points — or about 5% of the the market’s total value — in the last 36 hours.

How much more of this is out there?  There’s no way to know and that’s the root of the problem, just as it was in 2008.

But this much we do know: This is not an issue of a firm that allegedly broke every rule in the book when it comes to the sanctity of customer funds.  Rather it is a story of utterly failed regulation and oversight that continues four years after the collapse that initiated in 2007.

It is the story of willful and intentional blindness by our government and the instrumentalities within it that are supposed to prevent this sort of crap from happening.

Let us remember that MF Global was just added to the primary dealer list in 2010!

The bankruptcy does raise questions, however, about how the Fed picks the primary dealers — especially since MF Global was one of four firms added to the ranks after new, more stringent requirements were put in effect in 2010.

I have to ask: Was that a political addition and where in the hell were the examiners that are supposed to be paying attention to what these firms are doing?  If this is the result of “more-stringent” requirements can someone tell me why I should believe that any of the other Primary Dealers are in fact solvent and why I should not believe that they’re all doing the same thing?

Oh, there’s no reason to be “concerned”, right?  That’s why the banks were positively pounded yesterday and the carnage appears to be continuing today.  It’s why this isn’t limited to the United States but is also happening over in Europe.  It’s why this morning the DAX is down 4%, the CAC is down 4% and the FTSE is down 2.5%.  It’s why nobody trusts a balance sheet — because there is no reason to trust any of them in the financial sector as we continue today, four years on, to have these sorts of “surprises” where hidden risk “magically appears” at the most-inopportune time and then we continue to hear the utter lie that “nobody could have seen it coming.”

The reason “nobody sees it coming” is that The SEC and banking “regulators” are averting their eyes — on purpose!

This is the continuing story, as I lay out in Leverage, of “two worlds” where one has the rule of law (you and I) enforced, where robbing a bank gets you a nice long prison sentence and some cops looking for bank robbers to stop them while in the other, inhabited by politically-connected and powerful men and women you can pretty much do anything you damn well please and nothing happens to you — in fact, you get rewarded with calls from The President of the United States and pick the pockets of the public with essential impunity.

You cannot trust ANY balance sheet given to you today — in point of fact the government itself demanded that FASB allow lies as a business practice when it comes to the alleged value of securities.  It’s that simple.

This is not the mark of a representative republic, it is not the mark of a free and fair market, and it is not “crony capitalism.”

It is a mark of a feudal system where outright looting is not only permitted it is encouraged.

There are no checks and balances and the banksters wield their briefcases like John Dillinger wielded his tommy gun.  There has been no reform since 2008.  Dodd-Frank was a joke, Glass-Steagall was not put back in place, and there was no prosecution of those who did wrong.


And now we have another collapse that appears to show that there is no regulation, there is no oversight and nobody in the government gives a damn when one of the primary dealers that the government charges with making an orderly market in Treasuries appears to have co-mingled more than half a billion in customer funds with their own trading book.

People have taken cheap shots at me for supporting the goals of “Occupy Wall Street” — first and foremost among them being that the looting must be stopped.

If you’re one of the customers of MF Global who’s customer funds seem to have “disappeared” into the world of leverage abuse would you like to rethink your view that these folks are a bunch of anarchists that are just flat dead wrong this morning?

Perhaps it’s time for you to take the blinders off and have a whiff of the coffee that I’ve been offering up for the last four years.  The caffeine will make for a damn good start to the morning and, if you have a brain in your head, stoke righteous outrage and a long-overdue demand to STOP THE LOOTING AND START PROSECUTING.

And by the way, if we don’t start doing that right here and now?

This game is nearing its forced conclusion and you’re not going to like it.


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