MF Global And The Safety Of Brokerage Accounts

Anyone who thinks the MF Global situation can't happen to whatever custodian their financial advisor uses is brain-dead.  The integrity of our system is eroding.  As it further erodes there is going to be a serious flood of money into physical gold and silver - Dave in Denver

I'll try to make this my last post on MF for awhile.  It's really yesterday's news and, as I said back when the initial details were first released, this is substantially more fraudulent than is being reported.  It turns out that Jon Corzine kept doubling down on bad bets on European sovereign paper - largely Greece and Italy I would bet - despite the protests of the chief risk officer, who resigned in March over this:  LINK  At least a few people on Wall Street still have scruples. 

There's a more comprehensive story about this in the Wall Street Journal, but the WSJ will not the report the behind-the-scenes truth.  That truth is that Corzine illegally used customer funds to shore up big margin calls on MF's principal trading account.  Furthermore, because of Corzine's relationship with the CFTC Chairman, Gary Gensler - who reported directly to Corzine and was promoted by Corzine and likely let Corzine sleep with his wife (you get the idea of the nature of the relationship) when Corzine was CEO of Goldman - Corzine was able to halt the CFTC from passing regulations that would have made it more explicitly illegal for Corzine to even think about touching customer funds for the purposes of short-term firm use.

This relationship with Gensler - and the exertion of influence on Gensler - should be immediately investigated by Attorney General Eric Holder.  But it won't be.  I truly hope that some investors file big class-action lawsuits against Gensler and the CFTC.  I really would love to see what kind of documents, emails and phone records that would be unearthed in the due process of discovery and document production.  Gensler does not want that to happen, and neither does Obama after the Solyndra abortion and the mess Eric Holder is in with the Fast and Furious scandal.  Unfortunately Big Bank Wall Street will be exerting its influence to prevent the truth from coming out because that will expose some of the underbelly of fraud that is occurring on a daily basis.  Furthermore, IF the MF Global trustee claws back customer funds who got their money out of MF before MF filed, then the trustee should ALSO clawback the money JP Morgan received as collateral against MF's positions.  I suspect this won't happen either though.

This brings me to my quote above.  I have said in the past that Wall Street is a monkey-see/monkey-do type of place.  As such, if Corzine decided that it was okay to illegally "borrow" customer funds and use them to make high-risk bets in the markets, then it tells me that this is actually a common practice on Wall Street.  I know from direct experience as a junk bond trader that it is not difficult to work around compliance and risk management (we called them "the risk Nazis").  And if it was being done back in the 1990's, it's being done on a much larger-scale basis now.  I don't care about Dodd-Frank because it is nothing more than "window dressing" for the most part.

Having said this, I want to make it crystal clear that eventually we are going to see the MF Global event at much bigger firms.  In fact, in a way, that's what the 2008 near-collapse was all about.  The ONLY difference is that Henry Paulson (another Goldman guy), Tim Geithner (a Goldman brainless puppet) and a few others decided that those banks were too big to fail so Taxpayer funds would be used to cover up the fraud and massive defaults.   But just like Refco was a prelude to MF Global - and we never did get to see what the real story was behind the Refco default - this MF situation is a prelude to much bigger securities industry scandals.  And it will involve the massive expropriation of customer money and securities at big Wall Street firms.  If you don't think this can and will happen, you are either ignorant of the facts or interminably naive.

At some point a lot more people who are becoming informed and willing to look at the truth will start moving their paper assets from these criminal enterprises known as Too Big To Fail banks and brokerages and move that money into physical gold and silver that is safekept with a verifiable trustworthy custodian.  Right now is as good of time as any to get in ahead of the eventual mad scramble for real safety and security.