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MF Global
Old 11-02-2011, 05:37 PM   #1
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MF Global

By now most of your have read about the bk at commodity firm MF Global and the allegations of commingling of client funds. All bad enough.

But I narrowly missed getting caught in this wringer. Not because I was smart, but because after a careful review of years of my commodity trading I decided that in my hands anyway, the game was not worth the candle.

So last summer I closed out my account. Although it was not a large amount of money, it was enough to matter and I am glad to not be lining up as one of their general creditors. This was a risk I never gave much thought to.

Ha
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Old 11-02-2011, 05:58 PM   #2
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Glad you got out Ha. My husbands cousin runs a farm supply company for the family. My husband told me his cousin was also with MF Global until July. He would buy grain from the farmers at a set price. Knowing grain prices were going up, he used MF Global to hedge his price, netting the difference. Had this happened in the spring, early summer he would have gotten caught up in it. As it is, they sold the farm supply company in July and he closed the account.
Who would have thought? We've all been saying that a lot the last 3 years.
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Old 11-02-2011, 05:58 PM   #3
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Good that you missed that one! I'm nowadays more aware of unknown risks and try to stick mostly to main line investing. Hopefully those Vanguard ETF's don't have some issues lurking out there.
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Old 11-02-2011, 08:22 PM   #4
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If he had managed to sell the company, he would have walked away with $12M even though he drove the company into the ground.

That's the part of occupy wall street protests that I sympathize with. It was never a level playing field, but these days, you're playing on the steep end of a cliff with the "haves" at the top.
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Old 11-02-2011, 09:19 PM   #5
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Clearly attention spans are getting shorter. Surely, Lehman, AIG, Madoff etc weren't so long ago that people have forgotten how and why they failed? Even with those recent debacles to educate us, based on media coverage to date the people running MPF still managed to:

1. gamble the firm on what amounts to a single high risk bet;
2. "misplace" a significant amount of client money and lock up a significant amount of non-misplaced client assets for an uncertain period of time;
3. destroy 3000 jobs (many in places that desperately need more jobs rather than more job seekers);
4. further damage confidence in a battered financial services industry which is more or less under siege and should be desperately attempting to restore confidence as well as balance sheets;
5. pay the most senior executive who presided over the above more money than most people will see in several lifetimes. It's hard to imagine what he would have been paid if the firm had continued to prosper.

All this just reaffirms my practice of keeping my assets with leading names even if they are not the cheapest service providers.
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Old 11-02-2011, 11:31 PM   #6
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My understanding is that this firm used incredible (30-40x) leverage.

Who is it that is willing to provide this leverage after the lessons of the last meltdown?

I just don't understand how firms like this never seem to have trouble finding backers for their hare-brained schemes.
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Old 11-03-2011, 02:22 AM   #7
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The interesting/scary thing about MF Global is the possibility/probablity that client money was comingled with firms money.

I went to the SPIC website and was pleased to see that on Monday that initiated action to protect individual investors assets in MF Global fund. SPIC insurance is limited to $500,000/customer (not per account like FDIC) and $250,000 in cash.

The SPIC website reminds people that they are not the FDIC and that with $1 billion in the fund they don't have resource to compensate people for fraud.

Schwab has an additional separate policy with LLoyds of London which protects clients assets up to $150 million although the cumulative protection is only $600 million which isn't a lot in the event of massive Madoff like fraud.
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Old 11-03-2011, 03:02 AM   #8
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I believe the auditors are PwC. It looks like they turned a blind eye while being paid 12M for their audit work....
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The interesting/scary thing about MF Global is the possibility/probablity that client money was comingled with firms money.
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Old 11-03-2011, 04:33 AM   #9
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Corzine has shown that even in the wake of the worst financial crisis in our lifetime... people at the top will take big risks. As is often the case, they try to recover using desperate measures... in this situation, they were apparently using customers assets in trades for the company.

Many in the press are saying the Volcker Rule has the political justification now for pretty strong measures to be put in place.

The 40 to 1 leverage was just ridiculous! Can't wait to see him hauled up in front of Congress for the questioning.... I suspect all we will hear is him invoking his 5th Amendment rights!
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Old 11-03-2011, 07:52 AM   #10
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Old 11-03-2011, 07:56 AM   #11
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Quote:
Originally Posted by clifp View Post
I went to the SPIC website and was pleased to see that on Monday that initiated action to protect individual investors assets in MF Global fund. SPIC insurance is limited to $500,000/customer (not per account like FDIC)
Just to pick a little nit, I think FDIC doesn't cover more than $250K per bank, not per account. But if I'm right then SPIC sounds like better coverage.
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Old 11-03-2011, 01:10 PM   #12
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According to this article there is not shortfall of customers money.

Corzine’s Lack of MF Global Controls Exposed With Missing Money - Businessweek

But the FBI is looking into the issue about segregation of customers' funds to get to the bottom of what happened.
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Old 11-03-2011, 01:15 PM   #13
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The coolest comment I've seen is this recent ad run by MF Global, as noted in the WSJ:

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Old 11-03-2011, 02:11 PM   #14
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Are those "convictions" like in ex-cons?
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Old 11-03-2011, 03:29 PM   #15
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Just to pick a little nit, I think FDIC doesn't cover more than $250K per bank, not per account. But if I'm right then SPIC sounds like better coverage.
Per account is not very precise description on my part. However, for a couple you can 250K for an individual account, a joint account, an IRA and a revocable trust so a total $1 million or more in FDIC coverage.
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