Forum Post: Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else
Posted 2 years ago on Dec. 8, 2011, 5:46 p.m. EST by MonetizingDiscontent
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Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else
Reposting by popular demand, and because everyone has to understand the embedded risks in this market, courtesy of the shadow banking system.
(Tyler Durden) In an oddly prescient turn of events, yesterday we penned a post titled "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" http://www.zerohedge.com/news/has-imploding-european-shadow-banking-system-forced-bundesbank-prepare-plan-b ....in which we explained how it was not only the repo market, but the far broader and massively unregulated shadow banking system in Europe that was becoming thoroughly unhinged, and was manifesting itself in a complete "lock up in interbank liquidity" and which, we speculated, is pressuring the Bundesbank, which is well aware of what is going on behind the scenes, to slowly back away from what will soon be an "apocalyptic" event (not our words... read on).
Why was this prescient? Because today, Reuters' Christopher Elias has written the logical follow up analysis to our post... http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/ ...in which he explains in layman's terms not only how but why the lock up has occurred and will get far more acute, but also why the MF Global bankruptcy, much more than merely a one-off instance of "repo-to-maturity" of sovereign bonds gone horribly wrong is a symptom of two things:
i) the lax London-based unregulated and unsupervised system which has allowed such unprecedented, leveraged monsters as AIG, Lehman and now as it turns out MF Global, to flourish until they end up imploding and threatening the world's entire financial system, and ii) an implicit construct embedded within the shadow banking model which permitted the heaping of leverage upon leverage upon leverage, probably more so than any structured finance product in the past (up to and including synthetic CDO cubeds), and certainly on par with the AIG cataclysm which saw $2.7 trillion of CDS notional... http://zerohedge.blogspot.com/2009/05/aig-cds-unwind-goes-from-waterfall-to.html ...sold with virtually zero margin.
when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation."
In fact, it is a link so sinister it touches every corner of modern finance up to and including such supposedly "stable" institutions as Jefferies, which as it turns out has spent weeks defending itself, however against all the wrong things, and Canadian banks, which as it also turns out, defended themselves... ((Video)) http://www.youtube.com/watch?v=Cg3CdYlEqlw ...against Zero Hedge... http://www.zerohedge.com/news/next-domino-fall-canada ...allegations they may well be the next shoes to drop, as being strong and vibrant (and in fact just announced soaring profits... http://business.financialpost.com/2011/12/06/profits-soar-for-canadas-banks-along-with-bonuses/ ...and bonuses), yet which have all the same if not far greater risk factors as MF Global. Yet nobody has called them out on it. Until now.
MF Global and the great Wall St re-hypothecation scandal
(Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing....
(((Continue Reading this article Here))) http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/
By Christopher Elias (UK)
Presenting All That Is Wrong With America: Here Is The Top Contributor To The House Agriculture Committee Chairman
As part of the MF Global hearing, we just heard a very dignified and shall we say it disgruntled introduction by House Agriculture Commttee Chairman Frank D. Lucas (Rep-OK) http://en.wikipedia.org/wiki/Frank_Lucas_%28Oklahoma%29 ...where he said it is "critical" to shed light on the MF Global matter, and which in no uncertain terms made it clear just how disgusted he would be with MF Global if it was found that Jon Corzine is guilty of stealing client funds. Well, we decided to take a step back and look at the Republican's top campaign donors. To our complete lack of surprise, we found that the top lifetime donor... http://www.opensecrets.org/politicians/summary.php?cycle=Career&type=I&cid=N00005559&newMem=N ...to the Honorable Mr. Lucas is... the American Bankers Association. And scene...