Another One Bites The Dust

Generali

http://www.youtube.com/watch?v=rY0WxgSXdEE

MF Global, a futures brokerage (amongst other things), went bust a few days ago. This is a mini version of Lehmans but there are some pretty nasty rumours circulating about 2 investment banks, one of which is caught up in the MF Global thing, the other of which has a large gross position in PIIGS bonds although it claims a much smaller net position.

MF Global discovered a way of making 'free money' by buying PIIGS bonds and using them as collateral to borrow money in a repo (I posted about repos a day or two ago but can explain again on request). The idea they had was that Germany and perhaps France would continue to bail out these countries and so going short French debt would provide an adequate hedge because Italy and Greece would take out France rather than France or Mr Market hanging the PIIGS out to dry. If you post bonds as collateral in a repo then you continue to get the interest payments (coupons) which you can use to finance the borrowing costs on the repo.

The problem was that the rest of the market thought there'd be losses on some of these bonds so lenders asked MF Global for more collateral. They didn't have it.

gagahouse

Generali wrote: »

http://www.youtube.com/watch?v=rY0WxgSXdEE

MF Global, a futures brokerage (amongst other things), went bust a few days ago. This is a mini version of Lehmans but there are some pretty nasty rumours circulating about 2 investment banks, one of which is caught up in the MF Global thing, the other of which has a large gross position in PIIGS bonds although it claims a much smaller net position.

MF Global discovered a way of making 'free money' by buying PIIGS bonds and using them as collateral to borrow money in a repo (I posted about repos a day or two ago but can explain again on request). The idea they had was that Germany and perhaps France would continue to bail out these countries and so going short French debt would provide an adequate hedge because Italy and Greece would take out France rather than France or Mr Market hanging the PIIGS out to dry. If you post bonds as collateral in a repo then you continue to get the interest payments (coupons) which you can use to finance the borrowing costs on the repo.

The problem was that the rest of the market thought there'd be losses on some of these bonds so lenders asked MF Global for more collateral. They didn't have it.

Sounds like they got the delta on the French bond hedge massively wrong and raided client money to meet the margin calls. I've heard Goldmans is one of the banks, Jon Corzine who ran MF used to run Goldmans so was probably using them as a prime broker. Ouch!

drc

Sounds like all these financial institutions are no better than betting shops. I wonder if this will lead to a domino effect with banks falling. Seems like what is going on with Greece is an utter farce and I think it makes the EU (and the Euro project) look like a complete joke.

worldtraveller

The court-appointed trustee overseeing MF Global's bankruptcy says up to $1.2 billion is missing from customer accounts, double what the firm had reported to regulators last month.

AP

Shocker! :whistle:

Generali

worldtraveller wrote: »

The court-appointed trustee overseeing MF Global's bankruptcy says up to $1.2 billion is missing from customer accounts, double what the firm had reported to regulators last month.

AP

Shocker! :whistle:

I hope this is wrong. It should be a reasonably simple company as a brokerage, even given the financial engineering though so I don't hold out much hope that it is wrong.

I hope the lot of them rot in prison.

vivatifosi

Generali wrote: »

I hope the lot of them rot in prison.

Indeed, along with their assets being frozen with a view to debt recovery.

Mr_Mumble

This is by far the largest financial scandal since Madoff yet the media are largely ignoring it. Quite bizarre.

reweird

Another one bites the dust. What, you mean another bears thrown in the towel and bought?

Generali

Mr_Mumble wrote: »

This is by far the largest financial scandal since Madoff yet the media are largely ignoring it. Quite bizarre.

I suspect people are:

1. Getting fed up with bad financial news and
2. There are bigger Sovereign fish to fry in the financial pages.

The MF Global thing should be big given the amount of money that appears to be simply AWOL. Having said that I guess there are limits to how much the trustee can say given that legal proceedings may well result.

Kennyboy66

Mr_Mumble wrote: »

This is by far the largest financial scandal since Madoff yet the media are largely ignoring it. Quite bizarre.

While Madoffs victims were hardly the man on the clapham omnibus, it will be a struggle to garner much symapthy for MF's victims.

Contagion ? well who knows but the ongoing collapse of the Euro has a higher probability and higher impact by a factor of 100

One bunch of extremely rich, alledgedly* clever crooks steal from another.

Who cares ?



* it never ceases to amaze me just how dumb they are, in the end using client money to prop up mistresses / gambling / whatever, is seen in a tiny minority of provincial small accountants / solicitors up and down the land.

tomterm8

Kennyboy66 wrote: »

While Madoffs victims were hardly the man on the clapham omnibus, it will be a struggle to garner much symapthy for MF's victims.

Contagion ? well who knows but the ongoing collapse of the Euro has a higher probability and higher impact by a factor of 100

One bunch of extremely rich, alledgedly* clever crooks steal from another.

Who cares ?

.

I feel much more sympathetic to these clients, if things are as implied.

In Madoff's case, I just had no sympathy. People were investing in a deal that looked too good to be true, the returns were too high to be true, it should have been obvious he was a crook (and, yeah, the regulator should have known, but so should most of the investors...)

In this case, it appears that the company was raiding customer accounts, and lying to them. Could happen to anyone who uses a stock broker. Very little an individual can do except rely on regulators / auditors to detect it - and they screwed up, if the story is right.