January 30, 2012

“3 Months After The MF Global Bankruptcy, We Find That $1.2 Billion (Or More) In Client Money Has ‘Vaporized'”

Zero Hedge’s Tyler Durden offers a sharp gloss on a WSJ’s piece on the MF Global Bankruptcy:

On the three month bankruptcy anniversary of the company whose rehypothecation gimmicks will one day be seen as a harbinger of everything that is broken with the multi-trillion ponzi system, but not just yet despite loud warnings otherwise, we are getting close to a final verdict of where the $1.2 billion (and possibly more as originally predicted by Zero Hedge – see below) in commingled client money may have gone. Note the use of the passive voice because using the active, as in money that MF Global executives stole from clients, is prohibited in a legal system in which nobody goes to jail for something as modest as $1.2 billion in theft. That verdict? “Vaporized.” No really (and yes, in the passive voice of course). From the WSJ: “As the sprawling probe that includes regulators, criminal and congressional investigators, and court-appointed trustees grinds on, the findings so far suggest that a “significant amount” of the money could have “vaporized” as a result of chaotic trading at MF Global during the week before the company’s Oct. 31 bankruptcy filing, said a person close to the investigation.” Uh huh… Because money simply vaporizes. Which means one of two things: i) the “vaporization” is merely the phrase that so called investigators use to avoid the far more troubling sounding “stolen” as it would imply guilt, something which the former NJ governor and Goldman CEO (and not to mention JP Morgan which most likely was on the receiving end of the $1.2 billion + transaction) will, under guidance from counsel, sternly disagree with, or ii) the capital markets are such an unprecedented and manipulated fraud, that nobody has any clue at any moment, where any client money is, and that any residual capital still “invested” in mythical representations of “assets”, which are likely rehypothecated so many times, that not even Bank of America’s robosigning division would have a clue where to start unraveling, will promptly be converted into tangible manifestations of capital. So when someone asks what happened to stock market volume, and to investor confidence in the “stock market” feel free to use just that phrase: “it vaporized.”


It is becoming increasingly difficult to even care anymore; it is also becoming increasingly certain that any client capital in the “markets” will sooner or later disappear in one of many comparable bankruptcies, and there just like here, nobody will be held accountable, as holding someone accountable will actually expose to everyone the whole scam that is modern ponzinomics, in which binary representations of money in the forms of ones and zeros, not only don’t exist in the real world, but is in effect collateralized by the same ever smaller pool of dwindling hard assets. Not only that, but someone may actually, gasp, go to jail.

And that is not allowed under a legal system which is in bed with the very financial system that preserves it and funds it.

Cue the goldbugs. And not-unreasonably so, either, sorry to say.

When everyone is involved in the scam, it’s impossible to assign blame: to blame everyone is to effectively blame no one. And that seems to be the point.

The fix is in. Necessitating a fix to the fix — and a fundamental one at that.

(thanks to GeoffB)

Posted by Jeff G. @ 11:19am

Comments (25)

  1. These days I’m less of goldbug and much more of a machined-steel-and-leadbug

  2. If I currently had any significant free assets I’d be trying to invest in Kel-Tec, not because they’re super profitable, but because the current waiting list for a PMR-30 is eight months

  3. I’m with you there, Thomas.

  4. PMR-30


  5. 30 rounds of .22WMR.

    I have not vaporized any $ in my day but I turned quite a bit into liguid and it wasnt considered assets…

  6. I notice the whole MF Global thing didn’t get mentioned much in the State of the Unicorn Address.

  7. John Corzine: close financial adviser to the White House.

    “John…….help us steal.”

  8. So, when does Jon Corzine become subject to Dodd-Frank and start to answer questions from the other side of a jail cell?

  9. I am trying to find a link perhaps someone else has seen it. I believe that through it’s entire lifespan, MF Global was one type of broker-dealer, and in the final days before the collapse the Chicago Mercantile Exchange changed it’s Broker-Dealer category, which totally changed the creditor order in bankruptcy and put Morgan Stanley up front.

  10. So why is Jon Corzine, the rest of the MF rip-crew, and JP Morgan’s as well, still walking around loose?

    Are they Elliot Ness-like?

  11. Are they Elliot Ness-like?

    Just the opposite. Ness and crew were “untouchable” because there was no dirt to dig up about them, no handle to blackmail or bribe them with.

    Corzine, et. al., are the ones who know where the bodies are buried — figuratively speaking — and who are willing to cough up the cash when the left asks.

  12. I wonder what the environmental impact on the atmosphere that much money vapor would have?

    If we can’t get them for stealing maybe we get them for the pollution.

  13. Dear ZeroHedge: Everyone loves paragraphs. Short ones.

  14. ThomasD, lead is good, but depleted uranium really has that “mass” thing going for it. Too bad I don’t have an A-10 Warthog in my inventory.

  15. “Vaporized”, huh? Think if I put my monthly stack of Accounts Payable in the “Vaporize” bin they don’t count anymore? Yeah, that’s the ticket.

  16. Corozine…

    Fmr Goldman Sach’s big shot, Obama economic advisor, and, not coincidentally, big-time Obama campaign bundler…

    I wonder why this story doesn’t get more play? /sarc

    Let’s do the usual thought experiment. Imagine if this was a high profile conservative businessman, donor, and former politician that had done this?

    It would be the lead story on the alphabets every night; just like an alternate universe fast-and-furious gun scandal would be.

    Remember how John Ascroft was stomping on AmeriKKKas neck with his fascist boot?

  17. Some links that may be of interest.

    MF Global and Rehypothecation

    MF Global and the great Wall St re-hypothecation scandal

    Are the brokers broken? pdf.

    Haircuts. pdf

    Deleveraging after Lehman—Evidence from Reduced Rehypothecation. pdf

    The (sizable) Role of Rehypothecation in the Shadow Banking System. pdf

  18. From the first link.

    If MF Global moved their US client assets to their UK subsidiary (added: moved legally with client approval), and then followed the UK rules on rehypothecated assets – the client money is gone and nothing illegal happened. That would be the worst possible outcome.


  19. So if I am reading that right, what basically happened is they used their investors money for collateral on a loan, defaulted, lost the money, and that is all perfectly legal?

  20. Somebody with better specific memory than I should relink the blog post from that woman who ran a hedge fund; the one where she said she was getting the hell out of Dodge because there was no transparency and no set rules, and thus no way to honestly evaluate risk.

  21. wasn’t that Ann Barnhardt (sp?)

    she’s a patriot among patriots

  22. That’s what I was thinking of. Thank you both.

  23. Another word comes into play, looted. The “unusual” bankruptcy process was discussed at Ann Barnhardt’s back in Dec. 20th 2011 (impossible to link as her site has no break down into linked articles) and here on Dec.18th at Zerohedge. This has the same feel as the GM bankruptcy, just different favored recipients of the swag.

  24. Think if I put my monthly stack of Accounts Payable in the “Vaporize” bin they don’t count anymore?

    That may be truer than anyone wants to think, Red. When a sufficient quantity of people decide that playing by the rules is for chumps and quit doing it, what in the hell do the financiers propose to do about it?

    OK, they foreclose on the house. Now they have a house they need to sell. Who’s left to buy? And that assumes that the legal system quietly grinds on without resistance. Let some subdivision stop paying in mass and agreeing that any attempt to repossess will be met with deadly force. What, exactly will the banks and the govt do? Pull a Waco? That will look loverly on YouTube.

    The Boston Massacre and Lexington Green were flash points long before we had the communication infrastructure we do today.