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Corzine headed fund misallocated customer money??

Dorothy Rodham, Hillary Rodham Clinton’s mother, died today at the age of 92.  Dorothy Rodham’s early life reminds me of my grandfather’s.  She grew up in a working class house, raised by her punishingly strict grandmother after her father sent her away.  She longed for a college education but girls like her were unlikely to get one.  Her life took a different path.  You can read more of her biography here.  We send our condolences to Hillary and her family.


MF Global, a brokerage firm recently run by Jon Corzine, filed for bankruptcy yesterday after it failed to close a deal with another brokerage firm to take it over.  The deal was scuttled when $700 million in customer deposits went missing.  Originally, it was thought nearly a billion was missing but some of that money later trickled in.  What happened to the $700 million?:

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global.

Ahh, yes, the “internal controls”.  Does Sarbanes-Oxley apply to brokerage firms or does it just apply to every other corporation from CEO down to the glasswashers where every penny must be accounted for in mind numbing detail?  Oh, wait!  Here’s another article about Goldman-Sachs partners having extraordinary power over their internal controls and compliance and maybe *that’s* why Corzine got carried away (not that he did anything wrong).  It’s like the hazards of confidence  of people who believe in their own (godlike) abilities, the confidence in this case attributed to sitting on a pile of Goldman-Sachs cash and influence.  But what if you’re not at Goldman-Sachs anymore?  Where do you get the confidence to override your internal controls…?  Did I mention that Corzine was betting against the Sovereign debt crisis in Europe?  Yeah, he totally expected no countries to default and that the ECB and countries like Germany would bail everybody out.  Sure, go ahead and place a bet on all those bonds.  The European taxpayers will cover you.  How many other Wall Street firms did the same thing?  Well, we’ll all find out shortly.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.

Wait!  Didn’t Bank of America just transfer some of it’s shadier assets to the FDIC covered customer bank accounts side of its ledger sheet?  That sounds like mixing monies to me and sticking taxpayers with the responsibility to cover potentially catastrophic losses but maybe I’m just being one of those uninformed cotton-headed-ninny-muggins people who don’t really understand the glory of what the banking class is trying to accomplish.  

Jeez, you would have thought that Corzine, former governor of NJ who treated us New Jerseyans so tenderly by solving the property tax problem, oh wait, he didn’t actually do that.  Well, Corzine who was so respectful of New Jerseyans’ voter enfranchisement.  S%&#!  He was the one who gave away ALL of our delegates to Obama at the 2008 convention wasn’t he?  (the Obama contingent are rolling their eyes and can’t believe the rest of us haven’t gotten over that because after all, it was just hard ball politics.  OK, when it happens to YOUR votes, we’ll just tell you to suck it up and quit whining.  I mean, it’s only your vote.  It’s not like it actually counts for anything, as the Obama administration has proven again and again.  And again.)

So, what did Corzine do here?  Not that we’re claiming that Jon Corzine did anything wrong or anything because that would be slander or libel or something we never prosecute anymore and, anyways, there’s no proof!  No proof whatsoever that he did anything the least bit out of the ordinary.  Yep, he was just sitting quietly, with his hands neatly folded in his lap not bothering anyone…

When he arrived at MF Global — after more than a decade in politics, including serving as a Democratic United States senator from New Jersey — Mr. Corzine sought to bolster profits by increasing the number of bets the firm made using its own capital. It was a strategy born of his own experience at Goldman, where he rose through the ranks by building out the investment bank’s formidable United States government bond trading arm.

One of his hallmark traits, according to the 1999 book “Goldman Sachs: The Culture of Success,” by Lisa Endlich, was his willingness to tolerate losses if the theory behind the trades was well thought out.

He made a similar wager at MF Global in buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount. Once Europe had solved its fiscal problems, those bonds would be very profitable.

But when that bet came to light in a regulatory filing, it set off alarms on Wall Street. While the bonds themselves have lost little value and mature in less than a year, MF Global was seen as having taken on an enormous amount of risk with little room for error given its size. By Friday evening, MF Global was under pressure to put up more money to support its trading positions, threatening to drain the firm’s remaining cash.

Hmmm, it sounds to me like Corzine risked a little too much, had to cover his bets and found that he had insufficient funds to do so, but that’s just my uninformed interpretation.  And if he dipped into his customers’ accounts to take out a temporary loan?  Just enough to tie him over until the next paycheck?  I’m sure everything was going to turn out fine.  It’s not like he was supposed to have enough collateral around, because that might have been in that finance industry reform bill that got watered down to tincture of remedy status.  It seems like the other banks have been howling screams of pain over their obligations to cover their bets.  It sounds so onerous that I thought maybe that weak tea of a bill might have been too much.  Apparently not.

By late Sunday evening, an embattled MF Global had all but signed a deal with Interactive Brokers. The acquisition would have mirrored what Lehman Brothersdid in 2008, when its parent filed for bankruptcy but Barclays of Britain bought some of its assets.

But in the middle of the night, as Interactive Brokers investigated MF Global’s customer accounts, the potential buyer discovered a serious obstacle: Some of the customer money was missing, according to people close to the discussions. The realization alarmed Interactive Brokers, which then abandoned the deal.

Later on Monday, when explaining to regulators why the deal had fallen apart, MF Global disclosed the concerns over the missing money, according to a joint statement issued by the Commodity Futures Trading Commission and the Securities and Exchange Commission. Regulators, however, first suspected a potential shortfall days ago as they gathered at MF Global’s Midtown Manhattan headquarters, the people briefed on the matter said. It is not uncommon for some funds to be unaccounted for when a financial firm fails, but the magnitude in the case of MF Global was unnerving.


But the firm has yet to produce evidence that all of the $600 million or $700 million outstanding is deposited with the banks, according to the people briefed on the matter. Regulators are looking into whether the customer funds were misallocated.

With the deal with Interactive Brokers dashed, MF Global was hanging in limbo for several hours before it filed for bankruptcy. The Federal Reserve Bank of New York and a number of exchanges said they had suspended MF Global from doing new business with them.

It was not the first time regulators expressed concerns about MF Global.

MF Global confirmed on Monday that the Commodity Futures Trading Commission and the S.E.C. — had “expressed their grave concerns” about the firm’s viability.

Presumably, the regulators let the customers know when they first had “grave concerns” about the firm’s viability so they could reconsider where they put their funds… or not.  “Grave concerns” sounds pretty ominous. Well, it’s not like his customer’s desires should have any bearing on what Corzine actually did with their money.  It’s just not his way.  I seem to recall that he was accused of playing with the NJ state workers’ pension funds but let’s not cast aspersions until I find some links that aren’t in virulently conservative Republican sites.  Still, the pensions are in trouble and this latest information about how Corzine plays fast and loose with money does make one wonder…

And people wonder why OccupyWallStreet has become so popular.

Hey!  Here’s a blast from the past.  Remember when Jon Corzine was at the Democratic National Convention giving away all of his state’s delegates to a candidate that lost the state primary by 10 points?  Memories, it brings a tear to the eye.  Sobbing, actually.  It’s a good thing that Corzine knows people in high places who owe him *big* favors.