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VMI77 wrote:
MF Global, with the knowledge of Corzine, used money that doesn't belong to it to settle debts it incurred in speculation.To me this is stealing. Segregation of customer funds used to be sacrosanct; that it is no longer, and seems to be just fine with people like you who work in the industry is one of the changes I'm talking about. You're no doubt an honest broker and assume the best of others, but I find your description of what happened at MF Global to be rather troubling. Still, from the information I've seen, there are a host of prosecutable charges, and there is at least one that is obvious:

http://market-ticker.org/akcs-www?singlepost=2808792

Corzine testified to this:

"I simply do not know where the money is, or why the accounts have not been reconciled to date," Corzine's prepared testimony read. "I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules."

Sarbanes-Oxley requires him as the CEO of a company to (1) guarantee that effective risk controls and rules are in place and (2) monitor their compliance. It renders failure to do so -- that is, the old-fashioned "I didn't know" defense that was routinely used after 2000-era failures in the Internet space -- a felony.

Now of course Mr. Corzine is entitled to the presumption of innocence and he is entitled to a trial before being pronounced guilty, but the law on this point is clear: Executives, the CEO and CFO in particular, are required under Sarbanes-Oxley to factually know about matters such as this and they are required to attest to that knowledge -- and the presence of appropriate and sufficient risk controls under penalty of felony indictment.

It appears that Mr. Corzine has admitted in front of a Congressional Committee that he does not know, and therefore this appears to be a prima-facie admission that he is in direct violation of this law.

And that's without even getting into stuff like this:

http://market-ticker.org/akcs-www?singlepost=2792257

MF Global’s problematic trades were different from AIG’s, but they were also derivatives, in fact, they were a form of credit derivative. The "repo-to-maturity" transaction was just a form over substance gimmick to disguise this fact. Specifically the transactions are total return swaps, a type of credit derivative, and the chief purpose of these transactions is leverage.

A total return swap-to-maturity includes a type of credit derivative. It allows you to sell a bond you own and get off-balance sheet financing in the form of a total return swap. Alternatively, you can get off-balance sheet financing on a bond with risk you want (but do not currently own so there is no need to sell anything) and take the risk of the default and price risk. (Price risk can be due both to credit risk and/or interest rate risk.) This is an off-balance sheet transaction in which the total return receiver (MF Global) has both the price risk and the default risk of the reference bonds. In this case, MF Global had the price risk and the default risk of $6.3 billion of the sovereign debt of Belgium, Italy, Spain, Portugal, and Ireland. As it happened, the price fluctuations of this debt in 2011 weren’t due to a general rise in interest rates, they were due to a general increase in the perceived credit risk of this debt.

Dark Pool:

In finance, dark pools of liquidity (also referred to as dark liquidity or simply dark pools) is trading volume or liquidity that is not openly available to the public.[1] The bulk of these represent large trades by financial institutions that are offered away from public exchanges so that trades are anonymous. The fragmentation of financial trading venues and electronic trading has allowed dark pools to be created, and they are normally accessed through crossing networks or directly between market participants.

https://en.wikipedia.org/wiki/Dark_liquidity

And as far as the experts "losing" money --as with Corzine, it's not their money they're losing. All these guys, even the Ken Lays, walk away with millions.

First of all, I'm not a broker at all. I was, 40 years ago, with E.F. Hutton & Co, back in that firm's heyday. I do own a Registered Investment Advisor, in addition to being a lawyer.

The material you linked to is a lot of sophisticated sounding nonsense that, in plain words, means that the positions MF Global had went against them in a big way, and they lost so much in quoted value that they had to post more and more collateral until they ran out of money.... just like commodity traders must do every day. Been there, done that, back when I was young and foolish! The erosion of value was hideous enough, but MF Global was also very highly leveraged, just like Long Term Capital management 15 years ago, and the Hunt Brothers 30 years ago. Like Warren Buffett has been quoted as saying, "When you combine leverage with ignorance you get some pretty interesting results."

The other link you had to that market ticker editorial is mere commentary, that writer's opinion. I doubt Mr. Corzine's lawyers would have allowed him to say such a thing if that writer's opinion represented legal reality. Like a lot of what passes for journalism these days, it is merely intemperate hogwash. Ignorance may be no excuse but it will not be a felony. If a CEO/CFO had to know EVERYTHING, there would be no need for auditors. When they sign the reports they have to certify the correctness of the report. Anyway, it was mere Congressional testimony. A likely more factual description of what occurred is found on wikipedia, http://en.wikipedia.org/wiki/MF_Global# ... ing_Public

Finally, a "dark pool" is nothing new. Trades in listed stocks used to be required to be executed on the floor, but even that had exceptions even back then. More commonly a very large block would be crossed on the floor, the orders lined up, then "executed" all at once, no public participation or prior notice. Back when I was a broker, a block was 10,000 shares! I recall being on the floor of the NYSE one day in April 1970 when the entire NYSE daily volume was something like 7,200,000 shares. They trade bigger blocks than that now! The trading involved in MF Global is all unlisted anyway. So far, the impetus to try to form an exchange for derivatives has not come to fruition.

I am speculating that there were no criminal charges at least in part because it isn't entirely clear that the customers did not empower the firm to use the funds as collateral. I've seen a couple of opinions that lean that way. I'm not expert in securities law to know whether those opinions represent settled law or not.

Finally, if I had my way, customer funds would be sacrosanct, commercial banks accepting insured deposits would be separate from investment banks/brokerages, like Glass-Steagall provided, investment banks would be required to be partnerships, no public ownership, and partners would be liable for the debts of the firm down to their last nickel. Proprietary speculative trading ought to be done with your own money if you must, not with someone else's. No "head's I win, tail's you lose!"

Slowplay wrote:I don't really buy the overwhelming complexity defense. Parties to financial contracts are able to understand the agreements they make. If regulators or prosecutors are unable to understand them, that's another problem. If the trail of the financial losses are muddied to the point that they cannot be followed and understood, that's another issue as well. If someone is trying to make things out to be so complex that they cannot be understood, it's a good bet that there is something underhanded happening there.

The naked shorting I'm talking about wouldn't get to the point of delivery. The intent is to drive the price down where the longs join in (stops) and the short can be covered/closed with quick money made. I understand the naked call writing (as opposed to covered calls), but I'm refering only to the actual shares. Large investors would allow the broker to "borrow" long shares to cover short positions, etc. (with interest paid), but the shorting I'm talking about is above and beyond shares that could be borrowed.

Anyway, I see you're in Coronado. Did your son happen to work for PW in the San Diego office? I used to know several people in that office (was in the same building on B Street as the Symphony).

Yes, he was, on the audit staff.

Anyway, the complexity is a problem not because the parties don't understand or the regulators or prosecutors don't but because it is hard to get a jury to understand. I've had several instances of flagrant criminal conduct, financial misconduct, here in Scam Diego which were never prosecuted because the DA/USA didn't feel like they could get a conviction. Had it been a 7-11 stick-up, games on! New York occasionally has trials of very sophisticated crimes and sometimes they will take them on, but the prospects of this one must have been daunting, millions of documents , hundreds of witnesses to verify and authenticate, the state of the customer agreements, the arguments that would be made over the interpretation thereof, all must have entered into the decision not to prosecute. Al this is, of course, somewhat speculation on my part as I didn't participate in the deliberations or decision, merely looking at the smoking ruins and taking a guess or two.

I'm not sure about naked shorting in the context you describe. Transactions have to be cleared; I don't see how one could short without delivering the sold shares, which must be borrowed. I've heard of short sale orders that could not be filled due to inability to borrow shares to deliver.

Slowplay wrote: Whenever you see a firm incurring massive financial losses for positions the firm itself took, you have to wonder about who the counterparties were. When one party in a speculative contract loses, the counter party gains (or effectively hedges to offset losses from another arrangement). It seems Corzine has political cover, so we don't and probably won't really know what happened.

Regarding what is now legal (or not enforced and de facto allowed), what about naked shorting? Broker dealers used to be required to have sufficient borrowed shared to cover short positions. In recent years, it seems that there is no enforcement of the borrowing of shares to cover short positions, effectively allowing manipulative downward pressure. Also, thanks to Robert Rubin & his friends at Citi (and let's not forget Bill Clinton and even Phil Gramm), there's the whole lifting of Glass-Steagall restrictions on commerical banks, allowing them to really dive into investment banking (that seems to have worked well, ).

Corzine may have political cover but more likely he has the cover of overwhelming complexity. I doubt anyone called the prosecutors and said "Under no circumstances are you to put this guy on trial."

Naked shorting is a combination of terms from different trades. Brokers require collateral on short sales, and require adequate margin for short positions. They have always had to be able to deliver shares, so had to borrow them. If they couldn't borrow, the trade could not be made, or might have to be covered prematurely.

A "naked" position is in options trades, where, for example, you sell a call without owning the shares in the account. If you own the shares, that is a covered position and if the stock gets called, you can deliver, no problem.

I suppose the repeal of Glass-Steagall might be an example of something illegal back then and legal now but I was thinking more of criminal conduct. Repeal of Glass-Steagal was, in my view, one of the silliest things done in my lifetime. If I had my way, commercial insured banks and brokers could never be under common control or ownership, and stock brokers/investment banks would be partnerships, the partners of which would be good and liable right down to their last dimes for partnership losses. I think that might sober most of them, or many of them, up to quit acting like "experts," avoid idiotic risks, and be "too big to fail." I cite as an example, of which all big financial executives are aware, Arthur Anderson, the CPA firm that went out of business in ruin after the debacle at Enron. My son, a CPA formerly at Price Waterhouse, knew some partners etc at AA and they went broke, lost everything they had as partners, the way it ought to be!

VMI77 wrote:

JALLEN wrote:

VMI77 wrote: The stock market isn't the issue, the issue is debt. Nothing is being done to address the issue, nor will anything be done. A collapse is mathematically inevitable --the only question is whether it will be a year from now or ten years from now. There is no political will to address the problem and that isn't going to change. We've got 20 years left at the outside --though personally I think it will come sooner rather than later. Europe is in the same situation and may collapse first. The ruling class is just kicking the can down the road while it extracts every last possible dollar of wealth from the system.

And btw, the "experts" don't make money in the stock market by predicting ups and downs --that's gambling and experts don't gamble. The "experts" make their money because the system is rigged in their favor --and right now it's kinda hard for the big boys to lose money even on a gamble, since the money they're using to place their bets is provided to them for free.

You mean experts like John Corzine, former Chairman of Goldman-Sachs? Or the experts at the company formerly known as Lehman Brothers, or perhaps Bear Stearns? Maybe the experts at the old Merrill Lynch that lost untold billions in the "system... rigged in their favor?" Possibly the London Whale formerly at J.P. Morgan-Chase?

What good will wealth be if the mathematically inevitable economic collapse occurs? Will it still be wealth? Much of what counts as assets on balance sheets now won't be wealth if and when that happens.

The markets now are affected by the deleveraging that has progressed for some years, and by the central banker's efforts to soften the blow of deleveraging. In a way, you can't blame them for trying, since letting nature take its course is politically unpalatable. The ruling class here, politicians, get re-elected by bringing home the bacon, the more the better and more now than before or we find somebody else who can.

Anyway my point was that Limbaugh isn't a particularly impressive predictor. That my quote was this Professor spouting off about the stock market emphasizes the perils of forecasting, not the stock market.

Yes, some like John Corzine who stole about $1.6 billion from customers and walked away rich, powerful, and uncharged with a crime even though he openly committed a felony...but that's not really what I was talking about. The system is rigged in many other ways that are not "illegal," --though they should be....."dark pools," for instance, and free money from the Fed. There are things that are now legal in the world of finance that were illegal, and some of which were felonies when I was young --such as the financial legerdemain that made Enron possible, and the tricks banks are currently playing with debt securitization. In the 50's and 60's this was still largely a capitalist country, but the last two decades have radically transformed the system into Crony Capitalism.

Corzine did not "steal" the money as that term is commonly used and understood. There were tremendous losses that eroded the firm's capital and more besides. What appears to have happened is that firm took positions which moved against them, more collateral was required, more was posted, and the further deterioration of those positions eventually led to assets less than liabilities and bankruptcy. The "experts" guessed wrong. I am given to understand that the customer agreements in common use in that industry permitted the firm to use customer funds in that manner, or so it can be cogently argued, meaning prosecution was either dubious or unavailing. Prosecutors do not like to bring and try cases they appear likely to lose, and a case like this which would involve untold documents, witnesses, no telling how long to try, against the formidable resources, financial and legal, of the defendants, is daunting at best. I've not studied that matter in detail so am going by experience and what has appeared in the financial press that I have seen.

The system is set up in certain ways, "rigged" in your parlance, I suppose. Many of the things that used to be legal when I was a young stockbroker are thoroughly illegal now. I can't think of anything off hand that was illegal then but legal now. These firms have elaborate and expensive inside counsel officers and high priced outside law firms to keep them on the right side of things, but that doesn't keep them from losing when their investments turn out badly, and sometimes doesn't work at all, like the fiasco at Salomon Bros. decades ago.

What is a "dark pool?"

VMI77 wrote: The stock market isn't the issue, the issue is debt. Nothing is being done to address the issue, nor will anything be done. A collapse is mathematically inevitable --the only question is whether it will be a year from now or ten years from now. There is no political will to address the problem and that isn't going to change. We've got 20 years left at the outside --though personally I think it will come sooner rather than later. Europe is in the same situation and may collapse first. The ruling class is just kicking the can down the road while it extracts every last possible dollar of wealth from the system.

And btw, the "experts" don't make money in the stock market by predicting ups and downs --that's gambling and experts don't gamble. The "experts" make their money because the system is rigged in their favor --and right now it's kinda hard for the big boys to lose money even on a gamble, since the money they're using to place their bets is provided to them for free.

You mean experts like John Corzine, former Chairman of Goldman-Sachs? Or the experts at the company formerly known as Lehman Brothers, or perhaps Bear Stearns? Maybe the experts at the old Merrill Lynch that lost untold billions in the "system... rigged in their favor?" Possibly the London Whale formerly at J.P. Morgan-Chase?

What good will wealth be if the mathematically inevitable economic collapse occurs? Will it still be wealth? Much of what counts as assets on balance sheets now won't be wealth if and when that happens.

The markets now are affected by the deleveraging that has progressed for some years, and by the central banker's efforts to soften the blow of deleveraging. In a way, you can't blame them for trying, since letting nature take its course is politically unpalatable. The ruling class here, politicians, get re-elected by bringing home the bacon, the more the better and more now than before or we find somebody else who can.

Anyway my point was that Limbaugh isn't a particularly impressive predictor. That my quote was this Professor spouting off about the stock market emphasizes the perils of forecasting, not the stock market.

Why does anyone think Rush Limbaugh is a better forecaster of future economic events than anybody else?

Warren Buffett claims the role of stock forecasters is to make weathermen and fortune tellers look good.

It may happen the way Rush thinks or some other way; there is no telling.

Even "experts" can't accurately predict the ups and downs of the stock market well enough to make any real money. I don't remember it of my own knowledge but I have read about Yale's Professor Irving Fisher in October of 1929 observing that "Stock prices have reached what looks like a permanently high plateau." And there have been a great many other "forecasts" which in the event proved, ahhh, faulty.