MF Global Hearings move to the Senate: Bombs dropping left and right amongst the deaf

12/13/2011 Portland, Oregon - Pop in your mints…

Today the Agricultural committee of the US Senate played host to what has become the political and financial spectacle of the year:  The Hearings on the MF Global collapse.  We have equated these hearings to professional wrestling.  While high in entertainment value, the spectators are left to wonder how much of it is real and how much of the action is staged.

Today, Jon Corzine, MF Global’s former CEO, the ultimate insider who has become the poster boy for the corporate and political corruption that seems to rule the day, was joined by Bradley Abelow, former President and COO of MF Global and Henri Steenkamp, who is still acting as the firm’s CFO.

You can watch the sad spectacle on C-SPAN at the following link: http://www.c-span.org/Events/Senate-Looks-into-MF-Global-Bankruptcy/10737426222/

Jon Corzine takes a thumb to the eye at MF Global’s Wrestlmania

It appears that the addition of two more members of MF Global’s senior management team was intended to give the illusion that there may be more information forthcoming at this hearing than at the earlier hearing held by the House Agricultural Committee.  That illusion was quickly dispelled as soon as each of them opened their mouths.

In summary, they are very, very sorry.  They are aware that this situation has undermined confidence in the markets.  They do not know where the $1.2 billion of missing client funds are.  They are pretty sure that the funds went missing from their treasury group, where the funds are held.

Strangely, the Patriot Act of 2001, in addition to steamrolling the US Constitution, included provisions which required every banking institution in the US to “know their customer,” which in practice means that no transfer from US accounts could have taken place without the authorities being able to quickly track who the money went to.  This provision, which on its face would make theft and money laundering in US Financial institutions impossible, makes “not knowing” who the money went to an untenable defense.

Nonetheless, Corzine and his cohorts stated again and again that they have no idea where it went.

The only revelation, apart from the names of a few MF Global employees who were offered as sacrificial lambs before the inquisition style questioning, was that the CFO of North American division was apparently on vacation when the funds went missing. 

They never mentioned whether or not this individual had returned.

Corzine went as far to say that nothing he said, such as “I don’t care where you get the money, we have to make this margin call,” for example, “should have been construed” as permission to transfer client funds into MF Global operating accounts and then out to counterparties.  He is obviously slipping towards a plea and hoping to do time with his Goldman buddies at a posh jail in Manhattan.

By the end of the morning, nothing that was said, either by a member of the Senate or former MF Global executive, served to instill any measure of confidence.

The afternoon, however, looked promising.  The regulators who were on the case and had their noses close to the ground were set to testify.  CME Group Executive Chairman Terrence Duffy, MF Global Trustee James Giddens and CFTC Commissioner Jill Sommers sat down before the committee and took the obligatory oath.

Mr. Giddens lead off, restating the obvious.  He is in charge of ensuring that MF Global assets are liquidated and that the proceeds distributed to the creditors based on the criteria laid out in the US Bankruptcy code.  He would later state that efforts to recover assets abroad had been blocked by sovereign governments (those across the Atlantic), who are likely protecting their banks from what would be a devastating clawback of funds.

Then, just as we thought that the afternoon would be a snoozefest, Mr. Duffy of the CME Group dropped a bombshell.  In his opening remarks, he stated that he was “in the room” when a CME employee was on the phone with an MF Global employee who stated that Mr. Corzine had direct knowledge that client funds were missing (or in industry parlance, “loaned out”) well before the weekend of October 31^st.

This directly contradicted Mr. Corzine’s testimony under oath in which he stated that he had “no knowledge” of the missing client funds until that fateful weekend.

Et tu, Brute?

The diversion only lasted for a moment.  The committee then proceeded to flagellate Mr. Duffy and the CME Group for defending the idea that their exchanges can properly self regulate themselves.

Mrs. Sommers of the CFTC was then flagellated by the committee for the failure of the government agency to regulate entities such as the CME Group and MF Global which are supposed to, if we understand correctly, self regulate themselves.

As today’s chapter of the spectacle came to a close, there were more questions than answers.  Like the old WWF, no scores were permanently settled and we will have to tune in Friday to see how the next stage in this drama unfolds.  It promises to be exciting, as the committee includes none other than Ron Paul (R-TX), the one man in Congress who may actually understand what happened.

The Witness list for Friday can be found here.

For those who have not been following, the MF Global situation is extremely important because a number of things that investors have been able to count on have been called into question.  A brief list of these now invalid assumptions:

-          Client funds are properly segregated from a brokerage company’s operating funds.

-          Exchanges such as the CME Group will backstop (make whole) clients in the event that one of their approved brokerage firms goes bankrupt.

-          Exchanges will halt trading in the event of a bankruptcy until any missing client funds can be accounted for and that trades from customers of the bankrupt brokerage can be executed.

-          Once a brokerage firm declares bankruptcy, all assets must be handed immediately over to a trustee who from that moment on has a fiduciary duty to sell the bankrupt firms assets to the highest bidder to satisfy as many creditors as possible.

-          Regulatory agencies such as the CFTC have controls and monitoring in place which will prevent clients from suffering losses if a brokerage firm misappropriates their funds.

-          Sarbanes Oxley has effectively eliminated corporate fraud.

-          The commodity exchanges, such as the CME Group, can effectively self regulate.

-          Theft is illegal.

Every day which passes in which there is not a full recovery of the client funds held by MF Global adds to the list of questions.  And every day that passes serves to call further into question the ability of all brokerage houses, exchanges, and government regulators to make good on their promises.

The MF Global situation is not simply about the bankruptcy of a large brokerage, it is about whether or not the rule of law can be trusted to operate in the financial markets of the United States of America.

For all of the bankruptcies and bank seizures that have occurred in the wake of the 2008 financial crisis, in most cases there has been confidence that the framework of the markets could be trusted, and that the myriad of regulatory entities which are supposed to make Capitalism safe for all have everyting under control.

After MF Global, one has to question whether any asset, paper or physical, entrusted to a financial institution is safe.

In related news, Mr. Giddens (the MF Global Trustee above) announced today that JP Morgan would be probed in the MF Global investigation.

This can only serve to further disrupt futures markets.  Is the end of the current system nigh?

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for December 13, 2011

Copper Price per Lb: $3.43
Oil Price per Barrel:  $100.02

Corn Price per Bushel:  $5.88  
10 Yr US Treasury Bond:  1.96%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,632 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  8.6%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  11,995  

M1 Monetary Base:  $2,255,500,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,623,700,000,000 YIKES UP $1 Trillion in one year!!!!!!!

The benefits of Decentralized power, Rumblings of QE3, the clock is ticking on the currency regime

12/12/2011 Portland, Oregon - Pop in your mints…

 

There is something strangely satisfying about sitting around a large indoor fire just feet away from the Christmas tree with family.  In those moments, one can partake of all that is right with the world.  It occurred to us that we all strive for these moments yet at times they can seem elusive.  Eternity is placed in our hearts, and time on earth seems to be in short supply.

 

As such, we must use it wisely.

 

We have been extolling the benefits of what we have been calling True Capitalism.  True Capitalism is what we here at The Mint humbly offer as the solution to what currently ails the world.  There is one byproduct of True Capitalism, a radical respect of life and property, which is often overlooked and is perhaps “central” to the advantage that it has over every other conceivable construct of society:

 

True Capitalism works to decentralize power.

 

In other words, it naturally evens the playing field by removing unfair advantages realized by some at the expense of others.

 

But isn't that what Government is supposed to do?  Of course it is!  However, governments circa 2011 are in the middle of an unprecedented power grab.  This centralization of power, they say, is necessary in order to homogenize life as we know it and to help everything run smoothly.

Even if this were possible, there is a fundamental problem created by the centralization of power which is without resolution.  In layman's terms, it makes for an easy target.

When we see the word target, your mind may conjure up images of vulnerability of a military attack.  However, what we have in mind is much more dangerous.  An army of lobbyists.

Herein lies the weakness of centralized power.  However good its intentions, it will constantly be under attack and subsequent influence of groups who desire this centralized power for their own benefit.  Repelling these attacks is expensive.  Succumbing to them, as is more often the case, will bankrupt a nation.

Governing is not cheap, and there are no economies of scale in it.  Rather, the larger it is, the less efficient it becomes.  Does this sound familiar?  This is what we have now thanks to the Might Makes Right ideology by which we are ruled.

Enter True Capitalism.

 

In a Truly Capitalistic system, the cost of the nation state drops to zero, for the nation state as we know it would cease to exist.  Does this mean that there will be not be a need for governance?  No, on the contrary, the roles which we now attribute to government will be carried out by any number of organizations.  Governance, in general, would increase, yet it would cost less!

How is this possible?  Voluntary governmental bodies are generally more responsive and efficient, in large part because the cost of governance falls directly to those individuals who desire to pay for it.

 

Governance has value, and its value can and is be properly set on an open market.  The phenomenon of corporations and persons choosing to reside in low tax venues represents a conscious choice of where and by whom one prefers to be governed by those individuals.

 

In the west, the value of the brand of government provided in the US and Europe is dropping along with its bond prices.  The fact that nations issue bonds is proof of two things:  That their service oriented businesses are failing and that they will be increasingly reliant upon their ability to forcefully relieve their citizens of their assets (commonly known as taxation) to continue operations.

 

In other words, they will rely on their Might, the use of force, to justify their “right” to govern.

 

This untenable “Might Makes Right” system that can only operate as long as people believe that the aggressor has absolute power over them.  This is why countries have flags and dictatorships have the image of the dictator plastered everywhere.  This is why people are being forced into the current banking system, taught to rely upon it, and subsequently shut out of it.

 

This is a reason why Modern Central Banking and the Corporations that have sprung up around the Central Banks are man’s greatest disaster.

 

Once the currency and banking systems of Europe and America are completely broken down, people’s blind faith in the currency and its issuer will be destroyed.  The currency regime will then quickly disintegrate

 

The Federal Reserve will likely allude to QE3 to the tune of $1 trillion dollars today in a desperate attempt to keep the currency regime afloat.

The clock is ticking on these failed monetary experiments. 

Do you know where your money is?

 

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

 

Email: davidminteconomics@gmail.com

 

P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com

 

Key Indicators for December 12, 2011

Copper Price per Lb: $3.46
Oil Price per Barrel:  $97.83

Corn Price per Bushel:  $5.85  
10 Yr US Treasury Bond:  2.01%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,665 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  8.6%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  12,021  

M1 Monetary Base:  $2,255,500,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,623,700,000,000 YIKES UP $1 Trillion in one year!!!!!!!