In the wake of this disclosure, Janet Tavakoli, president of Tavakoli Structured Finance, offers some fascinating forensic details that implicate not only Corzine, but Washington's culture of crony capitalism.
When MF Global collapsed on October 21, it was the biggest financial firm to collapse since Lehman in September 2008. Then Chairman and CEO Jon Corzine is connected to the head of one of his key regulators, the Commodity Futures Trading Commission (CFTC), through his former protégé at Goldman Sachs, Gary Gensler. He also knows the Fed’s William Dudley, a key member of the Fed’s Open Market Committee, from their days at Goldman Sachs. The Fed approved MF Global’s status as a primary dealer, a participant in the Fed’s Open Market Operations, just before Jon Corzine took its helm and beached it on a reef called leveraged credit risk......MF Global’s officers admitted to federal regulators that before the collapse, the firm diverted cash from customers’ accounts that were supposed to be segregated...
...MF Global reportedly employed 35:1 leverage—some reports are 40:1—against a portfolio comprised around 20% of European Sovereign risks including Belgium, Italy, Spain, Portugal, and Ireland... MF Global was so thinly capitalized that this trade alone could eat up half of its capital... From a risk management point of view, examiners have to consider the very strong possibility that MF Global had several negative equity days throughout 2011... How did MF Global meet margin calls throughout 2011? It seems an investigation into money flows throughout 2011 is in order.
...[Obama supporter] Jon Corzine resigned as Chairman and CEO of MF Global on November 4, just days after the October 31 bankruptcy announcement... The Financial Industry Regulatory Authority Inc. (FINRA) [had given] Jon Corzine a waiver from his Series 7 and Series 24 exams when he took the helm of MF Global in March 2010...
...The test waiver by regulators seems to be blatant cronyism, because Corzine not only hadn’t been involved in the day-to-day markets for more than a decade, his responsibilities at MF Global included active decision making. The waiver wasn’t justified. Corzine reportedly authored the strategy for the MF Global killing trades,
and he also had authority on the trading floor...
...MF Global’s financials were shaky ever since Man Group spun it off in 2005 and saddled it with a lot of debt. Yet MF Global was added to the Fed’s list of 22 primary dealers in February 2011, just before former Goldman CEO Jon Corzine officially came on board. Primary dealers buy and sell U.S. treasuries at auction and are a counterparty to the Fed’s Open Market operations...
...Why did the Fed award prestigious primary dealer status to a shaky operation like MF Global, an entity it does not regulate?
...In August, customers started pulling billions of dollars out of their segregated accounts with MF Global. It was the biggest outflow of funds since January 2009 [and] it is likely that employees within MF Global were well aware of the problems and tipped off key customers.
Yet Gary Gensler, head of the CFTC, did not investigate or begin transferring accounts out of MF Global before the bankruptcy, and that is unprecedented for the CFTC. Given that Gary Gensler was a protégé of Jon Corzine at Goldman Sachs, one should question why Gary Gensler didn’t act...
...[Because of the collapse of MF Global, c]onfidence in the futures market has been shaken. No one knows if their money is safe, but what is more disturbing is the appearance of crony capitalism once again giving favored treatment, lax regulation, and absent oversight to a crony capitalist that abused all of these perks to blow up a large financial firm and damage a key global market.
John Corzine is one of Barack Obama's top 2012 fundraisers, having raised over $500,000.
In short:
• FINRA waived licensing requirements for Corzine
• No one is saying how MFG received a lucrative primary dealer designation
• And, despite numerous red flags, the CFTC didn't act in time to prevent an implosion
All right-thinking Americans, irrespective of party, should reject this kind of lawless crony capitalism. The time has come to throw out all of these bums and to replace them with Constitutional conservatives.
And then we prosecute.
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