The main story of MF Global is that the crisis in Europe brought it down. Wrong story. The main story is that the firm dipped into customers’ paid-up accounts and moved the money. Where to? It’s not clear. How much money? It’s not yet clear. It may be over a billion dollars.
This is illegal, according to the rules.
Always before, the U.S. government and the brokerage comminity backed up firms. They promised investors that they would get their money back. That was then. This is now. Here is the new reality: the U.S. government is missing in action.
The new rule is this: you’re on your own.
This new rule applies to funds of all kinds. It’s not an official rule, but you had better believe that it’s a rule that the government will follow if the bureaucrats think that implementing it will not cause negative feedback from on high.
Here is how one professional commodities trader sees it.
Let me say it as clearly as I know how – if commodity brokerage firms can rob money from its customers’ segregated bank accounts, then customers of any financial firm – be it stocks or fixed income or life insurance or real estate trust or whatever – can be left holding an empty bag.
“Oh,” you might say, “but stock brokerage and banking customers are protected by the SIPC and FDIC and futures are not.” My word to you is this – don’t be so naive!
Segregated funds in a futures trading account were supposed to be guarded by the U.S.government. And the Uncle Sam is currently MIA.
If segregated funds in a futures account are not safe, what makes you think your money in a pension fund or real estate IRA or annuity is safe? Don’t fool yourself! MF Global is the tip of a very dangerous iceberg.
Politics, not the law, now sets the rules.
In a major crisis, you can be confident that a lot of people are going to find that what they thought were the rules are no longer the rules.
Mentally, be prepared for the loss of your digital funds. It may not happen, but the rules of engagement have changed.