MF Global lost $1.2 billion in customers’ accounts. The clients’ money is gone. Corzine testified under oath to Congress yesterday that he has no idea where it went.
If he doesn’t know, nobody knows. Yet the financial system rests on this: investors think someone in charge knows where all of their money is.
If you are a skeptic, and you think he is lying, then the question remains: Where did the money go?
How will clients get it back? They won’t.
Corzine is not in jail.
All this sends a message. Here is the mesasage: It’s over, folks. The rules have changed. The clearing house did not stand behind the trades.
So, you think you have a retirement fund. You think the accounts are secure. Well, so did everyone who had money at MF Global.
Here is what commodity futures trader Jim Sinclair said yesterday:
How can you have your money anywhere and expect and feel certain that this money will be returned to you when you see the inner workings of finance and Wall Street through the eyes of the collapse of MF (Global)? Totally shocking.
We are in the midst of a crisis which is so complex that the public generally doesn’t understand it. This event is so complex that I’m not sure professionals reporting on it or possibly even a good deal of the management of companies operating in it totally understand it. The derivative is ahead of the client.
So in the Lehman case the banks just took out Main Street. When MF Global went down, that broke the mechanism. The sharks will eat the sharks now because in the case of the clearing house, what you are taking out are the traders and investors who had confidence that a clearing house meant their money was safe and segregated from misuse by the management of the clearing house. You lose confidence in that, how do you settle trades?
Today it’s not a question of will your investment come out correctly. Today it’s a question of whether the money you put into the investment will ever come back again, regardless of what the quotation is. The only money I can count on is the gold I own. Everything else depends on the system.
You have been issued digital IOUs. These used to be legal claims on the clearing house. No longer.
You may be resting all of your retirement hopes on the legal validity of these digital IOUs.
I wish you well.