Perspectives on the global economic meltdown- (Nov 28 2010)

[Christopher Sidor]

This is a short story thanks to the book "Lords of Finance"

On Friday, 8-May-1931 an Austrian Bank based in Vienna, Credit Anstalt, told the Austrian government that it was essentially insolvent. It was the biggest bank in Austria and the most respected. It was founded by the Rothschild family, a family as famous and influential as the "Rockfeller family" or the Queen Victoria, i.e. "the grandmother of European Monarchs". What Credit Anstalt was to Austria is comparable to what SBI is to India. Now imagine the SBI Chairman telling the RBI Governor that it is insolvent.

The problem which Credit Anstalt had was that it followed a funding pattern similar to the recently nationalized Belgian-French Dexia Bank or Northern Rock of UK or Bear Sterns of USA. Basically Credit Anstalt used to borrow short-term money and use the proceeds to buy long-term bonds. An analogy for an Indian tax payer would be using a credit card to buy a 10 year tax saving section 80CCF infrastructure bond. So Credit Anstalt had to roll over credit often. This made it vulnerable to the fluctuations in short-term money market. Further Credit Anstalt had a high level of foreign borrowing on its books. This foreign borrowing predominantly originated in the city of London and its banks.

The Austrian government failed in getting a rescue for the bank and declared the same on Monday 11-May-1931 to the public. This caused a run on the bank. As this was the biggest bank in Austria, it caused a run on all other banks of Austria too.

Since Credit Anstalt had borrowed heavily in international markets, especially from banks of London, an international rescue was attempted by the major European central bankers, chief among them was Bank of England. The problem was this rescue was too little. 3 weeks after the run had bled dry all the Austrian banks, a sum of 15 million USD was offered. But in the fours days starting from 8-May-1931 the run had bled Austrian banks to a sum of 50 million USD, more than 3 timse the amount that was offered in the rescue.

By the time the international rescue offer came, the run on Austrian bank had transformed into a run on the Austrian currency. The French on the other hand encouraged their banks to pull their money from Austrian banks. This was a political decision. The French did it to prevent the so called Customs union being formed between Austria and Germany.

By mid june, i.e. 16-June-1931, the Austrians knew that their economy would collapse unless funding arrived from foreigners. The only country capable of providing such a loan was the French, as by this time the French had the 2nd largest gold reserve in the world. USA then had the largest gold reserve. France agreed to provide the funding or loan to Austria provided the so called customs union between austria and germany was scrapped. It was an ultimatum. With their backs to the wall the Austrian government would have accepted had not the Bank of England jumped in and offered the loan. Bank of England was worried about a collapse of Austrian banking system and economy and its ripple effects on the banks of London. But again this was too late.

By this time the Americans too got into the act. Worried that if Austrian economy collapsed and its ripple effect reached the banks of london they would be impacted as USA had lent heavily to UK and other countries in Europe. Since it was naturally and correctly assumed that German banks would have significant exposure to Austrian banks, a run could develop on German banks. In the period after WWI US banks had lent heavily to German Banks too. Americans were concerned that if the panic spread then many US banks would be impacted and some would fail.

In the first three weeks of June-1931, Germany lost half of its gold reserves. Germany then was the 3rd largest economy of the world. The Gold Reserves of 1931 held by various countries is equivalent of the Foreign exchange reserves held by various countries of 2011. In India the analogy would be the 1990 depletion of our foreign reserves which resulted in India having foreign reserves equal to one month of imports. We had to pledge our gold to Bank of England and other entities to secure funding.

Four days after the French offer to Austria, i.e. 20-June-1931, USA declared that they would forgive one years principle and interest expected from European victors of WWI provided they suspended the war reparation obligations of Germany. USA consulted everyone but failed to take the French into confidence before putting their offer. The problem was the France had the 2nd largest gold reserve of the world, it was the biggest creditor to Germany and the country which had the most to loose if the German war reparation obligation were suspended for one year. The French were mad as hell. The French saw this as an anglo-saxon conspiracy .

For the French the concern was that if German war reparation obligation were being suspended for one year, they could be suspended for 2 years or even 5 years or indefinitely. They were worried that a precedent was being set. A precedent which Germans would utilize in days ahead. The entire June of 1931 was spent on negotiations. With the French being adamantly opposed to the suspension. In the meantime Germany continued to be bled dry. A loan of 100 million USD was arranged in June for the Germans, and its depleted to zero in 10 days.

On 7-July-1931 the negotiations were finally concluded. Germany would suspend only a portion of the war reparation obligation while the rest they would deliver to the French. The French would immediately lend it back to the Germans. It was like India giving money to IMF and IMF lending the same money back to India for an interest. It was too late.

On 8-July-1931 Danatabank told the German Central Bank that it was having funding issues. The problem for German Central bank at this point was that it was too much low on Gold. If it used the Gold it had to save Danatabank, it would end up next to zero Gold Reserves. This would result in a run on the German currency and would consequently see its economy collapse. If it did not save Danatabank, it would result in the collapse of the German Banking system. It was a choice between a devil and the deep blue sea.

The German Central Bank decided that it needed a foreign loan of 1 Billion USD to tide over the crisis. The problem was that US had Gold reserves of approximately 6 Billion USD. While the French had Gold Reserves of approximately 4 Billion USD. The Germany GDP was just above 12 billion USD. The figures just did not add up. The only European country capable of providing the loan requirement was France. And just like Austrian request for loan, the French would impose very high political cost on German request for loan.

On 11-July-1931, the French agreed to an immediately loan of 300 million USD to the Germans but on following conditions
1) Abandon the customs union with Austria.
2) Suspend construction of warships/battleships
3) Undertake a policy of pacificms by banning all activities of nationalist organizations like the NAZI's.
The Germans refused on 12-July-1931.

The German ambassador pleaded with the French, literally begging them on his knees to relent, he told them that German economy would collapse. There would be revolution in Germany and the new ruling dispensation would either be communist or nationalist. The French did not relent.
The same day, American ambassador in Berlin told Washington and US Federal Reserve that unless Germany would get 300 million USD immediately, it would default on the 3 Billion USD that it owed to the Americans. The Americans said that they had already forgiven one years principle and interest expected from European countries. They could not be expected to do more. Moreover US Federal Reserve was not authorized to lend directly to foreigners. Only US Commercial banks could.

On 13-July-1931, less than one week after the US+French+British+German agreement to forgiven one years principle and interest expected from European countries, Danatabank failed to open. A run ensured on the entire German Banking system. All the banks were closed in the next few days and in next few weeks the whole German economy or the 3rd largest economy in the world collapsed.

This was a turning point in history. What started as a bank collapse in May-1931 would result in the great depression of July-1931. It would also set the stage for Hitler's rise and his eventual rule over a unified germany+austria an outcome which France did the utmost to prevent. France and US paid a very heavy price for its obstinate behavior. If they had given the Germans the loan, it would have prevented the rise of Hitler and also prevented the Great Depression.

[RoyG]

Neshant check out the video in the link below. Rickards elaborates about gold and the SDR.

http://www.informedtrades.com/520465-ji ... rency.html

[Theo_Fidel]

^^^^

Does this mean Greece now invades France.

[ramana]

Christopher and the Holocaust would never have happened.

[Singha]

true, the repeated economic crisis in germany and heavy war reparations had their role to play in the rise of 'national socialism' and hitlerian system.

[Neshant]

Neshant check out the video in the link below. Rickards elaborates about gold and the SDR.

He's right on the money.

US & China want to transition the world towards using SDRs which is YET another worthless paper currency this time on an international level. It essentially enables China to offload its US dollars onto the world (probably they will insist at a fixed rate) even as its being devalued. People who have worked hard & saved in USD will be made to suffer the loss while banking crooks who are underwater due to gambling debts will be cheering it on.

It will end the same way national fiat currencies end - in ruin for the worker ant. It is mostly the American working class & saver who will suffer the loss of their purchasing power but hey, that's what banking is all about.

[skumar]

Maybe you didn't notice that the article is about RIEF and not about Medallion.

I did not say that, did I? In fact, my next statement, which you have not included, suggests that there is no public information about Medallion. My point on the RenTech funds was that RIEF (the "public" fund) did not do 35% even when the going was good.

More importantly, please understand that the 35% was used as a proxy for the highest levels of returns in the industry averaged over a 3 - 5 year period. The core argument regarding savers benefiting from professional management is independent of this figure, as long as the gap between what the saver can generate on his own and what managers can return is non-zero.

OK, so you now say that 35% is the highest levels of returns in the industry, not the norm. What makes you think that the highest levels of returns for managers of personal funds is not more than 35% - you have given the example of Medallion (in its employee funds avatar) which is sort of that, no? There are other personal fund managers that would qualify like our own RJ.

You are missing the forest for the trees. While the average fund may outperform the average non-professional investor, would the average non-professional investor be better off investing in low cost funds?

but where the commie mentality comes in is in trying to impose on others what industries are 'acceptable' and what are not.

From my posts so far, where have I suggested that the financial services industry should be done away with or is not acceptable? You label a commie mentality to beliefs that you mentally imagine someone has? Or, does criticizing your pet industry, for its obnoxious ways recently, qualify someone as commie?

[VikramS]

Arjun:

I know of no SEC investigation which has resulted in prosecution or admission of guilt except the Madoff type Ponzi or the Gallean type witch hunt. Just the fact that the SEC was willing to investigate an industry leader suggests that the lentils were not all white.

Medallion is unique because it has been able to make money in all kind of market conditions. That simply points to a shorter term time frame trading, since it is much easier to manage risk when your time-frames are shorter.

Funds trading on longer time-frames AND which remain true to their strategy are unlikely to generate 35% returns consistently. Depending on the way the market is behaving certain strategies will outperform during certain periods. If you get in the right moment and with the right amount of leverage then you can make that 35%.

And the best metric should be the CAGR of the funds over a reasonably large period of time.

BTW, I am curious how long have you been in this business?

[shyam]

European Stability Mechanism (ESM) accord scheduled to replace the EFSF. The following video highlights the key sections of the proposed treaty.

[shyam]

Interesting debate. CORNEL WEST vs PETER SCHIFF
[youtube]YpcteDgMZ1c#![/youtube]

[sumishi]

^^
Is Peter Schiff a descendent of the European Schiff family, with which the Rothschilds were linked in the 18th century and later?

[Christopher Sidor]

Where are the Europeans going to find 1 trillion EURO to fill the so called emergency fund? Germans have made it clear that their contribution will max out at 300 billion EUROs. This fund is not getting a bank license, Germans are very clear on that. This fund again will not have a sovereign guarantee associated with it. It looks like that this fund will insure only the first 10% of the bonds issued. So where is the rest of the money going to come from? If China is being expected to provide the funds then it will extract a price. Top of the hat the following conditions come to my mind
1) A full market-economy status for China.
2) Ending of the arms embargo against China. Already many countries, like France/Spain, and many companies like BaE are eager to do defense business with China.
3) Access to some high quality European resources or dual use technology.

Or are the Europeans intending this fund to be the like the bazooka which the former US Treasury secretary requested from US Congress and eventually was given? I shudder to think that this is the case. The bazooka was given and certain members of the congress were under the impression that it would never be used. When it was actually used, the US Treasury secretary lost a lot of credibility. Then his credibility was hurt even more, when the bazooka did fire but the impact was a whimper.
Off course why would the US Congress give a gun to somebody and not expect him to fire it? It was like throwing a drowning man a life vest but not expecting him to actually use it. Makes one to question the judgement of people in US Congress.

[Arjun]

Medallion is unique because it has been able to make money in all kind of market conditions. That simply points to a shorter term time frame trading, since it is much easier to manage risk when your time-frames are shorter.

Agree with you Vikram. If you notice though, the conventional view seems to be the opposite and that surprises me. For example, there was one post in the previous page that advised folks not to touch trading with a 'barge pole' but only look at longer term investment funds.

Funds trading on longer time-frames AND which remain true to their strategy are unlikely to generate 35% returns consistently. Depending on the way the market is behaving certain strategies will outperform during certain periods. If you get in the right moment and with the right amount of leverage then you can make that 35%.

Again am with you totally. Multi-strategy funds can get around this though. Typically you have 3 - 4 years or longer cycles when a particular strategy or asset would be going great guns. Commodities, distressed debt, precious metals are examples of assets all of which would have exhibited phenomenal returns if timed correctly.

BTW, I am curious how long have you been in this business?

Have enough gray hairs - unfortunately can't say much more on this.

What I find troubling about this thread though is the lack of a financial entrepreneurship focus. It goes without saying that the industry needs to be regulated and crooks eliminated. But the attitude that I would find welcome is 'here is an industry that truly has the potential to revolutionize any economy if regulated properly. So how can we ensure that we do everything necessary to realize this potential'. Alternatively another welcome attitude could be from an Indian standpoint 'make the claim to the world that the global financial services model is broken. But here is how we've been developing this industry in India that has prevented the global crisis from entering Indian shores. Use the crisis as a means to claim leadership status for India and present it as a model for other countries to emulate'.

Instead all we have is a run-of-the-mill whines thread.

[Arjun]

OK, so you now say that 35% is the highest levels of returns in the industry, not the norm. What makes you think that the highest levels of returns for managers of personal funds is not more than 35% - you have given the example of Medallion (in its employee funds avatar) which is sort of that, no? There are other personal fund managers that would qualify like our own RJ.

You are missing the forest for the trees. While the average fund may outperform the average non-professional investor, would the average non-professional investor be better off investing in low cost funds?

There was never any claim of 35% being the norm - that would be quite infantile. Highest levels obviously cannot have an upper bound. In fact if you see the Barrons Top 100 the top few far exceed 35% pa over a 3 year timeframe. There was no magical association with the 35% number except to suggest that some of the best managers (who also happen to be in the right asset-class or strategy at the right time) are capable of achieving or beating this number on a 3 - 5 year average basis.

Whether the low cost mutual fund is more appropriate or not depends on the risk -return and lock-up preferences of the saver, and also what his wealth and financial conditions are. If a fund is returning as much as 35%, it would typically not be accessible to smaller investors.

From my posts so far, where have I suggested that the financial services industry should be done away with or is not acceptable? You label a commie mentality to beliefs that you mentally imagine someone has? Or, does criticizing your pet industry, for its obnoxious ways recently, qualify someone as commie?

No my reference here was not towards you. It was towards another poster whose views on doing away with the industry are well-known. Also, I have no problems with wanting to regulate this industry further. That is very much required...and the crooks need to be flushed out.

[Neshant]

What I find troubling about this thread though is the lack of a financial entrepreneurship focus. It goes without saying that the industry needs to be regulated and crooks eliminated. But the attitude that I would find welcome is 'here is an industry that truly has the potential to revolutionize any economy if regulated properly.

Regulations will do nothing as even with current regulations on the books, not one banking crook has gone to jail. So what use is more regulations?

This "industry" relies on bribery & corruption of the political class not to mention stuffing its ex-employees into regulatory positions. If anything, the crooks might be writing regulations to safe guard their corrupt practices and further consolidate their monopoly by fooling the public and co-opting “mainstream” media into the act.

Thus claiming more regulations are needed is an attempt to divert from the primary cause of corruption from which the useless middleman industry derives its profits - namely the monopoly over the issuance of bad money.

The power of money needs to be returned to the people who earn the wealth as opposed to those who benefit from its counterfeiting. Put simply that is the cure, not more regulations, not more politicians, not more ex-goldman sachs govt employees running govt regulatory agencies..etc.

Doing that however puts 90% of the useless middleman industry out of commission and that is likely to require quite an exorcism as they will not go quietly into the night.

But here is how we've been developing this industry in India that has prevented the global crisis from entering Indian shores. Alternatively another welcome attitude could be from an Indian standpoint 'make the claim to the world that the global financial services model is broken. But here is how we've been developing this industry in India that has prevented the global crisis from entering Indian shores.

The whole reason India avoided these scammers is because the "financial services" hadn't been widely established in India - else we'd be holding tons of mortgage backed garbage instead of tons of gold. The last thing India needs are goldman sachs goons running amock encouraging the corruption of capitalism and looting the working poor with fancy jargon, slick talking and politician bribing.

Thankfully, the financial “industry” due to its small size does not have anywhere near the corrupting influence in India as it does in the US (YET). The useless middleman industry's aim is to build a base from which govt can be lobbied and bribed so that the system can be corrupted throughly. Theft can begin in earnest without the fear of imprisonment - as has occured in the US where govt has been practically hijacked by these goons. Guys like you will be co-opted into providing a smoke screen with fancy jargon to keep the people fooled.

As the people get ripped off, you will claim they don't understand modern economics when in fact its you who don't understand the scam you're a part of.

After centuries of subjugation, India is FINALLY in a position to defend against all external invasions. The only thing that can destroy the country are factors within. Releasing a bunch of parasites to loot the working poor is about the worst crime there is. I got the chill of my life when I heard the Goldman Sachs chairman Blackfiend state that India is a promising market to expand operations. They have f-ed up the US taxpayer to the tune of trillions, screwed Greece up the wazoo, now they are looking for virgin territory to defile.

[Neshant]

I just read an article by Warren Buffet's father and was struck by how similar his views are to mine.

Anyway, give it a read. It was written in the late 40s yet is remarkly applicable to today.

----

Forget Warren Buffet, his father Howard was right on target

http://www.goldismoney2.com/showthread. ... -on-target

[Hari Seldon]

[Even] Goldman came face to face with its limitations when a coupla years ago some Chinese state-owned banks refused to honor some noxious derivatives contracts they'd entered into with Goldman claiming fraud.

And there was zilch GS could do about it. They quickly and forcefully buried the news in the west, of course, lest other now wizened suckers get similar ideas.... But the fact remains - there are entities around that've beaten GS at its own games and have gotten away with it.

[Satya_anveshi]

Hari Garu....that shrewedness is fine when foul play is involved and IMO even courts don't enforce the contracts in such cases. But such discoveries are too hard and hence they repeat often. Also, there is fear as long as G stays in the business.

Lessons from cases like Goldman's Ashanti Goldfields and ABN Amro (in its previous incarnation) etc are too hard to ignore. Now here's similar on Citi from Tom Friedman (I don't agree with the author that this is bigger than Goldman's fraud during the 2007-9 crisis).

[shyam]

Bill Black @OWS

[vishvak]

After centuries of subjugation, India is FINALLY in a position to defend against all external invasions. The only thing that can destroy the country are factors within. Releasing a bunch of parasites to loot the working poor is about the worst crime there is. I got the chill of my life when I heard the Goldman Sachs chairman Blackfiend state that India is a promising market to expand operations. They have f-ed up the US taxpayer to the tune of trillions, screwed Greece up the wazoo, now they are looking for virgin territory to defile.

I think a little bit of this information is relevant here.Where a Minimum Wage of $2 a Day is Too Much for the Lords of Industry - Haiti and the Responsibility to Protect

Why did Canada help overthrow Haiti’s elected government in 2004? That’s a question I heard over and over when speaking about Canada in Haiti: Waging War on the Poor Majority, a book Anthony Fenton and I co-wrote. Most people had difficulty understanding why their country – and the US to some extent – would intervene in a country so poor, so seemingly marginal to world affairs. Why would they bother?
...
Another reason for the intervention came out of the contempt, heightened during the country’s 200-year anniversary of independence, directed at Haiti ever since the country’s revolution dealt a crushing blow to slavery and white supremacy. ... within three years of independence the lighter-skinned plantation owners overthrew and murdered the country’s liberation hero Jean-Jacques Dessalines (the French having killed the famous revolutionary, Tousaint Louverture, prior to independence). Excluded from international commerce by the world’s capitalists, and facing threats of invasion, Haiti promised to repay its former exploiters. In 1825 Haiti agreed to pay $21 billion (in 2004 dollars) to compensate French slaveholders for their loss of property (land and now free Haitians). The price for its reintegration into the world economic system was extremely high.
...
Of the $1.2 billion in "aid" for Haiti announced at a Washington donors’ conference in July 2004, more than half was loans, which Haitians must repay. Haitians will have to repay this money even though they did not choose the Gerard Latortue regime that got most of the money, the US, France and Canada did.
...
But, as even a short visit to Haiti quickly demonstrates, the country has no shortage of entrepreneurs or a willingness to work. Rather, a study of history reveals that the economic system commonly called capitalism has only ever been interested in profiting from the super exploitation of the vast majority of Haitians and ignoring their humanity.

My 2 khota sikka onlee. As earlier, I ask as a newbie, why is IMF not decreasing debt of India by 50%. If Greece defaults, and then others, will Greece have to pay the same way as Haitii?

The point here is regardless of whether you need it, debts can be shoved down - it has happened in Haiti.

I would say Indians have to clear out debts ASAP and block these failed dis-reputed bankers' entry in India. These are hardly irrelevant things, especially in this age of 'banking using computer networks'.

[ramana]

Former NJ Governor J. Corzine's firm MF GLobal Hodlings (mini Goldman Sachs) files for Chapter 11

MF GLobal files for Chapter 11

Effect of Eurozone's crisis. Mini Lehman of 2011.

[shaardula]

i thought this was a very interesting talk by a prof at LSE.
http://www.youtube.com/watch?v=56RndDFRnH4

he talks about.
who is more entrepreneurial? are westerners really more enterprising than hose in the developing world?
why does a driver in the western world get payed more than a driver in the developing world? this is true- mediocre people in the developed world enjoy more success than highly skilled people in the developing world.
myth of free markets. a couple of years my office mate used to talk about free markets all the time. i had asked him how is it free market when western companies leverage the power projected by their publicly funded governments world over to do their business.

[Neshant]

The spending has gone ballistic. Its a run away train.

Personally i think guys like geithner, bernanke..etc are being told by banks to keep the spending going at least until the 2012 presidential candidates are announced. That will enable banking crooks to steer public opinion towards selecting presidental candidates compliant towards the useless middleman industrys' interests.

Last thing they want is for the economy to collapse in early 2012 and Ron Paul getting elected. He'll shut the Federal Reserve private bank cartel down for good. Along with it will go the useless middleman industry, bailouts, worthless paper money, taxation and bloated government. There're a LOT of special interests who want to keeping the Federal Reserve around to offload gambling losses onto taxpayers and keep the gravy trains flowing.

--------------

Treasury projects borrowing $305 billion this quarter and $541 billion in next quarter

WASHINGTON (AP) -- The Treasury Department is seeking to borrow $305 billion in the current quarter through December and announced plans to borrow $541 billion in the first three months of next year. The first quarter amount would be the second highest borrowing on record.

The latest estimate of borrowing plans for the October-December quarter is $19 billion higher than an estimate Treasury made three months ago. Treasury officials said lower-than-expected government tax receipts increased the borrowing estimate.

The projection that the government will borrow $541 billion in the January-March quarter would rank second below the all-time high borrowing of $569 billion in the October-December quarter of 2008. That borrowing occurred when the government was spending massive amounts to battle the financial crisis.

[Singha]

nytimes

Regulators Investigating MF Global for Missing Money
By BEN PROTESS, MICHAEL J. DE LA MERCED and SUSANNE CRAIG

9:55 p.m. | Updated
Federal regulators have discovered that hundreds of millions of dollars in customer money has gone missing from MF Global in recent days, prompting an investigation into the brokerage firm, which is run by Jon S. Corzine, the former New Jersey governor, several people briefed on the matter said on Monday.

The recognition that money was missing scuttled at the 11th hour an agreement to sell a major part of MF Global to a rival brokerage firm. MF Global had staked its survival on completing the deal. Instead, the New York-based firm filed for bankruptcy on Monday.

Regulators are examining whether MF Global diverted some customer funds to support its own trades as the firm teetered on the brink of collapse.

The discovery that money could not be located might simply reflect sloppy internal controls at MF Global. It is still unclear where the money went. At first, as much as $950 million was believed to be missing, but as the firm sorted through its bankruptcy, that figure fell to less than $700 million by late Monday, the people briefed on the matter said. Additional funds are expected to trickle in over the coming days.

But the investigation, which is in its earliest stages, may uncover something more intentional and troubling.

In any case, what led to the unaccounted-for cash could violate a tenet of Wall Street regulation: Customers’ funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis.

Neither MF Global nor Mr. Corzine has been accused of any wrongdoing. Lawyers for MF Global did not respond to requests for comment.



Now, the inquiry threatens to tarnish further the reputation of Mr. Corzine, the former Goldman Sachs executive who had sought to revive his Wall Street career last year just a few months after being defeated for re-election as New Jersey’s governor.

When he arrived at MF Global — after more than a decade in politics, including serving as a Democratic United States senator from New Jersey — Mr. Corzine sought to bolster profits by increasing the number of bets the firm made using its own capital. It was a strategy born of his own experience at Goldman, where he rose through the ranks by building out the investment bank’s formidable United States government bond trading arm.

One of his hallmark traits, according to the 1999 book “Goldman Sachs: The Culture of Success,” by Lisa Endlich, was his willingness to tolerate losses if the theory behind the trades was well thought out.

He made a similar wager at MF Global in buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount. Once Europe had solved its fiscal problems, those bonds would be very profitable.

But when that bet came to light in a regulatory filing, it set off alarms on Wall Street. While the bonds themselves have lost little value and mature in less than a year, MF Global was seen as having taken on an enormous amount of risk with little room for error given its size. By Friday evening, MF Global was under pressure to put up more money to support its trading positions, threatening to drain the firm’s remaining cash.

The collapse of MF Global underscores the extent of investor anxiety over Europe’s debt crisis. Other financial institutions have been buffeted in recent months because of their holdings of debt issued by weak European countries. The concerns about MF Global’s exposure to Europe prompted two ratings agencies to cut their ratings on the firm to junk last week.

The firm played down the effect of the ratings, saying, “We believe that it bears no implications for our clients or the strategic direction of MF Global.”

Even by Sunday evening, MF Global thought it had averted its demise after a disastrous week. Over five days, the firm lost more than 67 percent of its market value and was downgraded to junk status, which prompted investor desertions and raised borrowing costs.

Mr. Corzine and his advisers frantically called nearly every major Wall Street player, hoping to sell at least some of the firm in a bid for survival.

On Friday, the asset manager BlackRock was hired to help MF Global wind down its balance sheet, which included efforts to sell its holdings of European debt. BlackRock was able to value the portfolio, but did not have time to find a buyer for it given the other obstacles MF Global faced, according to people close to the talks.

By Saturday, Jefferies & Company became the lead bidder to buy large portions of MF Global, before backing out late in the day.

On Sunday, a rival firm, Interactive Brokers, emerged as the new favorite. But the Connecticut-based firm coveted only MF Global’s futures and securities customers.

While MF Global was resigned to putting its parent company into bankruptcy, Interactive Brokers was also willing to help prop up other MF Global units, including a British affiliate.

By late Sunday evening, an embattled MF Global had all but signed a deal with Interactive Brokers. The acquisition would have mirrored what Lehman Brothers did in 2008, when its parent filed for bankruptcy but Barclays of Britain bought some of its assets.

But in the middle of the night, as Interactive Brokers investigated MF Global’s customer accounts, the potential buyer discovered a serious obstacle: Some of the customer money was missing, according to people close to the discussions. The realization alarmed Interactive Brokers, which then abandoned the deal.

Later on Monday, when explaining to regulators why the deal had fallen apart, MF Global disclosed the concerns over the missing money, according to a joint statement issued by the Commodity Futures Trading Commission and the Securities and Exchange Commission. Regulators, however, first suspected a potential shortfall days ago as they gathered at MF Global’s Midtown Manhattan headquarters, the people briefed on the matter said. It is not uncommon for some funds to be unaccounted for when a financial firm fails, but the magnitude in the case of MF Global was unnerving.

For now, there is confusion surrounding the missing MF Global funds. It is likely, one person briefed on the matter said, that some of the money may be “stuck in the system” as banks holding the customer funds hesitated last week to send MF Global the money.

But the firm has yet to produce evidence that all of the $600 million or $700 million outstanding is deposited with the banks, according to the people briefed on the matter. Regulators are looking into whether the customer funds were misallocated.

With the deal with Interactive Brokers dashed, MF Global was hanging in limbo for several hours before it filed for bankruptcy. The Federal Reserve Bank of New York and a number of exchanges said they had suspended MF Global from doing new business with them.

It was not the first time regulators expressed concerns about MF Global.

MF Global confirmed on Monday that the Commodity Futures Trading Commission and the S.E.C. — had “expressed their grave concerns” about the firm’s viability.

By midmorning on Monday, the firm filed for bankruptcy.

Azam Ahmed contributed reporting.

[Singha]

He made a similar wager at MF Global in buying up big holdings of debt from Spain, Italy, Portugal, Belgium and Ireland at a discount. Once Europe had solved its fiscal problems, those bonds would be very profitable.

[ramana]

Poor guy. Europe is bigger and more experienced in such schemes.

[Pratyush]

continuing with the theme of MF Global.

MF Global’s fall revives fears of a ‘Lehman moment’

[shyam]

Now it is Greece's turn to scare Germany.

Greece throws euro bailout into fresh crisis

The Greek prime minister, George Papandreou, stunned Europe's leaders on Monday after he proposed that his country should hold a referendum on the landmark European debt deal reached last week.

...said a spokesman for the main conservative opposition New Democracy party. "He cannot govern, and instead of withdrawing honourably, he dynamites everything."

[Neshant]

^^ perhaps the vote will be rigged.

that way politicians & bankers alike can claim the people voted for it when their taxes are raised, pensions & services are cut and wages reduced.

[Satya_anveshi]

Just an FYI - MF Global was one of the 22 primary dealers of NY Fed.
Primary Dealers List

Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.

The latest list reflects the following changes:
Effective October 31, 2011, the Federal Reserve Bank of New York has terminated MF Global Inc.'s status as a primary dealer.

Bank of Nova Scotia, New York Agency
BMO Capital Markets Corp.
BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. LLC
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

[ramana]

And there was fraud at the heart of MF Global with $millions missing. How many such cases are there in the rest of them?

Meanwhile AP reports:

Official: MF admits used client money

[vina]

Yawnn.. Greece is slowly sliding down the Grease pole (bad pun.. ) towards the toilet .

This is a slow step walk towards bankruptcy that is happening in front of everyone's eyes, just like Lehman's. The Greece (Grease?) govt can cut all the deal it wants. The population sure as hell is in no mood to tighten the belt and to pay up to the bankers in Euros! Best thing is to do an iceland and walk out and show the finger to the bankers.

As an aside, Argentina , after it defaulted and kicked the USD peg is one of the fastest growing economies today! They are doing fine, thank you.

Why should the Greek people go through such terrible hardship to pay back the shenanigans and misdeeds of Goldman Sachs and the idiocy of the French and German banks ? The best thing to do is to show them the finger.

The Euro is unraveling before our very eyes. Yeah. Either way , this $100b bailout is nothing, done on the cheap and simply not serious. They need to write off the entire greek debt to reasonable levels (30% to 40% of GDP). The problem really is Italy. If tiny Greece can Grease the fall so well, I wonder what will happen if Italy and Spain show the birdie to the Germans and French and their banks and tell them to take a hike. Make no mistake, the Euro is looking like unraveling.

[svinayak]

MFG had bets (bought) on sovereign bonds of all PIIGS with leverage ratio of 80:1! Why? B/c Corzine (CEO) thought European Govts will them out eventually just like in 2008 in USA! Remember, MORAL HAZARD! Bailing out Banks on the backs of Taxpayers!

We are close to another AIG type melt down ( Counter party failures) not just Lehman type!


More@
http://www.zerohedge.com/news/how-us-ba ... ot-whimper

[shaardula]

reading this thread makes me very angry.

the real money is what people have worked for. some people who know how to work money made money out of managing money. they take my 100$, convert it to 110$ and keep 2$. ok fine. what i dont understand is how nobody is held accountable when when they blow my 100$ and make it 60$. our retirements accounts are actually currently under what we actually payed for. what sort of system is this? some of the older folks i know down to their shirts and its not like they had too many options. the system here is totally rigged. if you curtail consumption, live below your means and put it in bank, and you get next to nothing, and will actually get taxed. instead they seduce you to burn that money in a speculators market with a tax deal. and you look at the index its a huge truncated Gaussian with a trend that is greater than the linear inflation trend. and the worst thing is there is nothing in material to justify that price other than some abstract notion of 'market forces'. they will tax the hell out of you, without any corresponding services as collateral, bar say prompt snow removal, if you dont plunge into that market.

day light robbery is what this is.

[Theo_Fidel]

^^^^
I think we have just met/heard from one of the 99%. Time to storm Wal-Street.

System has become deeply unfair. Revolution is coming.

[shaardula]

its not funny, corps like citi can get exemptions from existing acts (glass-steagal) and get special laws enacted, to allow them to gamble on other peoples' money. and yet nothing there to protect to the legitimate earnings of an honest working person?

[Airavat]

capitalism at risk long term

Pimco’s Bill Gross said in San Francisco Tuesday that modern-day capitalism is in jeopardy, given its dependence on risk-taking, growth and plenty of leverage. “We need a banking system that’s attractively and conservatively capitalized,” Gross said. “We’ve made progress but we need to go further.”

Gross said Greece is likely to remain in the Euro zone, but it could be better for the financially troubled country to exit the euro and return later. “Perhaps Greece should follow Iceland’s example of telling banks to stuff it,” Gross said. Much of Europe’s sovereign debt is held by banks.

Greece rocked financial markets around the globe this week by deciding to put to a voter referendum a European bailout plan that would have the continent’s banks “voluntarily” taking a 50 percent writedown on their Greek soveriegn debt. By contrast, Iceland was the subject of a favorable New York Times column by economist Paul Krugman last week noting that “Iceland let the banks go bust and actually expanded its social safety net.”

[Theo_Fidel]

I wasn't being funny. I have spent a couple of days at the local occupy spot. Find yours.

Stories I heard were blood curdling. There was a entire pallet of Airline pilots who had been gypped out of 30 years of savings ($2 Million a piece) so the CEO could be given a $50 Million golden parachute for bankrupting the Airline.

[Singha]

what is the current outlook on american ageing? is the working age population scheduled to grow to keep pace with the increasing number of retired on social security?

or will people be forced to work till their dying day by raising the retirement age on most jobs?

[Pratyush]

Why China and Germany are the new axis of economic evil