Financial News

[southsider2k5]

That is sure what it seems like. But the language will never be "Person X committed fraud," it will be "fraud was committed." It's pervasive.

 

A guilty party isn't about to say they are guilty.

[StrangeSox]

That just isn't true. A significant firm went down, people will end up being prosecuted, count on it.

 

I wasn't being very clear, sorry. I meant from MF people themselves, the classic non-apology apology, and perhaps from media stories, like the one linked.

 

Just look at the phrase "somehow a shortfall happened." Shortfalls don't just happen, someone needs to perform an action for that to happen

 

*edited for correctness

Edited November 15, 2011 by StrangeSox

[StrangeSox]

When states are expected to return to pre-recession employment peaks:

[Balta1701]

Criminal prosecutions of institutions for "Financial Fraud" have plummeted over the last decade.

[southsider2k5]

Criminal prosecutions of institutions for "Financial Fraud" have plummeted over the last decade.

 

The funny part is that I just got done reading a professional article that talks about the origin of stockholder lawsuits. Only 7% of them come about because of the work of the Regulatory System we have in place nationally, including the SEC, FINRA, and SRO's.

 

We have this big assed expensive system in place that does nothing. Literally we get 4 times as many prosecutions out of whistleblowers, as we do out of the entire federal and independent regulatory system.

[Balta1701]

The funny part is that I just got done reading a professional article that talks about the origin of stockholder lawsuits. Only 7% of them come about because of the work of the Regulatory System we have in place nationally, including the SEC, FINRA, and SRO's.

 

We have this big assed expensive system in place that does nothing. Literally we get 4 times as many prosecutions out of whistleblowers, as we do out of the entire federal and independent regulatory system.

Ok, so you're not going to go with the "Financial fraud actually decreased over the last decade" explanation that I thought was the obvious out.

 

In that case, my next question would be why this all changed starting in 2001.

[southsider2k5]

Ok, so you're not going to go with the "Financial fraud actually decreased over the last decade" explanation that I thought was the obvious out.

 

In that case, my next question would be why this all changed starting in 2001.

 

You mean as we spent more than ever on financial fraud investigations and regulatory compliance?

[Balta1701]

You mean as we spent more than ever on financial fraud investigations and regulatory compliance?

Wait a second there though...the Financial industry has also grown to record levels at the time that more has been spent than before. If you were to normalize the spending by the size/profit/level of activity of the financial industry, "Spending more" on investigations and compliance might not mean anything.

 

That statement suggests that one reason for the decline could just be that the system is overwhelmed, that the financial system has grown so large that it has blown past what can be investigated at current funding levels.

[southsider2k5]

Wait a second there though...the Financial industry has also grown to record levels at the time that more has been spent than before. If you were to normalize the spending by the size/profit/level of activity of the financial industry, "Spending more" on investigations and compliance might not mean anything.

 

That statement suggests that one reason for the decline could just be that the system is overwhelmed, that the financial system has grown so large that it has blown past what can be investigated at current funding levels.

 

It now costs an estimated $1.5 trillion a year, just for compliance related costs. Federal agencies are hiring at ridiculous levels, especially at FINRA and the SEC, and have been for years now.

[Balta1701]

It now costs an estimated $1.5 trillion a year, just for compliance related costs. Federal agencies are hiring at ridiculous levels, especially at FINRA and the SEC, and have been for years now.

Now wait though, you've crossed numbers again. The amount "Spent by the financial industry on regulatory compliance" is fundamentally different than "amount spent by the government on attempting to control the financial industry", as is "Spending by the government on the financial industry compared to the size of the financial industry".

 

And I'm still going to cast doubt on that number, which would require that 10% of the entire U.S. economy is spent on "compliance with financial regulations".

[southsider2k5]

Now wait though, you've crossed numbers again. The amount "Spent by the financial industry on regulatory compliance" is fundamentally different than "amount spent by the government on attempting to control the financial industry", as is "Spending by the government on the financial industry compared to the size of the financial industry".

 

And I'm still going to cast doubt on that number, which would require that 10% of the entire U.S. economy is spent on "compliance with financial regulations".

 

Hiring by the federal regulating bodies and SROs goes to those numbers of "amount spent by the government on attempting to control the financial industry". Proof of that work is manifested in "Spent by the financial industry on regulatory compliance". If there weren't compliance actions going on, there wouldn't be the need to spend that much money.

[Balta1701]

Hiring by the federal regulating bodies and SROs goes to those numbers of "amount spent by the government on attempting to control the financial industry". Proof of that work is manifested in "Spent by the financial industry on regulatory compliance". If there weren't compliance actions going on, there wouldn't be the need to spend that much money.

The budget of the SEC is currently just under $1.2 billion. That's a pretty darn small chunk of $1.5 trillion. No wonder the SEC is outgunned.

[southsider2k5]

The budget of the SEC is currently just under $1.2 billion. That's a pretty darn small chunk of $1.5 trillion. No wonder the SEC is outgunned.

 

Do you know how easy it is to generate compliance costs? If the SEC request a document, a firm is legally obligated to produce it under threat of prosecution. Same with any of the SRO's. It would be easy for one person to generate a million dollars worth of compliance costs by demanding various documents over the course of a year, let alone the $1000:1 ratio that is shown here while leaving out the rest of the bodies, exchanges and other SROs.

[Balta1701]

Yeah, here's more believable numbers.

Their complaints are borne out by data and information made public by the regulators, as well as industry studies. Two Securities Industry and Financial Markets Association studies-The Cost of Compliance in the U.S. Securities Industry (2006), and U.S. Securities Industry Financial Results (2007)-compare securities industry compliance-related expenditures with its total expenses.

 

Industry compliance costs rose 94.7 percent from 2002 to 2005: to $25.5 billion in 2005, from $13.1 billion in 2002.

 

Total expenses-minus interest-in the same period rose just 14.4 percent: to $168.1 billion in 2005, from $146.9 billion in 2002.

 

Overall, securities industry firms spent 13.1 percent of their net revenue on compliance-related activities in 2005, compared to 8.3 percent in 2002.

 

If you start lumping "Tax preparation" in there, then you start getting numbers an order of magnitude higher but you're also counting every individual filer. And yes, that is too much.

[southsider2k5]

Yeah, here's more believable numbers.

 

 

If you start lumping "Tax preparation" in there, then you start getting numbers an order of magnitude higher but you're also counting every individual filer. And yes, that is too much.

 

And you just inadvertently made my point for me regardless.

[Balta1701]

Anywho, back onto MF.

But at the moment, her greatest significance may be as a long-time advocate for revisions to a little-known and vastly underappreciated Commodities Futures Trading Commission rule called Regulation 1.25.

 

Before 2000, the rule permitted futures brokers to take money from their customers’ accounts and invest it in a number of approved securities limited to “obligations of the United States and obligations fully guaranteed as to principal and interest by the United States (U.S. government securities), and general obligations of any State or of any political subdivision thereof (municipal securities.)” That is, relatively safe securities with high liquidity.

 

 

The banks, however, pushed the CFTC to expand the investment options that would allow firms to practice “internal repo.” In this scheme, money is taken from customer accounts and invested short-term in a variety of securities, with the futures brokers reaping the not- insignificant financial rewards from their customers’ money.

 

And, lo and behold, such efforts were successful. In December 2000, the CFTC agreed to amend Regulation 1.25 “to permit investments in general obligations issued by any enterprise sponsored by the United States, bank certificates of deposit, commercial paper, corporate notes, general obligations of a sovereign nation, and interests in money market mutual funds” -- in other words, riskier investments that could make more money for Wall Street.

 

Then, in February 2004 and May 2005, Regulation 1.25 was further amended and refined to the liking of Ferber and the banks. In the end, the door was opened for firms such as MF Global to do internal repos of customers’ deposits and invest the funds in the “general obligations of a sovereign nation.”

 

This practice, of course, may well be the centerpiece of the MF Global disaster. We now know that Corzine -- who was CEO of Goldman Sachs from 1994 to 1999 -- bet $6.3 billion on the distressed long-term bonds of countries such as Italy and Spain, although it’s unclear if clients’ funds were used. Bart Chilton, a CFTC commissioner, told Bloomberg News on Nov. 10 the loss to customers’ accounts may have resulted from a “massive hide-and-seek ploy.”

 

 

...

We’ll see if MF Global will claim that the changes to Regulation 1.25 during the past decade gave it cover for its actions. It now seems clear that investing customer money in the risky, distressed long-term bonds of European countries shouldn’t have been permitted. Then again, it’s more than a little amazing that the CFTC allowed futures brokers like MF Global to do internal repos with client funds under any circumstances.

[NorthSideSox72]

Anywho, back onto MF.

I hadn't realized the sweep rules were that open-ended. I thought it only covered Money Market, US Treasury debt and cash-for-cash. Leaving foreign obligations in there may have been intended as a way to allow international customers to have their own nation's "safe" debt, but that is highly dangerous to leave it open as such.

 

[Balta1701]

I hadn't realized the sweep rules were that open-ended. I thought it only covered Money Market, US Treasury debt and cash-for-cash. Leaving foreign obligations in there may have been intended as a way to allow international customers to have their own nation's "safe" debt, but that is highly dangerous to leave it open as such.

Thank you for replying, I genuinely wanted to see if one of the people who knows this stuff read it the same way I did.

[Balta1701]

New British PM comes in pledging budget cutbacks to balance the budget. Does so. My side sits around watching, saying "The budget cutbacks are just going to push you back into recession and your budget hole will get bigger, not smaller." Conservatives scoff. Time passes. Evidence comes in.

George Osborne is braced to admit this month that the scale of Britain's economic slowdown, demonstrated by youth unemployment spiralling to more than 1 million, means he will be unable to meet his main deficit reduction target before the next election.

 

It is now expected that the Office for Budget Responsibility (OBR) will declare at the time of Osborne's autumn statement on 29 November that the downturn's impact is more permanent than thought and the government may not be able to meet its commitment to eliminate the structural deficit – the part of the deficit unaffected by growth – by 2014-15, as he predicted in the June 2010 budget.

 

The expected delay is symptomatic of the damage on the public finances being wrought by lower-than-expected growth and deepening unemployment.

 

 

...

Labour pointed to the Treasury's monthly collation of independent forecasts published on Wednesday showing the consensus now forecasts the government to borrow £109bn more over this parliament than the chancellor planned. They also show the government could even end up borrowing billions more than Labour set out before the election – despite the pain of £40bn more spending cuts and tax rises.

I say we do the exact same thing in the U.S. That's not insanity, since there's water between the 2 places.

[Balta1701]

Spain jumps in and says "Dont' forget about us!"

Spain paid the highest rate to sell its 10-year debt since 1997 Thursday, just shy of the 7 percent mark seen as unsustainable, as the country is swept deeper into the euro zone's debt crisis ahead of a Parliamentary election Sunday.

 

The euro fell and demand for safe haven German bonds jumped after auction as investor fears about the stability of the whole the currency bloc grew.

 

"The result was dreadful. They didn't manage to raise the full amount and the bid-to-cover is really poor. The fiscal profiles of Spain and Italy are different but their yields seem to be aligning now," said Achilleas Georgolopoulos, rates strategist at Lloyds in London.

 

Countries at the fringes of the euro zone saw their financing costs leap this week over fears Italy could eventually default, and the tensions spilled over into core euro zone countries such as France. That was despite ongoing support from the European Central Bank's bond purchases of periphery debt.

 

The Treasury managed to sell 3.6 billion euros of a new 10-year 5.85 percent coupon benchmark bond, in the middle of its 3 billion to 4 billion euro target at the auction.

 

Spain's government was forced to pay an average yield of 6.975 percent for the bond, the highest since 1997 when the average yield was 7.26 percent. The highest paid this year on a separate 5.5 percent coupon 10-year bond was 5.986 percent on July 21.

[Balta1701]

How Congress gets to trade on insider info...

 

http://www.cbsnews.com/video/watch/?id=738...n%3BcbsCarousel

Apparently a couple economists from MIT put out numbers on Congress's publicly known stock trades earlier this summer. They found that in the 1990's, Congress was uncannily good at making money on trades, but between 2004 and 2008 the members of Congress underperformed the market by 2-3%.

[southsider2k5]

Apparently a couple economists from MIT put out numbers on Congress's publicly known stock trades earlier this summer. They found that in the 1990's, Congress was uncannily good at making money on trades, but between 2004 and 2008 the members of Congress underperformed the market by 2-3%.

 

Bush>Clinton

[Balta1701]

Bush>Clinton

Were there any new ethics rules passed between those 2 points that could explain the difference? Or did Congress just get dumber?

[Cknolls]

Were there any new ethics rules passed between those 2 points that could explain the difference? Or did Congress just get dumber?

 

 

Congress-------Ethics???????---------Surely you jest?

[southsider2k5]

This is worth a read. Don't know what I think about it quite yet, but definitely worth a read.

 

http://www.zerohedge.com/news/entire-syste...global-casualty

 

"The Entire System Has Been Utterly Destroyed By The MF Global Collapse" - Presenting The First MF Global Casualty

 

Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST

 

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

 

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

 

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

 

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

 

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

 

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

 

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

 

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

 

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

 

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

 

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

 

As for me, I can only echo the words of David:

 

“This is the Lord’s doing; and it is wonderful in our eyes.”

 

With Best Regards-

Ann Barnhardt