Why the MF Global BK is a BIG “MF” Deal!

by admin on September 11, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

MF Global declared Bankruptcy the week. It is the 8th largest BK in the past 30 years and by far the largest in 2011. And yet, it seems that most people are saying that its not really a big deal. There is nothing to see here, please move along.

I would like to stop and take a look for just a moment. What really happened? Well MF Global was a huge futures clearing firm. They had a very profitable business model with limited risk and a solid position as a market leader in the futures market. And as recently as 2 weeks before declaring BK, I myself was encouraged to “look into MF Global” for my own futures clearing. So I ask again, what happened?

What happened is that today a good business that makes money is not enough on Wall Street. So MF Global decided to open what’s called a “Prop Desk” (appropriate name). This stands for “Proprietary Trading”, and what that means is trading for fun and profit in the financial markets.

So let’s look at a quick example of two business

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models:

Model 1: This model is the business of clearing trades for other firms who do trade the markets. This requires you to hold their money in a fiduciary capacity. These are basically banks and brokerage houses, firms like Merrill Lynch, Goldman Sachs, Fidelity, Schwab, etc. And as you can see “normally” this model is extremely stable and long term because these firms win no matter what because they are the middlemen to the transactions. This is a little like being the Drug Dealer and in fact these firms are often called Broker/Dealers.

Model 2: This model is the business of trading the markets for profits, either personal or for clients. This requires that you choose a firm in the first business to open and account and clear your trades, ie. you need a Dealer. Firms in this business are like Long Term Capital Management, Blackrock Investment, Pimco, etc. These firms sometimes make money and sometimes have spectacular flame outs. In general this is seen as a much less stable business model.

THE POINT: Having a business model which lets you do BOTH means that you have set up a situation in which the dealer is using his own product. In other words, instead of just clearing trades, MF Global wanted to be in on the action and through their Prop Desk they were trading for themselves.

What keeps most drug users in line at least a little bit is that they don’t have access to unlimited drugs. But when the user is also the dealer and has a room full of product its just too easy to dip into the stash when you need a fix. And essentially this is precisely what happened to John Corzine and MF Global, and Bear Stearns, Lehman Brothers and AIG as well.

I hope this is making sense. We have a financial Industrial Complex that not only allows, but encourages the dealers to use their own drug and in this case the drug is called LEVERAGE!

So why do I think the MF Global Bankruptcy is a BIG MF Deal!! Because it is indicative of en entire industry which is doing the exact same thing! And when you see one roach in the kitchen you can be SURE there are many, many more.

In 2008 we turned on the lights in the kitchen and saw an absolute mountain of roaches. And just for the sake of public opinion we killed a couple (Bear Sterns & Lehman Brothers) and shooed some others out of the room (Merrill Lynch, AIG & Countrywide).

And since then we have quietly made sure to try to keep the lights out, or give plenty of warning before entering the kitchen. But with MF Global, we just saw another big stinking roach in the kitchen and we killed it as soon as we could and then said, nothing here there was only one, now forget you saw that.

BUT I SAW IT and I think it is a BIG MF DEAL!!!

I personally think this is the starting bell for the new normal, and that is going to look very much like what Bob Prechter and I spoke about on my most recent Mind of Money Interview, and what Peter Campbell and I spoke about on several Mind of Money Interviews.

It is time to wake up and realize that what happened in 2008 not only can happen again, but just got a whole lot more likely, because where you see one roach there is always a nest!

 

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Just Stop!

by admin on September 5, 2014

I set forth that our current financial system is corrupted. That this corruption has bleed directly into the political system. Therefore, it is unlikely that reform or restructuring will be led by the political. I would equate this with the challenge facing India during the British occupation. There was no chance that a political solution would come from the British politicians to the “British” problem facing Indians. Similarly, there is no chance that a solution to our financial corruption is going to come from the current political system which is controlled by that corruption.

My evidence that indeed this corruption exists consists solely of the fact that in 1913 the U.S. created the Federal Reserve Act. That this Act gave the power to control the money supply to a private corporation call The Federal Reserve. That

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from that point forward, the U.S. gave up its sovereign right to create and regulate the money supply. And that from that point the Federal Reserve, and the banks that have sprung up around it have continued to consolidate power in the form of control of money. That today that power is so great that all 3 branches of government (Executive, Legislative, Judicial) exhibit daily their subservience to a 3rd outside force called the Financial Sector. This is most evident in the complete imbalance of power wielded by the head of the Federal Reserve, Ben Bernanke vs. the head of the Executive, Barrack Obama.

The effect of this imbalance is that the people of the United States, and the world be extension and adoption, have become slaves to a common master – DEBT. This debt is given easy at first, as we are hooked. Steadily increased until we are at a limited, and then carefully managed so that we have no options but to continue at maximum carrying capacity. If an unexpected event creates an excess in capacity, then the debt level is increased again, always seeking capacity of the borrower to just make the maintenance payments.

The irony is that, just as Gandhi saw, the only thing between slavery and freedom is a belief. In this case, the belief is that we OWE the banks the balance of our life’s production to pay their interest. And just as in Gandhi’s India, nothing more than a change of belief, and a small action is needed to completely free ourselves from this tyranny. The belief is simply a realization that we do no owe what the government, or the banks say we do. The Action is to JUST STOP. Stop paying all of our debts.

If only 10% of us do this, then the British (I mean Financial Sector) will punish them brutally and publicly. If 30% of us do this, the Government will “bail us out” by saving the banks, and taking (foreclosing) all the property of the transgressors. But if 70% of us do this, then the corruption will be broken. The Political will be restored and the cartel will be dismantled.

We control this game. No one else but us. Every government, regime or power structure in history knew this, and every one of them failed at this very point of critical leverage. The stakes are very high. The players are playing for real. And the spoils for the victor are massive.

I believe it is time to begin playing this game for real. The outcome is assured, but the timing is up to us. It can be very long and very painful.

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Solutions to a broken monetary system

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At this Stage in life there are very few “Firsts” – Today is one

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What Happened in 2008?

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What happened in 2008? This has been the question I have been asking myself and absolutely everyone who has anything to say about it for the past 3 years. At first it seemed the answer was that an unpredictable sub prime mortgage meltdown had Minutes required – pressure amscot payday advance achieves like. Better direct […]

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The Triple Threat of Mind of Money Interviews!

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Why its TOO LATE for Glass-Steagall

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The Glass-Steagall Act was implemented in in 1933 as a direct result of the stock market crash of 1929. To keep it really simple, the Act is designed to make sure the fox is not guarding the hen house. The hens are “we the people” and the foxes are the banks of all flavors. The […]

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