Corzine’s Know-Nothing MF Global Defense

Jon Corzine’s evasive testimony before the Senate Agriculture Committee was scripted so as to lay foundations for his defense against customer and possibly shareholder suits and reduce the already very low odds of an indictment.

Although I’ll touch on other interesting elements shortly, the key item from his presentation was one that the New York Times’ Dealbook noted:

“I never intended to break any rules,” said Mr. Corzine, dressed in a dark suit but without his trademark sweater vest. “I know I had no intention to ever authorize the transfer of segregated moneys. I know what my intentions were.” Mr. Corzine has not been accused of any wrongdoing….

Still, over three hours of testimony, Mr. Corzine danced carefully around questions touching on the scandal of the missing funds, using phrases like “never intended” and “not to my knowledge.”

To prove fraud, you need to prove intent. So Corzine’s insistence that he didn’t intend for customer accounts to be raided would seem to get him off the hook, unless documents or the testimony from multiple employees establishes otherwise. His justification amounts to blaming any misdeeds on the fog of war: “Yes, I told staffers to be aggressive, but I never meant for them to bayonet old women and babies.”

In other words, if anything bad was done deliberately, it was all a really big miscommunication:

He did not rule out possible wrongdoing at MF Global. In theory, an employee may have misused customer cash after misinterpreting the chief executive’s words, he said.

Now as regular readers know, CEOs morphing suddenly from Masters of the Universe to empty 42 longs who are clueless as far as operational details are concerned was supposed to go the way of the dodo bird with Sarbanes Oxley. Sarbanes Oxley requires key corporate executives, typically at least the CEO and CFO, to certify the adequacy of internal controls. For a financial firm, that has to include risk controls, which were the big point of failure in the crisis and with MF Global. And the beauty of Sarbox is the criminal provisions track the civil, so if a prosecutor were to prevail in a civil suit and thought it had enough dirt to pass the “reasonable doubt” threshold, it could file the related criminal suit.

Knowing violations of Sarbanes Oxley certifications are subject to up to five years in jail; willful violations, up to twenty years. To my knowledge, only one executive has faced charges under Sarbox: HealthSouth’s Robert Scrushy. He won that case, but as someone who followed it off and on in the Birmingham press, it is not a stretch to argue that Scrushy had a position in the Birmingham area that would make him more difficult to prosecute than most CEOs. And it it also pretty typical for it to take a while to perfect cases when using new legal arguments, so losing an early case or two is often part of the learning process.

So a “know nothing” argument would not only be useless in defending against Sarbox charges, it might actually be damaging (“How can you say you know nothing about operations yet sign that certification?”). Note that for financial statements, the usual approach is to shed liability by relying on auditors. But there are no comparable players in the risk modeling/control world. The banks are typically on the bleeding edge in some areas, which often include very profitable new strategies, which works against third party validation.

There were some other oddities in the Corzine testimony. Remarkably, he insists the firm got to be less risky on his watch because its gearing fell from over 37 to one to 30 to one. Immediately after that, however, he describes the repo to maturity trades in some detail, and points out, as others have, that they were treated as off balance sheet for accounting purposes. Since these trades were clearly NOT off balance sheet from an economic standpoint, any discussion of the firm’s true economic risk should include the repo to maturity transactions. It would clearly lead to a higher level of leverage than Corzine presented in his testimony, and likely higher than under the predecessor regime.

In fact, the repo to maturity trade had the exact same defects as the negative basis trade that we described in ECONNED, which blew up the global banking system. There, traders were able to achieve high leverage (typically, they used no capital at all) by holding AAA tranches of CDOs and hedging them with an AAA counterparty (in some cases, remarkably, a mere A rated counterparty, meaning ACA, was deemed acceptable). These were very attractive to traders because all the discounted income over the life of the trade, less funding and hedging costs, was treated as immediate profit. The magic of an AAA rating plus a hedge was treated as if all credit risk had been eliminated. We know how that movie ended.

With MF Global’s repo to maturity trades, the credit risk was effectively assumed away due to the short duration of the trade and the matched funding (and like the negative basis trade, all expected profit was recognized up front). But as has been discussed elsewhere, the people running the book forgot about mark to market risk, that if the value of the trade OR MF Global’s credit rating fell, they’d be required to put up more collateral. With MF Global not having a great credit rating to begin with, failing to recognize that they might face higher haircuts was a glaring oversight.

Finally, it appears that Corzine, thanks to the advice of the Boston Consulting Group, was in the process of trying to become the next Bear or Lehman: a subscale full service investment bank, presumably with a strength in commodities.

The Bear/Lehman movies ended badly for a simple reason: if you are going to compete directly with the big boys, you need roughly 90% of their infrastructure. The business has large minimum scale requirements: back office, computers, broad product mix to serve corporate and institutional clients, presence in major geographies, you might be able to get away with not being in certain secondary locations. Yet you only have 60% to 75% of their volume. That gives you inferior economics, which in turn puts you at a disadvantage in attracting and retaining the dreaded “talent.” Sadly, many producers do have leverage, in the sense that they can take their franchise to another full service firm. If they heads of business units leave and take their top two subordinates with them, the hole is very difficult to plug short term and will have a detrimental impact on related operations.

So what do firms in those positions do? They take on outside risks in the hopes of producing higher returns than the industry leaders, so as to make them more attractive to industry professionals and to help them over time reduce the scale gap with the leaders. But the network effects (primarily, information advantages) of being a top player are so large that even superior risk taking acumen (or just dumb luck) are almost certain to be insufficient to overcome the advantages of the very top firms.

So in other words, MF Global blowing up by taking too much risk was not an accident. It was inevitable, given its strategy, as the examples of Bear and Lehman attest (remember, Lehman suffered a near death experience in the Asian crisis of 1997). But MF Global did unravel awfully quickly. We will hopefully know in due course exactly what bad decisions and management failings were the proximate causes of its death, and more important, the loss of customer funds.

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    1. rd

      I think Corzine’s testimony means that he and his attornies believe that SarbOx has no teeth or that the Administration will not enforce it. He put a good defence on against fraud, but SarbOx was supposed to make ignorance of systemic problems a crime if you are in the ultimate responsible positions in the company.

  1. nickj

    “to achieve high leverage (typically, they used no capital at all)” – wow, infinite leverage! I could use some of that.

  2. Conscience of a Conservative

    They got rid of the risk guy(Michael Roseman). This has to raise red flags, is he not being interviewed?

    Bruce Krasting has an interesting take. He also points out that he’s likely been heavily prepped by lawyers and suggests the phrase “I never intended to break any rules,” was very deliberate, and basically amounts to I could have broken rules, but didn’t understand the consequences of my actions.

    Krastings example was a hypothetical “do what you can” response to some suggestion action regarding use of customer funds.

    MF Global was significantly smaller than say a Goldman or a Lehman and Corzine was very involved with day to day trades from press reports. Hopefully this is only the beginning.

    1. skeptic

      “I know I had no intention to ever authorize the transfer of segregated moneys. I know what my intentions were.”
      What he meant to say was “I knew using customer funds as collateral would risk their capital, but I did it because I thought I was smarter than anyone else and would make the winning call. I intended to win, not to lose. It really was a good trade: I would make millions risking their capital. I had no intention to ever authorize the transfer of of segregated moneys; they agreed to do that themselves when they signed their brokerage agreements allowing re-hypothication. Sorry, that wasn’t smart of them.”

      1. LeonovaBalletRusse

        skeptic, yes, *Bernie Madoff* logic precisely — “I’ll just borrow from here, until the next tier of suckers ponies up, then I’ll make everything square.”

        This is precisely the logic of the EMBEZZLER by any name.

    2. LeonovaBalletRusse

      Conscience, you might like the *legal chops* anent the issue of “mens rea” – “guilty mind” (intention to commit the crime) – in conjunction with the “actus reus” (commission of the crime): a little *primer* on the Law as it relates to Corzine and other stealth kleptocrats.

      Highly recommended to everyone here, actually.

      1. Up the Ante

        In response to your link, W/E.

        SarbOx, did they ‘intend’ to craft it ‘with their minds’, or did the act force them to pass the unintended legislation ??

    3. LeonovaBalletRusse

      “I had no intention, no intention, no intention, no …”

      GOEBBELS: the BIG LIE, repeated often enough, becomes true.

      The Defense according to BERNAYS.

      In the end, not one of these crooks will hesitate to purjure himself. Their *honor* is only among theives.

        1. Up the Ante

          ” .. The memo Bush signed on May 5, which was published seven days later in the Federal Register, had the unrevealing title “Assignment of Function Relating to Granting of Authority for Issuance of Certain Directives: Memorandum for the Director of National Intelligence.” In the document, Bush addressed Negroponte, saying: “I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended.”

          A trip to the statute books showed that the amended version of the 1934 act states that “with respect to matters concerning the national security of the United States,” the President or the head of an Executive Branch agency may exempt companies from certain critical legal obligations. These obligations include keeping accurate “books, records, and accounts” and maintaining “a system of internal accounting controls sufficient” to ensure the propriety of financial transactions and the preparation of financial statements in compliance with “generally accepted accounting principles.” ”

          1. LeonovaBalletRusse

            Re George W. Bush and his *sacred purpose* while President:
            In “AMERICAN DYNASTY: Aristocracy, Fortune, and the Politics of Deceit in the House of Bush” author Kevin Phillips illustrates that the real purpose of George W. Bush while President, in addition to creating profits for friends and family, was to make incriminating information about Bush Dynasty crimes “inaccessible.” Mission Accomplished.

            His deal with Negroponte fits this *duty* perfectly.

            Still, none dare call it treason?

    4. Pwelder

      For some reason I’m reminded of that scene in Becket, where the King says something to the effect of “Will nobody rid me of this pestilent priest?”

      But after the priest had been dispatched by the King’s eager nobles, the King, if memory serves, took the flogging.

      1. LeonovaBalletRusse

        Would never happen today. Our *kings* feel neither guilt nor shame. They are monsters, and those who serve them are monsters.

      2. Up the Ante

        Let’s see, they can trade on inside information legally, at the King’s behest they are excused from SEC reportings, wiretaps to muffle the opposition, even attempting to Daschle the scheduled opposition, and how many do not even file tax returns from year to year?

        And people pore over these clowns’ tax returns like they’re not works of fiction??

    5. rd

      It is going to be very interesting to see if the Geithner-Holder regime will even bother to do investigation and discovery or just immediately throw their hands up in an “its too difficult” posture.

  3. Lambert Strether

    “I never intended to break any rules,” shortly to be followed by “the rules were already broken when I got here,” shortly to be followed by “the rules I broke weren’t really rules.”

      1. patrick

        Along with “Fiduciary Duty” it was deemed outmoded, inconvenient, and therefore jettisoned by the crew of the pirate ship Wall St.

    1. LeonovaBalletRusse

      Well, as Paul Tioxin suggests, there are known unknowns, unknown unknowns, and every combination and permutation thereof to consider (*Studmuffin*’s legal system).

  4. NYT

    Here’s a very good article about how rehypothecation may be at the heart of MF Global

    So it seems to me that
    1. MF Global have their customer agreements include a statement that rehypothecation of customer accounts is allowed.
    2. Customers dont really know what this means but are reassured by statements that their accounts are segregated- which they are.
    3. MF Global invest money in the worst junk they are legally allowed to buy using “segregated” customer accounts (as well as their own equity) as collateral.
    4. Greece goes south and JP Morgan seize the collateral which includes the customer securities pledged as collateral
    5. Customers who thought that the agreement their signed on
    rehypothecation was just legal
    6. Corzine has a legal defence – the customers signed the agreement on rehypothecation. And plausible deniability is now all you need to commit financial fraud. DoJ will never bring charges.

    Thats my working interpretation anyway.

    1. AndyC


      From the article

      “This allowed the firm to move $16.5 billion off its balance sheet, most of it debt from Italy, Spain, Belgium, Portugal and Ireland.”

      This begs the question.

      Who the hell would go long this debt over the last 3, 2, 1 years?

      A madman?

      The impending collapse of this debt has been widely and accurately predicted on every blog I read for the last 3 years, with the pieces falling into place the entire way through.

      If these guy was doing this insane trade, you can bet countless hedge funds and global financial firms were doing same.

      All moral hazard

      1. Yearning to Learn

        Who the hell would go long this debt over the last 3, 2, 1 years?

        Going long these debts over a short duration can be a huge winner, especially if you use leverage, so long as you get out in time.

        MF Global’s strategy was actually working. Their bets were looking like they were going to pay off. The problem wasn’t that they were losing their bet, it was that mark to market accounting forced them to put up more margin, and they didn’t have the cash due to leverage.

        it was extremely risky, but there was the promise of significant wealth (to the executives anyway).

        it is astonishing that Corzine et al would have missed the margin requirement issue when they levered up so much…

        as always, the problem with Global finance is that everything is leverage leverage leverage and risk risk risk, combined with opacity. If you win, big bucks. If you lose, bailout or at worst you join another firm for a pay raise.

        On a side note: US Law disgusts me. I got a $46 parking ticket a few weeks ago because I parked in an area where I couldn’t see the “permit only parking 11am-10pm” sign. I would have loved to say “your honor, I didn’t INTEND to break the law” which is actually true in this case. But alas, they didn’t care.

        The poor and minorities still get Jean Valjean treatment in the American courts… but steal $1.2Billion and you get “honorable” designation by our legal system.

        1. nun yerbizness

          “…so long as you get out in time.”

          the mantra of every player sitting at the black jack table, roulette wheel and craps table.

          at least at casinos there is transparency, a level playing field and the rule of law

        2. Maximilien

          @YTL: I agree with everything you say. Know the law for what it is: a system to keep the rabble under control. Why else drug laws, vagrancy laws, sodomy laws (very broadly defined), etc., etc. And why are fines so punitive for poor people but just a nuisance for the well-off? In egalitarian Finland, traffic fines are proportionate to income:

    2. jake chase

      As I understand rehypothecation, the broker is not permitted to use customer free credit balances. In other words, there is no rehypothecation if the customer himself does not have a margin position, and the broker cannot pledge more than a percentage of the customer’s collateral backing his own margin borrowing. MFG seems to have disappeared money in customer accounts which had no open positions. This is simple theft. As to who is responsible, this is what controls are all about. Just anyone cannot push a button and make $1.3 billion in customer funds disappear into the maw of the firm’s creditors. To date, the Congress people looking into this have been inexperienced and inept idots. I cannot wait to see Conzine try this “I didn’t know anything or intend anything” defense in facing off against experienced securities lawyers. Of course, this assumes that our plutocrat government will attempt to prosecute him rather than proceeding with the handwringing “mistakes were made” approach. I don’t think we’ll know either way for three or four years, but it should not be all that hard to find out who got the $1.3 billion and force them to give it back.

      1. C

        You’re right, it shouldn’t be that hard to find out who has the cash. I don’t think that it’ll be very easy to force them to give it back. I don’t think JPM Chase will give up without a big fight.

          1. rd

            The money at JPM will be hard to get back. It is already leveraged 40:1 to other people who have leveraged it 40:1 so it will collapse the world’s financial system if the farmers are paid back.

            I’ll bet the poor little farmers had no idea that collapsing the world’s financial system could be their fault.

      2. NYT

        I think you may not be right about MF Global not having the right to use the cusomer free credit balances:
        From the article I posted

        “Under the U.S. Federal Reserve Board’s Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client’s liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.

        But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500). “

        1. spooz

          That is an SEC rule. The CFTC does not allow commingling of customer funds. Jill E. Sommers made that clear in her testimony yesterday. Janet Tavikoli also agrees, wrote a piece on it in today’s Huffpo.

        2. Maximilien

          Why do we (they) use the words “hypothecate” or “re-hypothecate”? In all of the English language, there MUST be a simpler, clearer word. Like, for instance, “borrow”?

    3. C

      I agree. I think there are two issues that are being confused here: the customer funds and the repo to maturities. The assumption is that costumer funds were used to finance RTMs. I really can’t see that being the case. In order for the repos to be considered RTMs, and be netted off the balance sheet and get sales treatment accounting a couple of criteria have to be met. First, there has to be matched maturities between the debt and the repo loan. Second, these transactions have to be executed with the same counterparty, which has a cross product netting agreement in place. Presumably both legs of these transactions had to be done with the same counterparty in order to be netted. In this case it appears that the London Clearing House was the intermediary for a number of these transactions, like the GSCC would be here. Bearing this in mind it is unlikely that costumer funds where used to finance these RTMs, as their use would have disqualified them from being RTMs, and being netted off the balance sheet. Rather it seems to me that costumer funds were lost through rehypothecation. Like all FCMs, MF had agreements in place to allow them to loan their customers cash and securities. These loans were used to generate revenue for the FCM, and at one point were a substantial source of $ for the firm. This business suffered under ZIRP, but nevertheless the practice of securities and cash lending did not stop. Unfortunately, when the firm goes bankrupt, these loans, even if they are in plain vanilla products like US treasuries, are also seized by counterparties. Even more unfortunate is the fact that this is all legal.

      1. spooz

        SEC may call it legal, but unfortunately for MFG, they are also under the CFTC’s authority, and the CFTC doesn’t allow it.

      2. ron

        ” Even more unfortunate is the fact that this is all legal.”

        This is the reality that the current financial PR industry operation wants to hid or at least create the impression that its abnormal. Future/equity/commodity markets make money by skimming the leveraged credit generated by the customer accounts. What would happen if leveraged credit was removed from accounts so that only cash up front trading existed? Quick end to most of these operations!

      3. Jim Haygood

        As a former customer of Refco/MF, I used to keep a substantial portion of my account equity invested in T-bills. These were always 3-month T-bills — a specific list with the amounts (in nominal $10,000 increments) and weekly maturity dates appeared on every statement.

        As you point out, 3-month T-bills don’t match the maturity of the 1 to 2-year European sovereign debt in RTMs. T-bills are constantly being rolled over as they mature, so it’s not a stable pool.

        Corzine’s written statement said that in October, MF was scrambling to unwind its Repos to Maturity. With PIIGS debt way down in price from when the RTM trades were initiated, these were surely closed at a loss.

        Even if the collateral for the RTMs did not consist of customer funds, if MF rehypothecated customer funds with the same counterparty (e.g., Goldman Sachs) in other transactions, one could imagine that customer segregated funds got seized to offset MF’s losses on the busted RTM trades.

        This is just a wild-ass hypothesis on my part, but I’ll bet that GS and other counterparties gobbled up some of the collateral from customer segregated funds in a manner similar to what I’ve just outlined, as offsets against MF’s losing trades using its own capital.

        What’s mysterious is why it’s taking so long for the forensic accountants to flesh out this story. Some former MF employees were rehired as consultants to the forensic team, so it’s not as if the audit team is having to get up to speed from scratch.

        Needless to say, MF’s debacle is a major black eye for the futures industry and the CME. Now that many of its futures contracts have ETF analogues that trade on stock exchanges, futures are increasingly irrelevant. For example, although 3X leveraged long and short stock ETFs fall short of the 12X leverage on E-mini futures, 3X is enough bang for the buck for most punters. And you don’t have to trade through sleazeball futures brokers who (in MF’s case) were far more leveraged than their speculator customers.

        1. Anonymous Comment

          I would say you are right about what happened to the collateral. That’s the problem with rehypothecation. If the same collateral is ‘assigned’ to multiple trades, if the trades goes bust, who gets it? The first ones to notice the problem, that’s who.

          As for using MF staff to do the forensic work… that is not about saving time to bring investigators up to speed… that is about creating the ‘proper story’ as the investigation unfolds. How is it even legal to use former employees to investigate the wrong-doing of their own firm? Now I’m convinced there is gonna be a handslap over all this.

      4. Lyle

        It should be noted that this is allowed only on margin accounts. Pure cash accounts don’t allow it, just like in a margined security account the broker can lend the stock to help someone short a stock. Of course in the commodities field no one does cash accounts its all on margin, in particular with futures, since they have a large nominal value. Also it is done with options although they do not have such a large nominal value.

    4. ron

      Segregated accounts do not exist just another myth generated by the financial media to coax greater participation from the general public. Future/equity/commodity markets are upscale financial casino’s that by glossing over risk while skimming large profits from leverage credit operations. The present hue and cry about segregated accounts is basically a PR operation now in full swing to promote the idea that this situation is an abnormality and that someone somewhere will be punished. LOL

      1. Jim Haygood

        Besides the UK’s unlimited rehypothecation, another difference between the US and the UK is that the UK still allows, within its many varieties of legal betting, what used to be called ‘bucket shops’ in the US.

        That is, a UK resident can (for example) place a leveraged bet on the direction of coffee futures with a UK betting house. The betting house does not actually execute a trade in the London or New York coffee futures exchange. It simply marks the customer’s bet to market, keying off prices on the exchange. Since most customers lose money over time — particularly after commissions and (probably) bad fills — this ends up being a viable business model for the betting house.

        How ironic, that the funds of bucket shop futures speculators in the UK may be more secure than those of US futures accounts, supposedly backed by SIPC protection and the good name of the CME clearing house. Like a lot of things we learned in civics class (or biz school), those turned out to be phony promises in the era of casino capitalism and feckless, compromised government.

        1. Maximilien

          “How ironic, that the funds of bucket shop futures speculators in the UK may be more secure than those of US futures accounts, supposedly backed by SIPC protection and the good name of the CME clearing house.”

          Not ironic. Logical.

          Moral hazard = huge pools of stupid money
          Huge pools of money = sharks

    5. ReaderOfTeaLeaves

      I would add that the excellent Reuters article read to me as if none of this would have been possible without the London(grad)-based companies so convenient for off shoring, then claiming to operate by UK loopholes in order to wrangle the straw into mountains of gold.

      As if on cue, that earnest defender of the Anglo spiderweb off shoring and tax havenry, the Hon David Cameron, has just this very day defended the City of London’s right to continue as handmaiden to this ongoing rush for any corporate entity to abide by the laws of any nation, whether EU, or Anglo-American.

      This from the post should be a seminar topic for legislators and judges around the globe:

      So what do firms in those positions do? They take on outside risks in the hopes of producing higher returns than the industry leaders, so as to make them more attractive to industry professionals and to help them over time reduce the scale gap with the leaders. But the network effects (primarily, information advantages) of being a top player are so large that even superior risk taking acumen (or just dumb luck) are almost certain to be insufficient to overcome the advantages of the very top firms.

      trying to overcome network effects seems a challenge that only the greatest risk takers (or most desperate) would seek to take on. And not to be a scold, but IIRC, Corzine was badly injured in a car crash in which he was not wearing a seat belt. That was tragic, but it does make me wonder (as a fairly rabid seat-belt wearer myself) what sort of decision-making criteria goes on in the mind of a person who thinks that despite traveling 60 mph, a seat belt is not necessary.

      Again, in my mind MF Global was out on the speedway, a racetrack enabled by tax havens and off shoring to avoid complying with SarBox or other laws. It was racing at 120 mph with no seatbelts no helmets, no lane guidelines, no guardrails, no seatbelts, exploiting tax loopholes and m2m accounting mojo.

      And the David Cameron’s defend this imprudence, while the Eric Holders turn a blind eye, and the GOP, and too many Dems, act like this is primarily a partisan pissing match. None of this addresses network effects, nor the global nature of the tax, finance, accounting and legal gaps that enabled this level of gambling.

      Corzine is a tragedy, but what galls me is that the focus will be on one man, rather than the structural issues this disaster reveals.

      1. ReaderOfTeaLeaves

        Should read:
        David Cameron, has just this very day defended the City of London’s right to continue as handmaiden to this ongoing rush for any corporate entity to AVOID HAVING TO abide by the laws of any nation, whether EU, or Anglo-American.

        Tax havens are not simply about tax avoidance; they subvert civil society.

        1. LeonovaBalletRusse

          Cameron had his marching orders: Do or die.

          The networked bucket shop offshore skimming *coin shaving* racket continues in perfidious Albion.

      2. Jim Haygood

        As I recall, when Corzine’s crash occurred on the Garden State Parkway, the state trooper at the wheel was doing over 90 mph, while Corzine in the front passenger seat was unbuckled.

        It was outrageous, but typical, that the trooper didn’t even get a ticket for driving so reckless that it probably would have resulted in the seizure of a Mundane’s vehicle.

        In other words, a certain amount of contempt for the rules that apply to ‘little people’ was apparent in the governor’s auto accident. The same reckless character, and perhaps contempt for prudential rules that Corzine deemed unimportant, surfaced in the MF disaster.

        This is why the government is so obsessed with profiling: in many cases, past behavior is quite predictive of future actions.

      3. Yves Smith Post author


        I hate to hector you, since you are not the only one here of that view, but this is NOT an excellent article. The author is a hysteric and C above is 100% correct.

        The author makes a huge, completely unsubstantiated claim, that the loss of customer funds was due to rehypohtecation. He has not iota of proof for that. And there is some counterevidence, that funds are missing from accounts that have no leverage.

        Now rehypothecation may well have played a role. But this guy made shit up out of whole cloth. I’m really gobsmacked that people are dazzled by jargon and don’t see the lack of proof for his awfully big claim.

        1. ReaderOfTeaLeaves

          Thanks, Yves. My ego being fairly tough, I don’t take your comment as hectoring; rather, as remonstrance not to fooled by b.s.

          Advice against being duped by b.s. is gratefully appreciated; after all, like many others, I come here to attemp a better understanding, not spout nonsense and drivel.
          Correction synthesized ;)

        2. Fiver

          But C says it probably IS from rehypothecation. His words:

          “Rather it seems to me that costumer funds were lost through rehypothecation. Like all FCMs, MF had agreements in place to allow them to loan their customers cash and securities. These loans were used to generate revenue for the FCM, and at one point were a substantial source of $ for the firm. This business suffered under ZIRP, but nevertheless the practice of securities and cash lending did not stop. Unfortunately, when the firm goes bankrupt, these loans, even if they are in plain vanilla products like US treasuries, are also seized by counterparties. Even more unfortunate is the fact that this is all legal.”

          Yves, you many times wondered if there were more “MF Global’s” out there. Or engaged in myriad speculations re any number of topics. The Reuters fellow was also putting out a “Have you considered this?” scenario. Why THAT hostile?

          But my question is: On what basis are you dismissing this? Do you believe the bigger entities are less likely to risk customer’s money? Why, when moral hazard simply doesn’t exist so far as they are concerned? Do you dispute the size of the numbers, which the author claims are based on securities filings?

          Not being a banking/securities expert, I posted that story on one of your prior posts last evening because I thought it was interesting – the timing of MF, and the size of the nominal amounts discussed certainly make for a plausible alternative reason for intervention, and perhaps you or others would sort wheat from chaff. The larger players cited are all known scum. So why in your mind is this “hysteric” as opposed to “Don’t think so, and here’s why”? I seem to recall anyone mumbling about housing in 2004 being branded the same way.

          1. spooz

            My question is, what CFTC rule allows for commingling of customer segregated funds? It seems that Corzine is completely clueless. Under the circumstances, you are buying into his statement?

          2. spooz

            By the way, did you transcribe that yourself? I can’t seem to find a transcript of anything but Corzine’s statement, and your quote wasn’t in it.

          3. Fiver

            This is a reply to Spooz, as there is no “reply” option on his response to my post (minor system defect).


            “C” is another person providing comment that Yves is referencing.

      4. LeonovaBalletRusse

        And Reader, don’t you understand: *Britannia MUST Rule*!

        Their DESIRE to own all and to rule all is DESPERATE, so all agents in their system are desperate, and history shows that desperate people do desperate things.

        A pyrrhic victory lies ahead for *perfidious Albion*–Blake’s “Jerusalem” NEVER.

    6. LeonovaBalletRusse

      Sure, the *Signing Statement* law of MF Global et al.

      What, are they *impersonating a Member of Congress*, which branch of government SOLELY shall write The Laws, by stipulation of The Constitution of the United States?

      Is it not a FELONY to impersonate an M.C.?

  5. AndyC

    This shite has gotten so old its now decrepit.

    The guy should be in cuffs right now.

    So should the lot of them.

  6. James Cole

    Yves I would be careful making the argument you make about MF Global’s inability to “catch up” with the big players due to the advantages of scale, because it tends to undermine your argument elsewhere that the supposed need for banks of the “too big to fail” scale (you know, to compete globally with those big Asian and European banks) is mostly bull.

    1. Mike S.

      the level of resources needed to compete with the big boys is one thing,
      whether the big boys are really TBTF is another matter,
      don’t conflate the two.

    2. Yves Smith Post author

      They were going after the capital markets businesses, which is investment banking + securities trading. Those have both large barriers to entry and large advantages of scale. I was writing about that in 1985! This is hardly news.

      What is a crock is having retail banking (which contrary to popular belief, does not have scale economies, the data in the US is really conclusive on this point) and asset management aligned with these businesses. I’ve never been a fan of “financial supermarkets” (and this goes back to when I first was doing strategy in this industry, again back to the 1980s).

      Now how you deal with the failure of a big capital markets player is still a problem given how much debt financing is now done via bonds (specifically securitization) is still a big problem and has not received sufficient attention. And we did “resolve” a huge honker, AIG, with no plan to do so. You can still nationalize these clowns and take out management even if you can’t let them BK without big ripple effects. But we don’t do that in America, it seems.

      1. Jim Haygood

        I’ve never been a fan of “financial supermarkets.”

        Me neither. Just yesterday, I saw an internet ad from Bank of America Merrill Lynch, touting the fact that you can now see your Merrill Lynch trading account and your B of A deposit account on (wait for it) … THE SAME SCREEN!

        I mean, this has got to be the coolest technology since the electric light bulb and one-click ordering.

        One of the early warning signs of MF’s demise was the plunge in its stock price from August to October. Well, BAC’s stock plunged during that period, too, as documented in NC’s periodic “B of A Deathwatch” posts.

        So, does a prudent investor open a brokerage account at Merrill Lynch when its parent company’s stock is barely holding above the five-dollar penny-stock threshold of non-marginability, based on the notion that unlike MF, BAC/Merrill is Too Big To Fail?

        At least, you’d think BAC would copy Citigroup’s 1-for-10 reverse split in March, which means that Citi today is a thirty rather than a three-dollar stock.

        But bankstas just ain’t very damned smart. Even consultants can’t bang any sense into their thick petrified-wood skulls. Darwinian selection has failed badly in this case.

      2. LeonovaBalletRusse

        But, we_must_do that in America.

        After Pecora, wasn’t the very purpose of Glass-Steagall to prevent the creation of such “financial supermarkets.?”

        Wasn’t the purpose of repealling Glass-Steagall under Rubin-Clinton to permit the creation of such *compound entities* that could then capture the demand deposits of retail banks they obtained by M&As, as their spoils?

        I ask again, does the repeal of Glass-Steagall not show, ipso facto, the *intent* to engage in the same foul *business* that Pecora railed against, which paved the way for both the Great Depression and the Great Recession?

        Are we to buy the Big Lie that the BigBanks did not know what they were doing? that they did not, *with malice aforethought* DESIGN to loot the demand deposits of retail banking and the *savings* of the People pooled in Institutional Funds (Mutual, Pension)–as their *play money*, and devil take the hindmost?

        This led to “the biggest fraud in the history of the world,” in the words of William K. Black–the expert on criminal fraud in U.S. history, par excellence. And that alludes only to the *mortgage fraud* mess.

        This undoubtedly was a CONSPIRACY by MonopolyFinance Principals, their agents throughout the *financial* world, their *lobbyists*, and their Co-conspirators in all three branches of our *government*.

        Arrest.Detain.Convict these criminals and traitors now! Execute the sentences swiftly, for all the world to see. THEN, We the People/Citizens shall LIGHT THE WAY for others to follow, as “the leaders of the free world.”

  7. James Cole

    Whether or not banks are ‘too big to fail’ is not a factual question about banks but a question about government policy toward those banks; I was just using that phrase to identify that top-tier to which MF Global aspired. In the debate about such policy in the US, such as it is, the banks argued that they need to be enormous in order to compete with enormous banks elsewhere. Yves has effectively refuted this argument elsewhere; I was pointing out how her description today of MF Global’s competitive position vis the enormous banks could be read as inconsistent with her deconstruction of the big banks’ arguments in favor of bigness. I am having a hard time interpreting your comment as anything but a non sequitur but feel free to elaborate.

    1. Yearning to Learn

      sometimes two seemingly incongruous ideas do mesh together.

      a few thoughts
      The banks do not need to be as big as they say they need to be, in order to DO what they say they want to do.
      In order to be banks for regular people and also banks for larger players, they do NOT need to be as big as they are. For instance, we had international finance that was just fine in the 1980s, and the banks were a lot smaller then.

      the banks DO need to be bigger to compete with the other international players when it comes to all the gambling and derivatives and when it comes to taking the various national governments hostage.
      they can only do this IF they are massive, and IF they can maintain a TBTF governmental guarantee.

      however, it is really not in any nation’s interest to continue supporting this. the banks are a huge drain on all of our productivity and wealth.

      thus: the answer is to internationally coordinate a break up of all the largest GLOBAL institutions.

      however: this isn’t happening because the financial players own the politicians.

      I hope that made sense.

      said more quickly: they don’t need to be as big as they are to do what we as customers/citizens need and want them to do.
      they need to be this big to continue the “privatize the profits, socialize the risk” game.

  8. MacCruiskeen

    “He did not rule out possible wrongdoing at MF Global. In theory, an employee may have misused customer cash after misinterpreting the chief executive’s words, he said.”

    At this point, isn’t it becoming standard procedure to produce a “rogue trader” to throw to the wolves? I’m a little surprised that the name of a fall guy hasn’t been floated already.

  9. Justicia

    Yves, you’re so right about Sarb-Ox. Intent (or lack of it) is not a defense.

    Corzine can’t cop to the Ken Lay defense (“I’m just the CEO, nobody told me what was going on”) since he certified that his company had put in place interenal controls on financial reporting were adequate to accurately present the financial position and results of operations — including all material off-balance sheet transactions and liabilities. PCAOB’s Accounting Standard 5 makes clear that the controls are to be viewed in the context of “top down” risk management. His testimony is an admission that his certifications were false.

    If we had a Justice Dept that did its job, Corzine would be toase.

    1. Peripheral Visionary

      Yes, this is precisely the situation SOX was intended to address – the “I had no idea what was going on at the firm, I’m just the CEO” defense. Intent is irrelevant; what is relevant is that the CEO certified the firm’s risk controls, which in the event were proven to be completely inadequate. Corzine is in a particularly vulnerable position because he fired the previous Chief Risk Officer; that is going to raise hard questions about his certification of the risk controls.

      I am not quite as pessimistic as Yves on the possibility for an indictment of Corzine. Government agencies are looking for a trophy, particularly given ongoing criticism that there have not been enough cases brought against executives, and Corzine is currently not protected by any organization that has clout on the Hill. That, and he has enemies – I do not doubt that Republican members of Congress are preparing pointed questions for the CFTC and the Department of Justice on whether or not they will be pressing charges. In fact, the only thing Corzine has going for him now is his connections in the Democratic Party – we will see how much good, if any, that does him.

      1. Jill

        Peripheral Visionary,

        What you pointed out, that “he has many enemies” and is thus open to prosecution is so interesting. This is exactly what happens when there is no longer even the semblance of the rule of law. Even powerful people will be taken down by their former “friends” should that be a convenience to the more powerful or, if they have offended.

        To All: Thank you for the article and responses to it!

      2. Lyle

        Sorry to be a cynic, but it has always been this way if you have powerful friends, they will let you off, unless they have other influences that are stronger. Anyway a simpler punishment would be to revoke all the securities licenses Corzine holds, as well as make him ineligible to be a director or officer of any public company. Then all he can do is write a newsletter since the first amendment does not allow banning a newsletter. But why should the public pay for keeping him in prison? If you convict the financial criminals I suggest that rather than prision, a set of trailers be put in some western ghost town, and these folks be kept under house arrest there, but made to pay for the privilege.

      1. Justicia

        That would be a play from the Ken Lay book. A timely demise to avoid sentencing and save his ill-gotten gains for his family to inherit.

  10. Woodrow Wilson

    So much for a Nation of Laws and the Rule of Law.

    At this point, they have become so convoluted, unenforced, or outright usurped or ignored, there’s no longer any point, unless you’re a slave/serf. If you are of the class of slave/serf, you get the book thrown at you and they throw away the key.

    No wonder the country has turned into a population of pacifists.

    1. psychohistorian

      I have noticed an increase in robberies at both the bottom and top of our socio-economic spectrum….so not all are pacifists.

      1. nun yerbizness

        you reveal much when you pull things out of your backside and front them off as facts

        “The 2-year trend showed property crime decreased 0.8 percent in 2008 compared with 2007 estimates. The 5-year trend, comparing 2008 with 2004, showed a 5.3 percent drop in property crime.”

        “The 2-year trend showed that property crime decreased 2.7 percent in 2010 compared with the 2009 estimate. The 5-year trend, comparing 2010 data with that of 2006, showed a 9.3 percent drop in property crime.”

  11. Slim

    Where else is ignorance of law an excuse? Think it will work if I have had too many glasses of wine and tell the policeman (or woman) – “I had no intention of violating the rules concerning sobriety and driving, in the fog of the last few mins of the party, there were a lot of drinks around.”

    1. EH

      Yesterday, it would seem the Virginia Tech shooter didn’t intend to shoot a police officer, evidenced by their suicide. It’s all legal!

    2. LeonovaBalletRusse

      Slim, according to English common law in America, ignorance is NOT an excuse. This is covered in the wiki piece on *Mens rea* and *actus rea* – LINK:

      Are *Legal experts* not weighing in because they don’t want to “let the cat out of the bag?”

  12. Crazy Horse

    Prosecute John Corzine for a mere 1.3 billion theft? You’ve got to be kidding. FOLLOW THE MONEY

    Who was one of the largest contributors to Obama’s election funding?

    1. ron

      The financial media wants to create the impression that Corzine is or was the problem rather then the industry itself!

  13. Ishmael

    So Corzine does his interpretation of Henry the Young King and utters, “Will no one rid me of this turbulent priest?”, but afterwards declares when he is at risk of being excommunicated “I did not mean for that to happen! How old is this story!

  14. Paul Tioxon

    It looks like another case of the unknown UNKNOWNS being unknown, unknowingly. Additionally, known UNKNOWNS were unable to call back, being out to lunch. Or maybe they were knowingly unknown, he just did not know it, at that point in time.

    Knowingly or unknowingly, known unknowns and unknown UNKNOWNS can lead us into unknown territory, I just don’t know about this world anymore.

  15. David

    Once again, we appear to have another corporate head who clearly didn’t know what was happening below decks.

    To me, this repeatedly occuring scenario leads me the following:
    If the CEO/COO, etc. is NOT responsible for the mistakes/errors/cheating of underlings, then what are the corporations paying VERY LARGE SALARIES for?
    Eye Candy? Access to politically powerful interests? What?

    The standard line is executive compensation is high to attract and keep talent. How much talent does it take to be unaware of the shenanegans of your divisions?
    Then it becomes the ‘victim’ card. A rogue trader, I just didn’t know…. I thought that was your job: to know…
    Whoops, my mistake.

    This is one reason I scream at the TV… Sheisse ist Scheisse.

    1. Ector de Maris

      The obscene compensation might be more reasonable if it factored in the risk of going to jail for life for plundering client accounts and destroying shareholder equity. Then these compensation packages would be more acceptable. If only jail was a real risk for these pirates.

    2. Maximilien

      “…..what are the corporations paying VERY LARGE SALARIES for?
      Eye Candy? Access to politically powerful interests? What?”

      They’re the reward for 20 or 30 years of obedient SILENCE. Questioners, malcontents, potential whistle-blowers are weeded out early.

  16. Ishmael

    I was the CFO for a $4 plus billion corporation in the early 90’s. That would equivalent to maybe $20 billion now. There was little that I did not know within a day or two of it happening. Of course I can be a little unforgiving when people are not forth coming. One of the main areas I consult in is corporate governance. It they prosecuted Corzine under SOX 404 and 304 he would be toast. The CEO and CFO are suppose to ask sufficient questions as well as perform other research. The firing of the Chief Risk Officer is a major red flag that internal controls are being compromised.

    1. Jim Haygood

      History has a way of repeating. MF bought Refco in Nov. 2005 after an accounting fraud was discovered. Excerpts from Wikipedia’s article:

      Refco discovered a $430 million receivable owed to the company by an unnamed entity that turned out to be controlled by its CEO Phillip Bennett.

      Apparently, Bennett had been buying bad debts from Refco in order to prevent the company from needing to write them off, and was paying for the bad loans with money borrowed by Refco itself. Between 2002 and 2005, he arranged at the end of every quarter for a Refco subsidiary to lend money to a hedge fund called Liberty Corner Capital Strategy, which then lent the money to Refco Group Holdings. Bennett’s company then paid the money back to Refco, leaving Liberty as the apparent borrower when financial statements were prepared.

      The apparent fraud was caught by Peter James, Refco’s newly hired controller. Apparently, in the fiscal quarter before the story broke, Bennett failed to execute his temporary Liberty Strategies-hidden repayment of debt. This left the position on the books for James to find. It is unclear why the firm’s Chief Financial Officer had not spotted the loan, but the firm’s previous CFO, Robert Trosten, left Refco in October, 2004 with a $45 million payout that was not disclosed in the firm’s IPO prospectus. He was under investigation by regulators who suspected he may have known something about Bennett’s malfeasance.

      The 1978 “cattle futures” trading scandal was played out in Refco accounts, the period during which the Hillary Rodham cattle futures controversy originated.

      History didn’t repeat in 2011, but it rhymed — the accounting shenanigans; the cozy relationships with corrupt political celebrities.

      MF is gone, but Corzine remains at large, and Hillary (incredibly) is the Secretary of State. Accepting a $100,000 bribe laundered through a Refco commodity account is not a problem, if you know the right people.

  17. za

    What sort of language would you look for in your brokerage account agreement that would indicate your assent to rehypothecation?

    I do think we’re coming to a time where, if it’s not physically in your hands, it’s not yours.

    1. NYT

      Here’s Interactive Brokers customer agreement:

      See section D.4
      Interactive Fully-Disclosed Account in which Customer has an interest. Interactive or its Affiliates, may so pledge, re-pledge, hypothecate or re-hypothecate Customer collateral, securities and/or other property without retaining in Interactive’s or its Affiliate’s possession or under its control for delivery a like amount of similar collateral, securities and/or other property and Interactive or its Affiliates may return to Customer collateral, securities and/or other property other than the original, or original type of, collateral, securities and/or property that Customer deposited with Interactive. Collateral that is registered with a third party may not be in Customer’s name.

      1. Anonymous Comment

        Not only that… But there is a further clause common to some [if not all] of these ‘legal’ contracts that says, essentially: “If your account runs afoul of the intentions you thought you were signing up for with this account/contract, you agree never to talk to lawyers or other current and/or potential clients about it, or you forfeit your rights to said account. You agree to take all issues you have with your account up with ‘arbitration’ [approved panel of bank members] which will give a binding verdict at some time in the future after you mention a problem.”

        Not quite as direct as that, but when you get it translated from legalese, you find that’s what’s been agreed to.

        Those two clauses together are the ‘gotcha’.

        1. Anonymous Comment

          Correction. I just remembered… It’s not that they can’t talk to lawyers. It’s that they can’t talk to judges and juries. Meaning they agree not to take it up as a criminal case. Any decision made by the arbitration is made in lieu of an actual judicial trial.

          See how they could get you with that one? It sounds great at first. ‘Hey, none of us want to go to court with any problems, so let’s agree ahead of time to have a binding out-of-court settlement. That’ll be so much more civilized and sophisticated.’

          Later, they realize they signed away their rights to experience justice in regards to the account.

  18. ron

    From Jesse’s Cafe American:

    “It is NEVER permissible to take customer money and use it for your own purposes and proprietary trading, exposing it to risk of loss. The idea behind this latest scheme evolved from the use of funds in margin accounts in order to generate a safe return for the loan risk taken by the broker. Give these jokers an inch and they will take your shirt. This gambling with customer money is a distortion of the principle of hypothecation and the US regulators need to shut this rathole down immediately through enforcement of the law”

    The idea that a regulatory rule or new law will fix the situation is another myth and even Jesse gets caught up in this idea. This becomes an issue for those activity involved in the equity markets that also become bloggers along with MSM insiders commenting about the financial industry as most if not all are deeply committed to the idea that leveraged trading benefits society generally and that the active participants in these markets are providing critical liquidity.
    MF Global was given Primary Dealer status by the FED which provides insight into why the FED promotes leverage in the brokerage industry which is to generate money velocity. This has become a critical distribution channel as the housing collapse has significantly reduced leveraged money supply.
    The by product of this leverage credit operation is large profits for the banks and broker dealers as they skim a percentage of this leveraged money.

    1. readerOfTeaLeaves

      I feel like you’re saying some important things, but my background is not in finance and I only comprehend perhaps 20% of what you are saying.

      My sense about Jesse is that he’s stating, “without trust, markets won’t exist and these activities are destroying markets through brazen fraud.” To which, I can only raise a glass of Merlot and assume that my few pennies will remain firmly under the mattress for the foreseeable future.

      1. Maximilien

        Good idea. I just finished reading “And No One Listened” by Harry Markopolis (Madoff whistle-blower). The fraud is worse than any outsider can imagine. The usual suspects of course: insider-trading, front-running, etc. But even plain vanilla ma-and-pa mutual funds are being skimmed by market-timers and late-traders. The excuse? “Everyone does it.”

  19. dirtbagger

    Corzine is a bold visionary and has taken the financial community to the next level. Why even bother to provide financial transaction services or to create bogus securities that need to be marketed. Just debit money from customer accounts. Less employees, little to no chance of prosecution, and besides the US taxpayers can be expected backstop any transgression.

    One would have hoped for at least a little introspection by the financial community post 2008. However, after the free pass and dollar handouts courtesy Paulson-Bush and the Geitner-Obama teams, rather than humbling, it has emboldened their behavior. Now they don’t even bother to camouflauge their thefts.

    The social compact of equal justice before the law seems to have fractured beyond repair. Legal redress and fairness for average Americans is a cruel joke. Holder is the worst AG in my lifetime, far surpassing Mitchell. The DOJ seal should replace the Lady with Holder seated above the JUSTICE IS BLIND logo.

  20. nun yerbizness

    “There, traders were able to achieve high leverage (typically, they used no capital at all) by holding AAA tranches of CDOs and hedging them with an AAA counterparty (in some cases, remarkably, a mere A rated counterparty, meaning ACA, was deemed acceptable). ”

    there is every reason to believe the rating of “AAA tranches” was entirely fraudulent and very necessary, for had there been no AAA the CDOs would not have been snapped up like alewife set upon by a school of bluefish without so much as a cursory glance from banks’ risk analysts.

    corrupt rating agencies made it all possible and they are still out there working their magic with not a care in the world.

    1. LeonovaBalletRusse

      nun – “no capital at all” – NO basis, right: *naked CDOs* and other *capital created from spreads* out of foul air, the quintessence of *pie in the sky*.

      The legal obligation to be a *prudent* trustee of “other people’s money” – even of “proprietary accounts” – has gone the way of the dodo bird.

      Our despotic rulers are *Above the Law*, we are living under the whip of a Global Totalitarian Dictatorship, Q.E.D., and the Bosses are robbing us blind, in plain sight. One *central* keystroke and every *consumer deposit* is “GONE – IT’S ALL GONE.”
      SEE: “South Park vs. Cafe Del Mar – And It’s Gone (Johannes Dahlberg Financial Crisis Mash)” uploaded by latenitebeat on Sep 8, 2009 – LINK:

      What would our Founders and colonial citizens do?

  21. RON

    MIC CHECK!!!!! NEW MUSIC inspired by the occupy wall st movement, shout outs to all involved around the world, no matter the opinion or what side of the political fence you sit on, one must admit, something is wrong, and the people must unite and rise up.

  22. LeonovaBalletRusse

    YVES, your mind is the proverbial STEEL TRAP, replete with very, very sharp teeth and a spring mechanism that will_not_fail.

    Between you and William K. Black, with a little help from Catherine Austin Fitts, We the People/Citizens ought to “bring_that_sucker_down!” (words of *The Decider*, the tyrant George W. Bush as President/Commander of the U.S.A.).

    Truly, this is a red-letter day for *open democracy* — where the *cream rises to the top* in a generation. This is what democracy is good for, when put to the test.

    Congratulations, Yves. You are the *expert* that *We the People/Citizens* require, and your patriotic cry for JUSTICE on your *freedom of the press* site, NC, is as clear as a cathedral BELL, intoning the RING OF TRUTH.

    As for our kleptocrats: “Ask not for whom the bell tolls. It tolls for thee.”

    Yves Smith, William K. Black: these are our *Liberty Bells*. They are our *paradigms for performance* as We the People/Citizens become again “leaders of the free world.”

    1. Ishmael

      Catherine Austin Fitts — The women who says she knows aliens are among us! Yves, don’t know if I want to keep that company. By the way, I know one of the people who is very close to her and he is a quaranteed sociopath. I am not saying he is weird, he was tested and came out nutter that a pecan pie. This is not an isolated reference. Google and you will see numerous.

      Catherine Austin Fitts is talking about Aliens/UFOs again
      I’ve been fascinated with this topic lately…maybe impending economic collapse just isn’t exciting enough anymore

      Whenever I describe the extent of the corruption in the financial system, the same questions always follow. Who is really in control? Why are they behaving this way? Cui Bono? Who benefits?

      One of the challenges in providing answers has been the absence of access to the information that we need. There are more unanswered questions than facts. Many of those unanswered questions revolve around the black budget and the private corporate power structure that it has created. If Richard Dolan is right, the UFO phenomenon is at the core of the creation of the National Security State and the Tapeworm Economy.

      Over the years, I have read scores of books on the UFO phenomenon. However, it was not until reading Richard Dolan’s latest book, UFOs & the National Security State: The Cover Up Exposed, 1973-1991, that I found a book that both describes the UFO phenomenon in a comprehensive and professional way and documents the profound impact that managing this phenomenon in extreme secrecy has had on our society. This includes the creation of a consortium of military, intelligence and private interests that have formed a “break-away civilization” that continues to prosper and grow, in part because of the advanced technologies that have resulted from decades of black funded research projects.

      This book is on my list of the “Top Twenty Books for the 21st Century.”

      Richard will be joining me on the Solari Report this week to talk about the clash of three civilizations – human civilization, the black budget “break away civilization,” and the civilization or civilizations represented by some of the UFOs. Our goal will be to go to the heart of what is happening economically and politically and what it means to how we manage our time and assets and contribute to a enlightened transformation of our own civilization.

      Here is our outline:

      1. Introduction

      2. The Real Clash of Civilizations

      3. History of the UFO Phenomenon

      4. Theories & Unanswered Questions

      5. History of the Black Budget

      6. The Real Cause of Our Tapeworm & Economic Crisis

      7. Popular Opinion

      8. What’s Next?

      1. LeonovaBalletRusse

        Ishmael, the *black budget* is the black hole, but methinks the “aliens” were man-made (Nazi Science: nuclear medical experiments), promoted by “The Psychopathic God: Adolf Hitler” to go along with the Third Reich’s *flying saucer* developments, to advance the disinformation campaign. This proceeded apace, in tandem with the rocket science of Wernher von Braun & Co., to bring the “New World Order” of the Masters of the Universe THEN (same DNA in *finance*).

        With Operation Paper Clip, the U.S. donned the mantle of the Masters of Psychosis, with AREA 51 under wraps from then till now.

        Our *government* is run by psycopaths and psychotics, and they are gobbling up all of the money as fast as they can. They simply MUST get their DNA to Mars before *the world ends*.

        The banks comply with their insanity, laundering ALL clean and dirty money into the Black Hole of Psychosis, partaking in the spoils of this putrid gravy train to the utmost.

        This is the *hidden*, the Black Ops/Psyops, USA!USA!

  23. F. Beard

    And we allow such a money and finance system to hold us hostage?

    An inherently crooked industry such as banking CANNOT be successfully regulated but it can be reduced to insignificance by removing all government support for it.

  24. Siggy

    Who are: the CFO, the Head Cashier and why weren’t they called?

    Somebody knows who was paid and what amount.

    This is a massive accounting fraud.

    One can only hope that the DOJ and FBI are at work.

  25. Drake Steelwill

    There’s no defense for squandering the funds the way Corzine did. He belongs behind bars, at the very least. He’s just another felony-committing gasbag. His head on a post is the only sane response for this kind of larceny.

  26. just another episode in some pathological dream of Stalin's

    So, MF Global stole its own customers’ money, and it looks like the US government’s regulatory duty to protect investors is worthless. Investors are wondering if bank accounts or any type of investments are safe, or is Denninger right when he says that off-balance-sheet liabilities and derivative contracts would have preference over deposits?

    Meanwhile the authorities spend their time pepper-spraying, beating and arresting anti-Wall Street protestors.

    1. LeonovaBalletRusse

      So the only way out is to “start over” — all money out of the psychotic world system; let them cheat themselves to death, while We the People/Citizens find local alternatives, possibly networked.

      Catherine Austin Fitts did have a local *banking* system in mind for *local loans* to farmers, for example. But will we find a way to alternative currency for the *99%* system, which begins and remains *out of the net*?

  27. Wasabi

    Regarding Sarbox, I saw an article a couple of months ago that quoted Immelt as saying that his “jobs creation” committee wants to increase jobs by creating exemptions from Sarbox for small businesses. This sounds dangerous enough, but it might also be an indication that there is a significant movement underway that seeks to eventually extend Sarbox exemptions to large firms as well. If you are following this development, could you comment on it sometime?

    1. rd

      Why stop at small companies?

      If they won’t use SarbOx to prosecute obvious major accounting deficiencies (to put it mildly), then there is no point in saddling industry with the costs of it.

      Over the years, I have had to help clients put estimates together for all sorts of potential future costs, including environmental liabilities, so that they could have a ccurate reflections of these when the CFO and CEO had to sign off on it. It is a fair amount of work to do this for typical companies.

      However, if the financial sector can “mis-place” a billion dollars of customers money and get away with just an apology, then all of the honest companies and executives are simply being penalized for good behavior.

  28. different clue

    About Catherine Austin Fitts: she could be wrong about the . . . umm . . . UFOs, and still be correct in her mundane this-world financialist-system analyses and prescriptions for active-defensive counterfinancialist-countermeasures available to us 99-percenters.

  29. Aridzonan_13

    The gloves are off. This is in your face financial piracy. If JPM can raid private accounts at MF Global, what account is safe? JPM can re-write the law on the fly. Please see Ann Barnhardt’s latest interview with Peter Schiff. I do not hold truck with a great deal of Ms. Barnhardt’s political POV’s. However, she makes a compelling argument, that the “Rule of Law” is Kaput. Welcome to the “Third World”. FedGov.Inc’s (note domain suffix) long campaign to eliminate the middle class on the altar of selective enforcement is now complete. W.K. Black and Eliot Spitzer would need $billions and a century to prosecute all of the unpunished mega fraud.

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