Because the Fed cut them off. That is all. Yes, they were doing shady things, but no more shady than many other companies that didn’t get cut off. If you are a financial firm, you need the essentially free money the Fed provides. With it, you can make money, without it, you can’t. Once the Fed cut them off, everything else was just the thrashing around of a dying firm.
I would assume, and lay long odds, that someone at the Fed didn’t like Corzine.
Yes, this is how your “economy” works.
M.InTheCity
Well, to be fair, Corizine tried his best with the big boyz. He’s good friends with Bill & Hill C. Bill allegedly got paid US$50,000 a month through his Teneo advisory firm for 5 months before implosion: http://www.humanevents.com/article.php?id=47938
I only mention this because I completely agree that he had probably pissed off one to many people on the Street/Fed (same difference) and even good ‘ole Bill couldn’t save him. Reminds me of the Lehman BK. The boyz on the Street hated them because they didn’t pony up for the 1998 LTCM bail out. So 10 years later, much like Luca Brasi, they sleep with the fishes.
guest
Still, makes you wonder how many other insolvent banks and the like are missing a few billion here and there. Letting this one go sure killed the credibility of the Chicago futures trading markets. Was that an intended consequence? And how long before the rest of the system comes crashing down.
par4
@guest, It already came crashing down. They are all Zombie institutions but governments around the globe are pretending they are not. This is what happens when there is a total disconnect from reality.
guest
par4 PERMALINK
December 8, 2011
@guest, It already came crashing down.
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I know that. I mean crashing down, as in “all the kings horses and all the kings men could put humpty together again”.
justin
I mean crashing down, as in “all the kings horses and all the kings men could put humpty together again”.
Reread that comment! That’s already happened! We are in phase ‘all the kings horses and the kings men standing around and reassuring everyone that they can put humpty dumpty back together again.’ That’s what zombie institutions are.
someofparts
Did you see Numerian’s post about this at Agonist? He said the real shocker for everyone was that the exchange didn’t help the investors Corzine hoisted.
Nick
I really like this blog. I found it after googling “germany’s debt is larger than greece’s,” because I was listening to Marketplace on NPR and they day-after-day keep saying that the PIGS are the EZ’s “debtor nations,” which pisses me off to no end because it’s just not true (at least as far as debt to GDP ratios go). Which means the Euro “crisis” has nothing to do with current debt levels. If that was the case, Hong Kong’s bond rates would be above 7%, but they’re not. Why? Because German and American bankers are all of a sudden not worried that they may not get back 100+ percent on their “investment.” Not unlike M. Corzine…
At any rate, Mr. Welsh’s post on what passes for liberal smart re: the Euro crisis was the second Google hit for my search. Ky Rysdal (or whatever) and the jerks that produce Marketplace needs to be added to the list of media BS artists who don’t know what they are talking about.
alyosha
My understanding of the MF Global debacle is that they took advantage of Reg 1.25 which allows a brokerage to invest customer funds in sovereign debt, which of course nobody there expected to fail or fail so spectacularly. I’m a bit foggy about the supposed separation between MF Global’s operating funds vs their supposedly segregated customer funds (and apparently so was Corzine), but my understand was that by the regs, MF Global was permitted to invest as they did. Someone else can help me on this, but I believe these regs were “updated” in the 2000 Commodity Futures Modernization Act (what a euphemism).
My interpretation of your statement “the Fed cut them off” is that you believe the Fed was going to bail them out when the company went bust? But that it somehow is helping other brokerages in the same boat who are still afloat? I don’t know, I’m just trying to get clear on what you’re thinking.
I trade futures, and remember seeing MF Global at various trade shows, and so I’ve been keenly interested in this subject. Damn lucky I didn’t open an account with them. If there’s a particular reg that one company took advantage of, surely others have, and I’d sure like to know their exposure.
Z
I’m surprised that the fed/treasury … err treasury/fed … didn’t talk B of A into buying it.
Z
Petro
@Nick – yes, I’ve found Ian indispensable in helping me chew through the realities of the dismal science.
Glad to assume you’ll be sticking around.
Ian Welsh
This is what the NY Fed did, which pushed MF over the edge:
http://english.economicpolicyjournal.com/2011/11/did-new-york-federal-reserve-tank-mf.html
They require collateral and they stop doing new business with MF. It’s the new business halt that finishes off MF. You can be bankrupt for years if your cash flow is enough to keep you going and no one insists on actually looking at your books. The Fed has been keeping Citigroup and BofA alive even though they’re bankrupt (in fact, I believe that all of the money center banks except maybe GS are technically bankrupt and I expect most major European banks are as well).
Yes, it is shocking that the investors aren’t being made whole. I can only conclude that they want less investors, not more (I mean that seriously.)
Formerly T-Bear
@ Ian Welsh
Does this mark the beginning of the elite eating the elite? Game! Set! Match? May you live in interesting times! (the benediction).
Ian Welsh
They’ve been eating each other for a while. Lehman was allowed to go down in part because of a grudge. In the old days Mubarak would have been allowed to retire to the Riviera (and frankly, should have been. The Libyan war was the price of not letting him do so). Europe’s woes are one part of the elite attacking another part of the elite (in part, not in whole.)
There isn’t enough money in the world for these people. Not real money.
Andy lewis
Could you unpack that a little? I tried to dope out the meaning but it remains just out of reach. (Friday brain fog, no doubt.)
S Brennan
Andy,
Mubarak was a foggy bottom client who did as he was told, the normal business arrangement is to retire to high class [albeit subdued] digs. But, over the last 30 years, the US has made a turnabout in this area…oh well, there is always some Colonel that wants to climb to the top.
Ian Welsh
What Brennan said. If you want to try Mubarak rather than letting him retire with a billion or two (you don’t have to let him keep all 50 billion, or whatever) it sends a message to other dictators that they can’t go peacefully into retirement. If they give up power, they will go to court/jail, lose their money, etc…
So, they fight.
And aye, Mubarak was a good boy, who did what the West wanted him to. Not flying him on a jet out of the country was a huge mistake.
Now justice is worth something, but a lot of people will die for this justice.
This is the same sort of mistake as invading Iraq. Iraq was invaded not because it had WMD, but because it didn’t. Don’t think countries the West doesn’t like didn’t learn that lesson.
Matt Stoller
Interesting, though it may not be personal. It could just be eliminating smaller firms.
MF wasn’t too big to fail.
I doubt, for instance, the NY Fed would cut off Morgan Stanley which I’ve heard had the same trade on, regardless of what the NYFRB thought about Morgan’s CEO.
someofparts
http://www.calculatedriskblog.com/2011/12/mf-global-and-rehypothecation.html