Barnhardt On MF Global and CME's part in this

[Kel]

Just ran across this interview with Ann Barnhardt, the commodity futures trader who famously shut down her firm just weeks ago out of a complete lack of confidence in the political and financial systems in which she operated.
This scares me.


http://www.netcastdaily.com/broadca...2011-1201-1.mp3


Sorry - this is the transcript...I know she is extreme and angry but she really does make some good points

http://www.financialsense.com/contribut ... transcript

[smurff]

nginx error!
The page you are looking for is not found.

Kel, is there another url for this interview?

[melveyr]

Here is an interview. Not sure if it is the same one or not.

http://www.youtube.com/watch?v=7-6dO0SQB3U

EDIT: In this interview she seems very angry, and slightly crazy.

[smurff]

Thanks for the youtube link, Melveyr.  

She has the kind of crazed, angry ranting style that came on long before the MF Global bankruptcy.

The great thing about Youtube is that videos related to the same individual or topic show up, and you can click on them to get more insight into what else might be going on.  Facebook, Youtube, and other websites have made simple research of certain people much easier, with a lot of the more incriminating stuff coming courtesy of material the individuals upload themselves (or encourage others to upload).

I had never heard of her before reading the letter she sent a couple of weeks ago to her clients after closing her commodities trading firm following the MF Global bankruptcy.  Before I looked at Youtube, I thought she was a commodities trader with clients, who had formed an opinion about what MF Global could mean beyond the aspect of the bankruptcy and missing customer assets.  After I looked at some of her other Youtube postings, however, I decided whatever occupation she had/has she was not just crazy, but downright paranoid and delusional.  What else am I expected to conclude from her own videos of her burning pages from the Koran, posing with a pink AR-15 semi-automatic (in coordinating pink shoes), etc. etc. etc.  See for yourself, just click on Melveyr's link.

At one point she said democracy in the USA has been replaced by "marxist-communism" and called the USA a "marxist-socialist-fascist state."   (I'm ready to restate one of the logical fallacies:  The more "isms"  someone strings together as part of their discourse, the less reliable the stuff that person has to say.)  

This does not mean that nothing Barnhardt says is true, but it means you have to pick around the edges of every word said to separate fact from fiction, reality from delusion from hyperbole, sanity from insanity.  

I guess there is a lot more I could say, but I'll finish with this:  If what she said about commodity customer asset safety post-MF Global were true, there would be hundreds more trading firms (not linked to MF Global) closing up shop.  Traders make their moves quickly.  So far, I've seen no evidence of a mass exodus, at least from online news reports.

It may be that she closed her firm for reasons having nothing to do with fallout from the MF Global bankruptcy.  But blaming the decision on the bankruptcy of the 200+ year old firm sounds much better than blaming it on a need for a personal time out.

Edit:  Added the name of the weapon she's carrying.

[MediumTex]

At one point she said democracy in the USA has been replaced by "marxist-communism" and called the USA a "marxist-socialist-fascist state."   (I'm ready to restate one of the logical fallacies:  The more "isms"  someone strings together as part of their discourse, the less reliable the stuff that person has to say.) 

I think that an honest person would have to say that what we are moving toward in the U.S. is just regular old crony capitalism. 

Even the health care reform program that Obama haters point to as evidence of his communist (or whatever) leanings looks from a distance a LOT more like the private insurance industry locking in for themselves millions of new customers who are required to buy their product.  That sounds like a crony capitalist's fantasy.

From my perspective, if the U.S. political system were a ventriloquist's act, it would be the financial services industry (as a representative of the larger FIRE economy) sitting in the chair and Obama would be the dummy on its lap.  I never would have believed that in 2008 based upon Obama's campaign rhetoric, but here we are.

[stone]

I watched  "inside job" today. I found Obama's choice of who to have in his team the hardest part of it. Does he believe in those guys? What does Obama stand for? Did he just want to be President so as to put it on his CV (resume?) and thought being a puppet was the easiest way in? Once he was elected couldn't he have said to Goldman Sachs "thanks for all the campaign money, now screw you"? Does he actually believe that Goldman are "doing Gods work" as they say? Are they?

[Kel]

Here is the transcript
http://www.financialsense.com/contribut ... transcript
ok as I read the transcript again she really seems extreme as others have said ....but...

For me the points I would be concerned with is:
are segregated accounts truly segregated. Are they in Tbills as is traditional when not used to offset positions - obviously that was not the case at MF Global. Somebody should be going to jail there.
The Federal Reserve gave MF Global coveted status of primary dealer - reserved for only firms with impeccable reputation  - ha!
Since this is a self regulating industry - it was the primary responsibility of the CME to ensure segregation of clients accounts - somehow they failed - they should have known...
What is the CME doing freezing accounts some with open positions and not allowing clients to close out these positions under such extreme conditions - costing clients even more money.
Is this happening elsewhere - how do I know - what is the extent of broker ties to other derivatives  as Barnhardt alludes
Also to what extent is the following true which Barnhardt also mentioned: bankruptcy "reform" law in 2005 placed derivative claims in front of depositors in a business failure - including a bank failure.

I  find the US moving more towards socialism and seemingly away from rule of law  - also concerned at recent insider trading issues with congress.

I thought the following was a good non-emotional article:

http://www.economicpopulist.org/content ... alfunction

[Kel]

just need to add this excerpt to the discussion regarding the CME's roll in the matter - cut and paste from my last link:

Over 150,000 individual accounts at MF Global have been frozen by the CME as of this past Monday. These individual investors are also asking another question: what happened to the insurance that the brokerage industry said was available to protect individuals from precisely this sort of loss? This insurance is provided by the Securities Investor Protection Corp., which acts like a private version of the FDIC, the federal agency which guarantees the safety of depositors’ accounts at commercial banks. The SIPC was designed to convince individuals it is safe to move their money out of banks, where government insurance protect them, and to brokerages, where private insurance will protect them instead. It now turns out the SIPC may not have enough resources to reimburse all the investors for the amounts insured.

There are major political ramifications for what has happened with MF Global and the CME. Since the 2008 credit crisis, it has been a matter of faith among regulators that what are called “over-the-counter markets”?, run by banks and the subject of billions of dollars of losses in 2008 and 2009, should be reorganized into registered exchanges like the CME. The futures exchanges have been clamoring for this for a long time; a former head of the CFTC – Brooksley Born – made this very argument in front of the Congress in 1998 when the Glass-Steagall Act was being overturned. Given the unprecedented losses investors have now suffered as a result of the MF Global collapse, and given the very fundamental failure of the CME to operate in the way it promised, this argument now looks very hollow. Exactly what the regulators should do next, however, is not clear, especially since the exchange will argue that MF Global was a “one-off”? event.

But was it really? Knowing how damaging to its franchise its actions would be, why did the CME go ahead and seize individual investor assets? There is much speculation about this, some of it centering on the problem the CME would have faced if it went ahead with its own rules and allocated the losses to its other broker members. Some members may not have been able to raise the money required in a loss allocation, leading to a systemic failure event. Another theory says the CME may have feared that “passing the hat”? now might have worked, but at some potential later bankruptcy of another member, the exchange itself might have been jeopardized by following the rules this way. This suggests, however, that the CME is aware of some severe and non-public problems with major market participants, such as banks and other large brokers, and is willing to damage its reputation now to give itself maneuverability should these problems surface at a later time.

For now, the damage has been done. Investors can either choose to continue to deal in futures and options through a broker, knowing now the full extent of the risks involved, or they can exit these markets. One commodities broker has already shut their business down rather than submit their clients to such levels of risk. In a letter to her clients, which is now being spread rather widely around the internet, CEO Ann Barnhardt of her eponymous brokerage company has explained the reasons for shutting down her business. Her main argument is as follows:

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.

[Kel]

ok one last point....here is an article that suggests that there may have been some loopholes in UK vs US account segregation laws and contractual agreements that allowed client account monies to be used...

http://newsandinsight.thomsonreuters.co ... n_scandal/

[Storm]

Kel,

To your knowledge, has anybody with an account at MF Global filed for reimbursement from the SIPC?  I would assume that there is some formal process to go through where by an account holder has to file a claim to receive their lost money.  Then again, I've never had to file such a claim, so I have no idea what should happen.

I would also imagine it may take the SIPC some time to go through the books and verify each account holder's claims.

[Laker]

Storm,

These accounts are not covered by the SIPC. SIPC does not cover derivatives accounts. These people are at the mercy of the bankruptcy trustee and how much money is returned (currently at 72%) as of today. Corzine lost money that was not his to lose, and is a huge criminal!

[Storm]

Storm,

These accounts are not covered by the SIPC. SIPC does not cover derivatives accounts. These people are at the mercy of the bankruptcy trustee and how much money is returned (currently at 72%) as of today. Corzine lost money that was not his to lose, and is a huge criminal!

Yes, I agree, Corzine is most likely a criminal, however, it seems like where this conversation goes into madness is where they start equating derivatives trading accounts with SIPC protected retirement accounts at your average brokerage.  Derivatives traders should be sophisticated investors that can do their own due diligence and figure out on their own who to do business with.  When I see the collapse of an SIPC-backed brokerage with retirement account holders going unpaid, then I'll worry.  Until then, this seems to be a media event that is being glommed onto by a few conservative bloggers with an agenda.

[Laker]

Derivatives traders are sophisticated investors and know how to pick a firm to do business with. However, that does not mean that they should suffer losses from theft differently than an "unsophisticated" or retail investor. There is no possible way to know that your firm would stoop so low as to steal money from your segregated funds to cover losses in their trading accounts. I choose to do business with a firm that does no proprietary trading. There are multiple reasons for my choice in this matter. However, I had my accounts at a sub firm that went through MF Global for 10+ years. I personally knew and trusted the owners, but would have suffered in the collapse because they cleared their trades through MF Global. I know many traders that are suffering because of the actions of 1 criminal. To say that you should be sophisticated and that it is your fault for not doing your research in choosing a firm is ridiculous and insulting to those traders.

[Storm]

Derivatives traders are sophisticated investors and know how to pick a firm to do business with. However, that does not mean that they should suffer losses from theft differently than an "unsophisticated" or retail investor. There is no possible way to know that your firm would stoop so low as to steal money from your segregated funds to cover losses in their trading accounts. I choose to do business with a firm that does no proprietary trading. There are multiple reasons for my choice in this matter. However, I had my accounts at a sub firm that went through MF Global for 10+ years. I personally knew and trusted the owners, but would have suffered in the collapse because they cleared their trades through MF Global. I know many traders that are suffering because of the actions of 1 criminal. To say that you should be sophisticated and that it is your fault for not doing your research in choosing a firm is ridiculous and insulting to those traders.

I didn't mean to imply that criminals should not be held accountable for their actions.  There definitely was some crime committed here, and you are correct that you don't necessarily know who your firm is doing business with, and the counterparty risks could be present even if you are not aware of them.

I'm merely saying that equating the losses of derivatives traders with SIPC protection seems dishonest to me.  If there was no SIPC protection, there should be no expectation of government bailouts or taxpayer funded bailouts.  But, by all means, the SEC /FINRA needs to get in there and send some people to jail and put a stop to the criminal shenanigans that are going on.

[Laker]

This falls under the jurisdiction of the CFTC. The CFTC has a weak and incapable leader. None of the traders I know are looking for a government bailout. They would like to know why this was allowed to happen, know that it cannot happen again, and who is going to pay for it criminally. Corzine is 100% responsible for this mess. Corzine made the trades, added to the trades to increase leverage to 33 - 1, and ordered the transfer of funds to cover margin calls at the end. The head risk manager for the firm was forced out by Corzine earlier in the year because he knew what could easily happen. Corzine should be treated like any other rogue trader, forced to personally cover his trades (he is worth over $400 million) and be prosecuted.

On a side note, any person trying to become famous (like Barnhardt, who had a tiny sub-clearing business anyway) or using this politically is just wrong. The focus should be on the rogue trader and the CFTC that did nothing as usual.

[moda0306]

Are we sure Corzine isn't protected by a combination of technicalities and the limited liability shrowd that entities give to owners and/or managers?

[MachineGhost]

Crony capitalism, ruling class, nomenklatura, etc. it's all the same thing at the end of the day, just different semantics and infrastructure.  I marvel at the Chinese Communist Party's audacity to "manage" 1.3+ billion citizens composed of 50 different ethnic classes.

Obama is obviously way in over his head.  Which is why the electoral college rarely votes in Presidents with no previous executive experience.

MG

I think that an honest person would have to say that what we are moving toward in the U.S. is just regular old crony capitalism. 

Even the health care reform program that Obama haters point to as evidence of his communist (or whatever) leanings looks from a distance a LOT more like the private insurance industry locking in for themselves millions of new customers who are required to buy their product.  That sounds like a crony capitalist's fantasy.

From my perspective, if the U.S. political system were a ventriloquist's act, it would be the financial services industry (as a representative of the larger FIRE economy) sitting in the chair and Obama would be the dummy on its lap.  I never would have believed that in 2008 based upon Obama's campaign rhetoric, but here we are.