Thursday, March 29, 2012

Never Judge a Book By It's Cover

Efficient Markets Hypothesis (EMH) and its founder Eugene Fama will always tell you that at any given time, security prices fully reflect all available information. Well, before you walk away take note of the piece ZeroHedge carried from Chris Martenson entitled How Gold is Manipulated (But That's Okay). It was in Chris's piece that he cited some extremely compelling evidence via the blog SK Options Trading. That piece Revisiting Our Proposal for an Overnight Gold Fund makes for quite the read.

Check out some of these tidbits from SK Options:

"For example a hypothetical gold investment fund starting with $100m in 2001, and using it to buy gold at the AM fix and sell it at the PM fix would now be left with just $31 million, almost a 70% loss in just under ten years. Over the same time period gold prices have risen over 590%."

"If a hedge fund or even an individual trader were to have sold gold at the AM fix and covered that short position at the PM fix, for each day of this terrific bull market run in gold, that fund would have almost tripled their starting capital."

"Consider a hedge fund starting in 2001 with $100m, with the strategy of being long gold from the PM to AM fix, and short gold from the AM to PM fix. That hedge fund would be worth $5.26 billion today, before any fees and expenses."

So an asset rises 590% over a period and you have a 3 fold increase the opposite direction intraday? Kinda shocking, no? Eyebrow raising, maybe? Do you think anyone at the SEC of CFTC has noticed any of this? Some might say defend their ignorance as it's much easier to surf porn that dig into the inner machinations of our crony capitalist system. So rather than go after something like this or the criminal class likes of a Cassano, Paulson, Raines, Mozillo, Geithner or Dodd we instead get the when they're not too busy porn surfing tough guys at the SEC chasing down sacrificial lambs Griffiths and Steffes. Pathetic.

The gold article has some great charts showing all the internal disparities. Tends to give new meaning to the phrase never judge a book by it's cover. But wait a minute, didn't we learn that lessson from the uber-respectables Madoff, Stanford, and his excellency Corzine?

Fraid not

Thursday, March 22, 2012

Refreshing Candor from Emirates President #TimSmith

Interesting piece via Bloomberg Emirates Says 'Whole Load of Airlines' will Fail in Fuel Squeeze. In it Emirates President Tim Clark had some surprisingly candid comments in the article.

Check out this doozy of a comment from Clark;

according to Clark, who says he’s sticking with a no-hedging strategy rather than risking a losing bet. “You think you’re going to win, but in the long term you always lose,” Clark said yesterday at the Gulf carrier’s head office near Dubai International Airport. “When we enter into derivatives, betting whatever it may be with counterparties who actually control the price of fuel in the first place, you have to ask yourself, ‘Is that smart?’”

So here we have a cat Tim Smith, who gets it. Maybe more like him will get it. He basically told you the derivatives markets are rigged by a den of thieves. Okay, maybe I'm just reading between the lines, engaging in hyperbole yet again. (wouldn't have anything to do with free, walking around speculating money from the Fed now would it?)

Actually maybe Mr. Smith should just consider doing business with Goldman Sachs. I hear they get you great execution and only front run you if they absolutely have to . Hell, Warren Buffett thinks they're aces, swears they've done right by him. I'm hearing they treat their clients first class, like cuddly little TV creatures called Muppets and who doesn't like cuddly little TV creatures?


Gimme Failure Baby!

Something truly remarkable has happened in this country. I cannot determine the exact date or time it occurred but I definitely know it has happened. The something was the moment where we stopped rewarded success and started rewarding failure.

Now you might think, that's crazy, we don't reward failure here, I understand we had to do so with the banks via TARP and the bailouts and abolishing all known accounting standards but I watch CNBC and they tell me every time the subject comes up that if we didn't bail out the banks the whole system was coming down, fire and brimstone type stuff, armageddon. We simply had to do it.

Well, you need to take a look at the following piece because flying slightly below the radar given the mesmerizing shows like American Idol and Jersey Shore, not to mention the escapades of the Kardashians, we have the makings of a new TV drama that should be titled How to Grow Wealthy Torpedoing Companies. Please read the news of the departure of 2 U.S. corporate CEO's Janet Robinson of the NY Times and Craig Dubow of Gannett.

Check out these exit package details for Robinson, who has presided over the NY Times funeral procession to the graveyard;
  • pension and supplemental retirement income $11,400,000
  • performance awards of $5,390,000
  • restricted stock units $1,070,000
  • stock options $694,000
  • consulting fees $4,500,000
I struggle determining which one is these is the bigger side-splitting scream, the performance award of $5.39 mil considering the Times stock dropped 80% under her tenure or the consulting fees of $4.5 mil. Yeah, consulting on how to go to go BK. In the article Bloomberg states "the departure of Robinson, 61, also leaves a leadership vacuum at Times Co.". Bloomberg must be referring to a leadership vacuum that happens like the one that occurred when the Italian cruise ship ran aground and it's fearless captain Francesco Schettino accidently tripped into his lifeboat with passengers still aboard the sinking vessel, yeah, a leadership vacuum.

Check out Dubow's exit package from Gannett;
  • retirement benefits $12,800,000
  • disability benefits $6,200,000
  • severance payment $5,900,000
  • accumulated stock awards $7,000,000
  • $25-50,000/yr for a $6.2MM insurance policy
  • miscellaneous $70,000/yr for health ins., home computer, secretarial and financial planning.
This is awarded now, hang on are you ready, for performance rendered while Gannett stock over his tenure dropped 86%. Forget the fact that this was all done in the face of employee austerity measures and employee cutbacks.

Do you think any of those Ivy league, MBA laden, institutional investors that own the Times or Gannett stock, in the course of their due diligence, ever noticed Robinson's severance package amounted to more than the Times earned the past 4 years?

I wish I could tell you this all were a joke from the Onion or a satirical SNL routine but sadly it is not. The only ones laughing histerically are Janet Robinson and Craid Dubow because the joke is on the shareholders.

In my humble opinion..... ta hell with success, gimme failure baby! Actually, given the size of these severence payouts, gimme abject failure! Two scoops!

Friday, March 16, 2012

Real Men and Women of Genius

Matt Taibbi has yet another excellent piece out today Bank of America: Too Crooked To Fail. It is a long detailed piece but please don't let that stop you from reading it as it's well worth the effort. Rather than talk about the piece, which is spot on in my opinion, I want to discuss a related issue that Matt brings up somewhat offhandedly that deserves more attention. When discussing the toxic paper BAC was bundling and selling to pensions and sophisticated investors Matt remarks:

"Some of these institutional investors were at least partial accomplices to their own downfall. In the boom era of easy money, financial professionals everywhere were chasing the lusciously high yields offered by these bundles of subprime mortgages, and everyone knew the deals weren't exactly risk-free."

The issue I want to discuss is these sophisticated institutional investors who purchased the garbage for your pension plan. I am not letting BAC, JPM, GS or any other of the too big too fail, crony capitalist oligarchic douche bags off the hook for peddling absolute toxic garbage as gold in any way but not nearly enough attention has been focused on the marks here.

How is it that these purported 'smart money' institutional investors got taken so easily?
How is that they were loaded up with this crap?
How did this get by the investment committee?

We can all understand it when John Q Public walks into a Merrill office expecting unbiased, professional investment advice and gets the shaft via being sold whatever the 'product of the day' the firm is trying to unload from its own inventory. (See movie Boiler Room for the 'how to' training video, focus on the rip).

History sidebar. I still remember as a retail broker having prospective clients come in for sit downs and after a quick look only at names of their positions could tell them with surprising accuracy when they were purchased. Clients were astonished at this feat which I must remark is a truly sad and disgusting characteristic of the industry.

Back to committees. For those unaware these institutions do everything by committee up to and most likely including going to the bathroom. Committee is code for cover thy asses. Yes men who do and say all the right things for show in public love committees as it is a offshoot of the heads we win, tails someone else loses too big to fail bail outs we just witnessed.

They, as a committee, cannot all be galactically stupid now can they? I mean they have their allotment of Ivy league MBA genius's there to prevent this type of disaster, don't they? Aw heck, at least 1 member of the committee has gotta be doing some due diligence, right? Just in case you were wondering, investopedia defines 'due diligence' as:

An investigation or audit of a potential investment which serves to confirm all material facts in regards to a sale. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.


We have an educational 'class system' mentality here that gloats and rewards 'where you matriculated' both in the boardroom and the country club. Surely you've been in the meeting when regional VP so and so opens with "Welcome to the meeting everyone I'm going to turn things over to our Princeton grad Jennifer", or "I want to take a minute to introduce you to our Harvard MBA Andrew who we were so fortunate to land."

The phrase if you repeat a lie often enough people start to believe it applies here. The lie being that an Ivy league education is light years better than say a city college degree. How ironic that the brilliance that accompanies said esteemed degree cuts only one way. When you succeed you must be brilliant because you went to Harvard or Princeton but when you fail, no one could have seen it coming. Sadly this formula only cuts it on CNBC and Ivy league tenure reviews.

Seriously now, based on all the rosy ratings, the accolades and the hype surrounding these MBA's, weren't Jenny and Andy supposed to be smart enough to avoid this toxic crap? Weren't they being paid the big bucks to keep your pension from being blindsided by the likes of this? While we're at it, let's not omit my assertion that the vast majority of institutional and hedge fund managers are like parking lot valets? The mindset of "heck everyone else owns this stuff, it can't be that bad now can it? I can just hear them now...

"Hey Jen and Andy, its Vice president and youngest managing director Smith here. Did you check to see how many other institutions own this subterranean tranche of Southwest Detroit sewer bonds we bought? Just so we have an out in case something goes wrong. I mean nothings gonna go wrong, but I got 3 kids in private school, alimony checks for 2 ex's and a hot new shop-a-holic trophy wife to support, know what I mean."

Could it be the 'smart money' MBA crowd is just playing one big game of follow the leader with your money? Or could it be all the pomp and circumstance surrounding a vaunted Ivy league MBA is nothing more than smoke and mirrors. Could it be this much sought after MBA is simply an egregiously overpriced ($300k) piece of toilet paper? I mean, we all know the hot dog vendor on the corner outside your office tower, who may or may not have gone to Hoboken Community College for a semester if lucky, is in no way, shape or form equipped to know an orchestrated hussle when he sees it right???

Said hotdog dummy would never poke around and find out with minimal effort that when a Countrywide in house auditor showed up at an office for an exam there would be little to no paperwork. Nor would he know that after said in house auditor brought this up to the district manager was screamed at and thrown out of the office and when brought up to the regional director in house auditor was told to forget about it.

Nope, way to complicated for that sophisticated MBA crowd. They forgot to teach that part to Jenny and Andy over in Ivy league land as the PhD instructors are too busy writing papers for the highest bidder, say like Frederic Mishkin and the Icelandic Chamber of Commerce. Or constructing complex inverted libor Yen/Drachma derivative swaps (think 2+2=6 and you understand it) Yes, ya gotta know that garbage for sure but a no money down, Ninja/Liar loan with a strawberry picker who allegedly makes 150K per annum and not a trace of paperwork...well, not so much.

I am not defending any of the maggots from Wall St. for peddling the crap as Taibbi's article covers in yet more detail but anyone trying to portray these institutions that purchased the junk as faultless and the victim here is dreaming.

I fully realize Wall St. and the institutional world are not 100% full of maggots. Same goes for the MBAs. There are quality people in there but they are few and far between. There may even have been entry level people at these savvy institutions who did the due diligence and had the onions to speak up at the meetings or at least turn it over to their direct manager but odds are it was quashed by the bonus chasing yes men Wall St. so richly covets.

Based on this it appears the only people other than maybe some of the idealistic junior analysts at the purchasing institutions who did any due diligence was the likes of BAC as it's not by chance that such a high percentage of mortgages in a pool can all go to pot. It takes skill and forethought. It takes a intentional criminal enterprise to do so. Lets also give BAC credit where credit, they did their due diligence on the 'mark' institutions who Greg Smith of GS fame so aptly referred to as Muppets (a) was the institution dumb as a box of rocks (b) were they under performing bench marks and/or desperate for yield and (c) did they have the cash to pay for said toxic garbage in full. Yes, BAC did do their due diligence A-Z.

My personal guess is these same 'smart money' institutional investors who bought this toxic mortgage crap after performing said due diligence and dismissing it or not even doing it at all were the same guys and gals who bought Cramer's 4 horsemen of tech, Pets.com, Peapod.com and host of other related pieces of garbage during the dotcom bubble and yet again, via that Ivy league MBA smarter than you mentality, thought they were brilliant enough to get out before the music stopped, only to get their heads handed to them. Sorry, that's incorrect, I meant to say their annuitants heads handed to them as it was their money in the fund. This is also the same crowd no doubt buying the social media stocks today, not to mention as much AAPL (this time it's different) as they can get their hands on.

These institutional marks were chasing returns and hence bonus' in very similar fashion to their Ivy league brethren on Wall St. on the other side of the deal hawking any piece of garbage to a gullible buyer stupid enough to pony up. Far too many strongly feel they'd have moved on up the food chain by the time the deals blow up if they even had a clue it was gonna blow up. One can make a case either way. Both groups thought they were smart enough to get out in time. Sadly neither did. Real men and women of genius those Ivy League MBA's.

Thursday, March 15, 2012

#MarchMadness

Prudens Speculari is going on semi-vacation the next few days as the NCAA Div. 1 Men's basketball tournament (aka #MarchMadness) commences. I will be glued to my TV over the next 4 days and the next few weeks as the tournament moves along and rooting for Michigan State (GO STATE !) all the while enjoying top notch basketball. If the first 2 play in games are any indication, (WKU & BYU comebacks) this year will be a doozy. For those interested my #FinalFour picks are:

Kentucky, Michigan State, Florida State, and North Carolina.

I then have MSU beating FSU in the final to become national champions for the 3rd time!!

I, like the rest of Rome, will allow myself to be entertained by games, but unlike many, only for a short while. Have a great day everyone!

Tuesday, March 13, 2012

As If You Hadn't Had Enough Already

As if you hadn't had enough already I need you to check out @mtaibbi's latest piece out from Rolling Stone entitled J.P. Morgan Chase's Ugly Family Secrets Revealed.

When the short bus riding equity crowd wakes up to the litany of facts enveloping this elaborate ponzi we have created, something I think the credit markets already have done, like the one Matt outlines today- that the whole temple is perverted and diseased beyond recognition. Well, it will be something to behold.

The good thing is that many on the net and blogosphere are documenting it all so it will be that much harder for the Wall St. shills and their media pumping prostitutes to claim no one saw it coming when, as they most surely will, go into their post mortem history revisionist mode.

I Find It Intellectually Offensive

I have a bad habit of disparaging this country's esteemed institutions of higher learning and many of the financial psychopaths it spawns out year after year. This habit has been directed particularly at the Ivy league schools which have become a farm system of sorts for Wall St.

I get ridiculed, via email, by some of these faux genius's that I am jealous, couldn't get in academically, blah, blah, blah. Now I admit I was not the best student but I probably could have maneuvered my way thru to graduation had I hired a quality SAT surrogate to get me in the club's front door but I digress.

Anyway, there is a great piece today courtesy of Bloomberg detailing the inner workings of Ivy league high finance (code for leverage using debt) in this Great Ponzi entitled Carlyle Owners Took $398.5 Million Payout Before IPO.

Now at first blush a sober person might say "What's wrong with that? That's how free market capitalism works. You bust your ass, you make a profit you and get to enjoy the fruits of your labor." Well, that might be how a room temp IQ possessing, simpleton blogger might think it happens but not in this great Ponzi of ours, Noooooo. In this great ponzi of ours, known by fancy econometric models, statistical ratios, computer generated algorithms, and complex formulae oh and did I mention the most important ingredient debt, debt, debt and more debt piled on top of that debt. Not to mention the bought and paid for regulator agency oversight, ratings agencies and politicians, in this ponzi you have no need for profits or cash flow. You simply march into any lenders office and borrow whatever amount of money you desire telling them you'll use the funds to broaden the product lineup, expand into untapped markets, hell make anything up, you have an Ivy league MBA and when you do 2+2=whatever you say it does. Once complete you then distribute 80% of the borrowed funds to you and your partners leaving the company saddled with the financial herpes known as debt.

You see when you have an Ivy league MBA, work on Wall St. and have been a guest on CNBC before, (which means you're not a hack right Cramer?) you can tell everyone that 2+2=6. Now some idiot bloggers may dispute your claims that it equals 6, much like an 8 year would if you told him or her it does.

Quite frankly, I find it intellectually offensive when you and your expensive Ivy league MBA tell me:
  • a 30K/yr fruit pickers can carry a $500K home with no money down and no skin in the game.
  • that the above note is AAA rated,
  • that a county (Jefferson) can carry more sewer debt than even Harry Potter could imagine using hocus pocus derivatives, not to mention the grease money needed for local officials.
  • that Greece is in compliance with EU debt:GDP requirements while offshore entities are used to hide more debt.
  • that $1.2 billion in purported segregated customer funds vanished into thin air, when investigators spend more time on damage control PR campaign than interrogating persons of interest or when your lackeys in the media you manipulate via ad dollars tell me the case has gone cold.
  • when you borrow $398.5 million and payout 80% prior to the IPO saddling the newcomers with the debt.

Yes I am intellectually offended by all of this. I am offended when a fancy Ponzi scheme masquerades around and is pawned off on the public as sophisticated finance. Ahh, but the math never lies and all ponzi's come to an end.

Sunday, March 11, 2012

But Of Course It's Not One Giant Cess Pool Now Is It?

I came across a very interesting open letter to Jamie Dimon via the financial sleuths over @ZeroHedge. The piece was penned by one time fawning groupie turned sober adult James Koutoulas. The crux of the letter surrounds douce-bag extraordinaire Dimon and JP Morgan's role in the MF Global swindle but I want to bring your attention to a somewhat of an sideline appetizer piece to the article if you will.


"Through my role as the co-founder of the Commodity Customer Coalition and pro bono counsel for some 8,000+ customers whose property it looks like your institution may be holding without their consent, I have loudly advocated for JPMorgan Chase to return this property. In response to this, rather than doing the right thing, you closed all of my personal and corporate bank accounts and my personal credit card. I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

Take a minute and read that last line again for me. Now think about CNBC characters like buffoon extraordinaire Cramer's admonition "of course he's not a hack he's been on CNBC before". Think about uber financial sleuth Carl Quintanilla's question to serial ponzi-ist Allen Stanford "Whats it like to be a billionaire?". Think about all the grovelling and ass kissing of the D.C. and Wall St. oligarchy by the boobs and boobs in chairs from the propaganda network., then consider JP Morgan will pull their advertising from the offending network if they have someone on again?!

Really! But of course it's not one giant cess pool now is it?

Yes this is how crony capitism functions as it extorts what it wants from the puppets in Washington and their servant prostitutes in the mainstream media. Might I be so bold as to ask you to consider this simple idea the next time one of the hall of fame worthy, boot licking, grovellers of CNBC come on pandering to a guest that in most cases should have a warning sign to 'sew your pockets up before venturing anywear close. Maybe then people will begin to appreciate CNBC for what it truly is; a bought and paid for, wholly owned, Wall St. propaganda subsidiary. Actually maybe I should stop swimming against the current, pop a Prozac with a Xanax chaser and get with the program like the majority of other yes men and women the Ivy League produces for Wall St. huh?

Yeah, that's the ticket. Get with the program. Either way here's Koutoulas' letter in it's entirety.

An Open Letter to Jamie Dimon

“People fall not from their weaknesses, but from their strengths gone to excess.”- Aeschylus

Dear Mr. Dimon,

I used to be one of your biggest fans. Back when I was 17 years old working at a Salomon Smith Barney branch in Ft. Lauderdale, you were fired from Citigroup when everyone had you pegged as the heir to Sandy Weill’s burgeoning empire. Everyone at the branch was shocked, as we all knew you by reputation as a brilliant CEO-in-the-making, and frankly, most of us were disappointed as we genuinely were all looking forward to working under your leadership one day.

While your ousting was unexpected, you recovered quickly, and perhaps it helped motivate you to accomplish great things in the financial industry. You came to the CEO post at Bank One, then engineered its acquisition by JPMorgan Chase and took the CEO prize for yourself. All the while, Citi floundered, and you led JPMorgan Chase to become the premier American bank. Under your stewardship, Chase eschewed most of the sub-prime crisis and snapped up some of the choicest prizes in the ensuing crisis, namely Bear Stearns and Washington Mutual. Well done, sir.

Personally, I was proud to be a JPMorgan customer and proudly listed in our offering documents that our firm’s operational capital was safely held with your institution. I enjoyed great relationships with both your hedge fund/commercial banking division and your newly resurgent futures prime brokerage group. We were even on good terms with your private bank.

Then, the MF Global bankruptcy happened. And, I became aware of your bank’s involvement with the firm’s collapse. How the New York Times reports that JPMorgan received 325M in segregated customer funds despite the fact that JPMorgan Chase was a primary custodian for them. Then, JPMorgan Chase reportedly failed to return the funds when MF Global reported that they erroneously transferred customer assets and went a step further into “CYA” mode by requesting a comfort letter indicating that JPMorgan Chase had not received customer funds. JPMorgan Chase reportedly did not receive this letter, yet still, it kept customers’ property.

Through my role as the co-founder of the Commodity Customer Coalition and pro bono counsel for some 8,000+ customers whose property it looks like your institution may be holding without their consent, I have loudly advocated for JPMorgan Chase to return this property. In response to this, rather than doing the right thing, you closed all of my personal and corporate bank accounts and my personal credit card. I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network.

These bully tactics have only strengthened my resolve to protect my clients whom you have knowingly wronged and continue to wrong by improperly holding their property. It has made me delve deeper into what I have found is a pattern of such malicious conduct across JPMorgan Chase’s business groups. JPMorgan Chase bribed officials in Jefferson County, Alabama, one of the poorest counties in the United States, to enter into a disastrous derivative transaction that bankrupted the county and caused an increase of 400% in sewage prices, forcing these poor people to have to choose between food and clean water. JPMorgan Chase designed an overdraft processing system that intentionally prioritized higher dollar transactions so that as many transactions as possible would overdraft, again generating usurious-like fees on the bank of those who can ill afford it. Let’s not forget about robo-signing, forging foreclosure documents, or, getting back to the futures world, failing to properly segregate customer funds.

Mr. Dimon, why do you impugn your character and reputation by allowing your firm to engage in these immoral activities? Sure, the regulators have failed to assess you any meaningful punishments that would deter you from this conduct on a strict, short-term dollars and cents analysis. Every penny of earnings counts, I get it. But, sir, you do not strike me as someone who is trying to pump your company’s stock price for a quarter or two. You are the face of JPMorgan Chase and, I would assume, you plan on being there for a while. Why intentionally destroy any and all goodwill your firm has to make additional revenue that is mostly insignificant in the short-term and, quite possibly, deleterious in the long-term? The only reason I can think of is: because you can. And, that, sir is where hubris starts.

Lately, it seems you’ve come to relish the role of antagonist, bully, and even, villain. You’ve gone on rants about tax rates, how gosh darn profitable you are going to make JPMorgan Chase, and even gone so far as to call out journalists for their share of salaries versus the revenue of news organizations. Put plainly, the confidence that enabled you to build JPMorgan Chase has now become arrogance. Mr. Dimon, I happen to have been a classics scholar and have read this story many times before. It never ends well.

While you have led your firm to a dominant position in the banking industry and record profits of late, you haven’t done it alone. You’ve had the benefit of taxpayer funds, whether you needed them or not (as you claim). You’ve had extremely favorable regulation and public policy that for years has prioritized re-capitalizing banks over the rights of Main Street Americans to be able to bear the fruit of their labor. Yet, you have begun to act like a megalomaniac, drunk on his own power ala Caligula, and attribute 100% of your success to your personal superlatives. People are starting to notice. While Occupy Wall Street has failed to articulate any clear message or goals, they have tapped into a rage in this country that is real and palpable. You have alienated many of your peers on Wall Street and in the hedge fund industry (yes, you have peers). And, now, you have alienated many members of the media that have the voices to spread the word of the ill conduct which your firm has repeatedly engaged in.

In the Niccomedean Ethics, Aristotle described the worst kind of man as the “Incontinent Man,” namely he who knows what he does is wrong and does it anyway. I believe somewhere deep down, you realize that a lot of what you and the bank that you lead do has become increasingly wrong. Why continue to go on like that? You’re at the pinnacle of wealth and power, and continuing to do wrong will not make you meaningfully richer or more powerful. It can only serve to hurt you. “For what will it profit a main if he gains the whole world and forfeits his soul?”

Based on all of your accomplishments, you may think you’re beyond reproach, that you will never have your comeuppance. But, there’s a reason that during Triumphs in Ancient Rome, a slave stood behind the Emperor whispering “all glory is fleeting” in his ear. Because, it is. And, one day, something bad will happen to JPMorgan Chase. I don’t know if it will be a blow-up of the bank’s some $500 Billion in re-hypothecation exposure or a squeeze on its rumored massive short silver position. Or, if the United States will again see a regulator that believes in, and enforces, stiff punishment for misconduct by banks. But, we will all find out should you continue down the path you are on.

So, rather than continuing to corrupt your soul to harm others for negligible gain to yourself, choose a different path. Use your intelligence and your leadership abilities and your charisma to do the right thing, and set an example for the rest of the financial industry by showing that it is better for all society, JPMorgan Chase and Jamie Dimon included, to not crush those weaker or poorer than you by exacting every last cent from them just because you can. Rein in your malicious activities and focus on the legitimate ones. Be just a little humble -- and remove the target you’ve placed on your own back.

Perhaps, you can start by voluntarily returning the returning all the excess overdraft fees JPMorgan Chase overcharged average Americans through mal intent. While you’re at it, give back the hard-earned property of the farmers, ranchers, retirees, and others who were MF Global clients before I come take it back in court. JPMorgan Chase can borrow at 0% interest from the Fed. Do you really need an illicit free loan borne on the backs of farmers?

Whether you realize it or not, you’re at a crossroads. And, I promise you, one Greek to another, I will ardently help you to come to the end of whichever path you choose.

James L. Koutoulas, Esq.
President, Commodity Customer Coalition
CEO, Typhon Capital Management

Thursday, March 8, 2012

Do They Think We Are Stupid?

Readers know how extraordinarily critical I have been regarding the #MFGlobal debacle and the utter lawlessness it has come to represent in our crony capitalist society, often comparing it to the twilight zone and expecting Rod Serling to appear at any moment. Well, today an absolute must read piece on the MFGlobal heist was brought to my attention (thx J.B.) entitled Do they Think We Are Stupid? by @MarkMelin of Go 2ManagedFutures.com with Bob English.

Mark's piece is an fantastic detailed read on this future 'societal' case study in crony capitalism and how the rule of law in this great country was hijacked by financial psychopaths with the complicity of not only those charged with enforcement (bought via bribes and campaign contributions) but with the grovelling mainstream media obsessed with fawning over wealth, status and power thinking and saying only what they're teleprompter instructs them to.

In answer to your question Mark, and it pains me to say this, I really believe they DO think we are stupid. I think they are becoming brazen and even more daring than during the 08' crisis and now have skipped the 'bail us out or amageddon ensues' step and are content to simply steal and pillage the money straight up. Almost as if to say "we dare you something about it!"

I wish I were wrong and hope I am but think I am not. So without any further delay, or run on sentences here is Mark's piece in its entirety. Thanks Mark and Bob and well done to ya!

Do they Think We Are Stupid?

“Mr. Vaporized” of MF Global Scandal Unmasked?

Sometimes you wonder if we’re living in an alternate universe.


Recent news reports that cite un-named sources and indicate the MF Global criminal case has “gone cold” are curious. In fact, these news reports are even more bizarre than previous reports claiming MF Global client funds have simply “vaporized.” A pattern of behavior and reporting appears to be emerging that supports one overall goal: push the MF Global story under the radar, avoiding serious investigation and keep the inner workings and questionable circumstances surrounding a historic event out of public view and understanding. This, in turn, paves the way for MF Global creditors to legally swoop in on what rightfully belongs to the customers.


The “vaporized” and “case gone cold” news reports all convey a common underlying message: no one is responsible for what is now estimated as the loss of $1.6 billion taken from customer segregated accounts. There was no criminal activity. The message seems to instruct people to “mind their own business, keep quiet and just ignore what is the 8th largest bankruptcy in US history, a scandal tainted with fraud allegations that involves a man who is arguably the most politically connected Wall Street insider to ever walk among the backroom corridors of Washington DC.” Yet, by not officially using the "f" word (fraud), regulators, trustees, prosecutors and the rest of the panoply of public "protectors" make it more likely that the recipients, such as JP Morgan, of hundreds of millions in transfers of customer money in MF Global's final days will simply get to keep it. The core integrity of the commodity markets has been destroyed and an “industry of investor protections” with an exemplary regulatory record for protecting customer funds, now demands a rewrite.


This is the story we are supposed not to discuss? Is it really too complicated for mere mortals to understand?


Explaining a Complex Story with a Simple Analogy


One critical goal among those on the side of JP Morgan and other creditors is that they are attempting to confuse the issue, so it helps to start with a simple analogy of what occurred.


Imagine for a moment that MF Global was your bank. One day you woke up and discovered that the account holding your college savings was gone. Poof! The money in your retirement accounts and related checking accounts had just been “vaporized.” You go to ask the bank where you money is and you are locked out of the bank while strangers who are not depositors are allowed to enter and take assets from the bank, including the contents of the "safe" deposit boxes. You finally hear from the bank and the authorities, who essentially say that while they can see all the transactions of the bank over the last month, for some reason, there is just no longer any trace of the money, and no explanation of what happened. The funds just “vaporized.” And after a few weeks of minimal information dribbles, you hear the search has gone cold. You are told the money disappeared in a chaotic tsunami of transactions and there is no evidence of any criminal actions. But, if money happens to get found, you might get some of it. Oh, and the contents of your safe deposit box are going to be auctioned off, with only a portion of the funds returned to you (this was the fate of the unlucky souls who held gold and silver bars on deposit in their own name with MF Global). That’s all...talk to you later. Good bye and good luck.


How would you react? Would the notion that your money “vaporized” elicit outrage?


Welcome to the MF Global case, one that is currently being swept into the tangle of questionable bankruptcy litigation and under the media rug.


In Criminal Investigations, Shouldn’t The Witnesses to a Crime

And Suspects Be Interviewed Before a Case “Goes Cold”


In the case of MF Global, claims of customer “seg funds” being “vaporized” and the “case going cold” are made without investigators interrogating the primary suspect and individual in charge, former MF Global and Goldman Sachs President, New Jersey Senator & Governor, Jon Corzine. As the New York Times reported[1] last week, “…authorities have yet to interview key witnesses — including a person who is believed to have transferred client funds in the firm’s final days.” Yet around the same time, Reuters reports: “Criminal Probe Trial going cold at MF Global.”[2]


One would, of course, think a “case gone cold” proclamation is made only after investigators have finished examining all evidence, and only after questioning the primary suspect and all witnesses. That’s not the case – investigators claim they haven’t finished reviewing documents, but they are pretty sure the “case is cold.” Further, and as an aside, Mr. Freeh, trustee for MF Global Holdings has agreed to release documents from October 17th going forward, but nothing from before that date. Why would a US Trustee, under the authority of the Department of Justice, withhold anything needed for the investigation? (Many questions regarding Mr. Freeh’s appointment as trustee, and who recommended that appointment, are not being addressed in this document.)


Is this the information the financial services industry is asked to accept and then “vaporize” from its collective mind?


The “vaporized propaganda campaign” is a well-coordinated effort intended to confuse, divert and distract from the truth surrounding the crime of taking over a billion of customer funds. That’s the goal. In fact, it's impressive how “Mr. Vaporized” has managed to keep this case out of the news so well.


How “Vaporized” and “Mr. Vaporized” Entered the Picture


On January 24, 2012 a jarring news leak, first reported by Wall Street Journal reporters Scott Patterson and Aaron Lucchetti, was said to come from sources close to judicial proceedings. The report made the now famous claim that MF Global customer funds had simply “vaporized.” After months of rapt attention to the question of “where’s the money,” those in the media still paying attention were now told the money just simply disappeared without a trace! Poof!


After initial, and inaccurate speculation, a potential source for the leak emerged and was summarily dubbed “Mr. Vaporized.” It is the author's speculation that "Mr. Vaporized" is none other than Kent Jarrell, the third party media management consultant hired by customer trustee James Giddens. When reached for comment Mr. Jarrell responded “I have no idea where that word 'vaporized' originated from and I don't know what you are talking about.”


Mr. Jarrell is a highly connected Washington DC media operative, who works for APCO Worldwide, a marketing, brand management and public relations firm with significant experience in “community relations” and strategic media planning. Mr. Jarrell is director of APCO’s Washington, D.C.-based litigation communication practice. The firm's web site states “He advises CEOs, general counsels and boards of directors on preparation for unfolding material events.” And that, “He currently …advises the trustee in the liquidation of Lehman Brothers Inc.” Attorney James Giddens is also the Lehman Brothers Liquidation Trustee, a case in which $160 million was said to have been billed by trustees in legal fees.


Mr. Jarrell’s role in MF Global has been limited to communications regarding the liquidation and bankruptcy, as well as controlling the message and public expectations. Early in the process, Mr. Jarrell relayed a message through the media to MF Global clients that they should be prepared to “share” the MF Global proceeds with creditors such as JP Morgan. The message further stated that customers would only receive on a pro rata basis what is "identified by the trustee as available for distribution.” Further, that “The trustee then would be unlikely to find much value within the estate to pay back commodities customers, unless he can locate the missing cash,” noted a Reuters article.


In previous cases where futures brokers failed, the customer accounts were either transferred to another broker prior to a bankruptcy filing or the customers were afforded priority protection above all other claims in the bankruptcy process, in accordance with the Commodity Exchange Act. (That customers are not first is only so because of the curious way in which the bankruptcy and liquidation were structured by the regulators and MF Global execs in the first place. The parent holdings company filed under Chapter 11, generally used for reorganizations—not liquidations—and the broker unit was forced into a SIPA liquidation by the Securities and Exchange Commission. This decision has been a highly debated topic, as the 99% of accounts that were futures customers were afforded no insurance under SIPA and no protections from bankruptcy that fall under the Commodity Exchange Act. All in all, another MF Global mystery.)


On October 31, 2011, the day of the filings (or, perhaps even before), MF Global and its regulators may have planned such a structure to put customers on the same footing as creditors. Whatever went on in those closed door meetings, these reports of a new set of rules came as yet another shock to futures industry participants.


How Stupid Do They Think We Are?


Rules of propaganda teach us that if you repeat something long enough, no matter how absurd, it will eventually be believed. Multiple sources and narratives have parroted the thematic evolution: there was an unknown amount of missing money, which became money that had somehow disappeared, and finally an investigation gone cold, setting the stage for customers to expect less than 100% of their money back.


In an article dated January 30, 2012, The Wall Street Journal reported “a ‘significant amount’ of the money could have ‘vaporized’ as a result of chaotic trading at MF Global during the week before the company's Oct. 31 bankruptcy filing, said a person close to the investigation.” It is interesting to note the phrase “a person close to the investigation" might indicate someone associated with court proceedings or grand jury proceedings.


Is anyone so stupid to believe that customer funds held in a segregated account could simply “vaporize?” Yet sources quoted in the Wall Street Journal seem to believe that could be possible. The assertion was widely questioned by those with knowledge of the situation, including CFTC commissioner Bart Chilton and US Congressman Bill Posey.


Judging by reactions of expert industry participants on Twitter, the medium de jour for exchange among professionals in the futures industry, the outrageous stunt of the “vaporized” claim was met with shock and disbelief. Knowledgeable industry participants understand there are special documentation requirements for 4-D and 30.7 customer funds and strict regulations that must be followed to move funds in such accounts. Further, the brokers are subject to daily reporting requirements which, combined with the traditionally sacrosanct nature of segregated account protections, relentlessly drilled into industry participants, makes “mistakes” in this realm highly unlikely.


These claims of back office “mistakes” stand beside a less reported note. In sworn Congressional testimony CMEGroup Chairman Terry Duffy was clear. Just before the bankruptcy, critical documents given to regulators by MF Global had been falsified. Mr. Corzine’s sworn testimony had been called into question by an MF Global employee – an employee now potentially being prevented from talking, a story that needs to be told to prosecutors. Not only has potential fraud been publically disclosed, but a web of fraud may lie underneath the 8th largest bankruptcy in US history. But, as the propaganda campaign goes: Ignore MF Global. No fraud investigation required here.


With informed participants now detecting that an obvious agenda was in play by the media sources close to the bankruptcy, the question becomes: why the focus on back office “mistakes” rather than investigate fraud?


Why Avoiding a Fraud Investigation Is So Critical: The Safe Harbor

If fraud is investigated in a bankruptcy it is much easier for illicit money transfers to be “clawed back” in Court through preference actions by the trustee. Thus, in the case of MF Global, if $1.2 billion was wired out of MF Global to JPMorgan the week before the bankruptcy, this money could be safely returned to client segregated accounts. If fraud is not investigated, if illicit money transfers will be allowed to move out of MF Global into JPMorgan, then JPMorgan keeps the money.


Speaking on Bloomberg Law, a web-based video program, editor at large Bill Rochelle was clear: “Here is (why fraud) is an important point in the bankruptcy process,” Rochelle continued. “Congress passed what is known as a ‘safe harbor.’ What it says is the in a bankruptcy if money was paid in a stock transaction or if it was paid as margin, (MF Global account holders) can’t get it back. The only way you can get money back in a case like that if (the money) disappeared as a result of actual fraud. This report that the trustee was filing to me doesn’t sound like he (the trustee) is making a case for actual fraud, but rather (they are making a case for classical incompetence – and that may not be enough to get the money back,” which is a key point. Legal sources independent of Mr. Rochelle say if fraud is involved in a bankruptcy case, MF Global customer rights could be enhanced.



Trustee Giddens Softens Up MF Global Customers to Take it on the Chin


On February 6, 2012, James W. Giddens, the MF Global broker unit Liquidation Trustee, who is statutorily tasked with obtaining as much recovery as possible for customers, released a preliminary status report. In it, he sets the tone for ensuing media stories, toeing the "chaos and confusion" theme.

In various places, the report implies a degree of certainty about the flow of funds in MF Global's final days, such as, "The Trustee’s investigators have now traced a majority of the cash transactions, totaling more than $105 billion, made in and out of MFGI in the last week before bankruptcy and are completing the process of tracing the remaining transactions." And, "The Trustee has identified most of the parties that were the immediate recipients of transfers from MFGI during the final days and weeks of operation."


Interspersed with these glimmers of hope, though, are statements about the reign of chaos, such as, "For three months the Trustee’s investigative team has worked to understand what happened during the final days of MF Global when cash and related securities movements were not always accurately and promptly recorded due to the chaotic situation and the complexity of the transactions." And, "The company’s computer systems and employees had difficulty keeping up with the unprecedented volume of transactions [in the final week]. A number of transactions were recorded erroneously or not at all."


But, where subject and medium converge is in Trustee Giddens' confusing representation of cash movements at the broker unit during the month of October, 2011:


This chart doesn’t simplify, it confuses the issue. Would something this dizzying ever make it into the pages of the Wall Street Journal or Bloomberg? Was the intent to convey information to the public in an intuitive and easily understandable format? Could a chart have been drawn with a few straight lines, among them from MF Global to JP Morgan? Why did the trustee’s office create such a complicated chart? Yet, this graph is the lead in the appendix to the Trustee's report to the Court and customers. This is what $891 per hour buys? Again, a common tactic appears to be to confuse, not simplify.


Mainstream Media Starts to Find the Scent


It seemed that certain mainstream and alternative business journalists had begun to take an interest in the unusual circumstances of the case. But the pattern of deception over truth would eventually persist, apparently taking a cue from Trustee Giddens' early report about the back office. Bloomberg’s Bill Rochelle noted the trustee’s report characterized MF Global management as simply having “lost control of the backroom. The left hand didn’t know what the right hand was doing. They were not recording transactions. They (MF Global back office) ordinarily sometimes took out customer money but replaced it by the end of the day, but as the company was collapsing they weren’t able to.”


This characterization of MF Global back office behavior is noteworthy and requires critical examination. Would back office testimony contradict these statements? In fact, one familiar with MF Global operations and futures industry auditing procedures might express surprise at what was characterized as routine violations in back office behavior. We may never know, because investigators have determined the case “is cold” before any investigation into what industry professionals consider highly unusual behavior for any firm regardless of the level of “chaos.”


On February 9, Reuters reporters Nick Brown and Grant McCool reported that an investigation of some sort was taking place, but again downplayed the possibility for any serious charges due to “plenty of ‘chaos’ at MF Global in its waning days, but ‘no evidence of fraud,’” the article noted, quoting sources close to the investigation.



Unfortunately for MF Global customers, sweeping changes in the Federal Bankruptcy Code enacted in 2005 grant special super-priority status to derivatives in bankruptcy (including loans structured as repos) and prevent last minute margin transfers from being clawed back, except in the case of fraud (which everyone in charge refuses to discuss). The excuse, or in legalese, “safe harbor”, was again roundly questioned by many leading industry professionals, including R. Christopher Whalen, when he appeared on CNBC with Rick Santelli and in an article he penned at Zero Hedge titled "MF Global: Where's the Cash -- Part II."


The February 9 Reuters article went on to note “and keeping with the message pattern identified, people familiar with the situation said some executives and employees who, in the normal course of an investigation would have been interviewed by authorities at this stage, have not been asked to provide their version of events.” The February 10 report was similar in context and tone, noting an investigation was ongoing but that investigation was stalling. This is a pattern that had developed, as increasingly pessimistic news concerning the potential for discovering the perpetrators was also accompanied by a dash of hope to add seasoning to the bad taste the investigation was leaving in people’s mouth.


Jubilation Over Justice Is Quickly Dampened


Fast forward to February 28, 2012. This is when solid news reports of a Chicago federal grand jury investigation surfaced in the CMEGroup annual report, which noted the exchange had received a subpoena. This news was cheered by many industry participants, as the potential for justice finally appeared to arrive. Just as quickly as the ray of hope of grand jury news reports were made public, another leak to the press emerged to dampen expectations that an investigation might yield results, again highlighting how the “case had gone cold.”


In an article titled “Doubtful Signs of a Criminal Case Against MF Global” on February 28, New York Times reporters Azam Ahmed and Ben Protess noted “Federal authorities are struggling to find evidence to support a criminal case stemming from the collapse of MF Global.”


Frustration Boils Over, Limited Options For Industry Participants


By now, growing discontentment from select industry participants with the investigation could be characterized as hostile. Questions were being logically asked as to how it can be that a investigation was growing “cold” without interrogation of the primary suspect or interviewing potential witnesses to the crime. Attempting to get their message heard with limited options, visible outrage occurred on Twitter, and a small group of industry participants, speaking behind the scenes, considered the motivation behind the press leaks. A strategy appears to have emerged, with the goal to dampen expectations for any serious criminal charges and keep confidential key documents and testimony regarding what transpired before and after the historic bankruptcy. Such suspicions grew with the next set of press leaks. Leaks apparently designed to discredit the more vulnerable.


Back Office Workers Defamed, Unable to Defend Themselves


From the moment CMEGroup Chairman Duffy released the bombshell that a senior MF Global employee had implicated Mr. Corzine, claiming falsification of documents and challenging the MF Global CEO’s sworn Congressional testimony, focus has been on those likely most knowledgeable of the situation: the back office employees.


Back office employees are typically trained to follow specific processes for managing customer capital, processes which are confirmed and audited on a regular basis by the broker's regulator. These processes are stressed tested, as the threat of real life chaos is considered a constant in the lives of many back office employees, particularly one as experienced and highly respected as Edith O’Brien, an MF Global treasurer. It was these back office employees who likely executed what became, knowingly or not, the raid on customer segregated funds that may hold the key to understanding what really occurred. If these individuals on the front lines were to provide testimony and documentation, it could unlock the key to understanding what transpired and potentially allow justice to prevail.


Unfortunately, the first news to emerge regarding back office employees didn’t focus on their cooperation with the court. Instead, leaked reports focused on information possibly designed to defame the employees and paint a picture of lax back office behavior, which in turn supports the “vaporized” themes. These leaks were also reported to come from those close to the court room proceedings and criminal investigation. Based on the documentation type, speculation favors that the documents were leaked by someone close to the liquidation trustee (Giddens) or bankruptcy trustee (Freeh), with a more distant possibility being law enforcement investigators.


How does the defamation of employees critical to the flow of funds work?


In an article published in both the Wall Street Journal and on the Fins Finance web site titled “Building Chaos at MF Global,” among the first reports to emerge regarding the MF Global back office focused on key employees and called them out by name. The article noted that these two key employees were away at a ball room dancing competition in Las Vegas--a situation that might be laughable were it not so serious. But this is yet only another distraction from the core issues.


The fact that two key employees, one, the MF Global North American finance chief, the second, the head of margins, would be away “ballroom dancing” when the company was under historic stress raises questions. This curiosity is compounded when one considers that many at MF Global and inside the futures industry understood the firm may have been spiraling into bankruptcy during that very time. In fact, senior management had prepared a “break the glass” document weeks before in early October that specifically identified a scenario under which the segregated customer funds account might go in the red. Given this obvious crisis situation, of which senior management appeared acutely aware, why would management allow two key employees in finance and margins, potential customer safeguards, to be away at a time when they were known to be needed most? It just does not add up.


All futures brokers are required to design and enforce internal controls and procedures that will protect customer funds under all circumstances. These internal controls must be attested to by the firm's senior officers and must be audited at least annually (in the case of MF Global, this was done by PricewaterhouseCoopers). Who authorized these key employees to take time off in those critical days? What would be the motivation for top management to allow key back office personal to take off when, as Mr. Corzine even testified to Congress, they knew capital had to be rapidly raised and massive financial gaps had to be filled? Were the firm's internal controls and procedures followed? Either way, the media ought to be questioning those who were responsible for designing and implementing those procedures, not putting out red herring stories that conjure images of a National Lampoon movie.


The source of these leaks ridiculing the two financial officers came from “internal emails, documents and people familiar with the matter.” Who could this source be? Simple knowledge of the case reminds us that the two trustees and FBI investigators had access to the documents in question. What could be their motivation for releasing this information?


More Strange Leaks, Wall Street Journal Headline: “Fast and Furious at MF Global”


The Wall Street Journal headline of March 1, 2012 may be appropriately titled, as it refers to another scandal at the Federal Bureau of Investigation, this one involving gun running to a Mexican drug cartel and a potential cover-up.


The article noted that “At 4:53 p.m. five days before MF Global Holdings Ltd. collapsed, an employee in its Chicago office asked a co-worker to move $165 million from one of the securities firm's bank accounts to another.” The approval was reportedly granted by email a mere minute later, and funds were transferred to an MF Global account at JP Morgan. This raises a sea of questions:


First, the issue for customer segregated funds would have emanated from a transfer of funds from the futures brokerage unit into the securities brokerage unit. The fact that it would be a securities to securities account transaction would fall under a different regulatory structure and likely not involve the theft of MF Global segregated funds. MF Global had a paltry 318 securities accounts compared with over 38,000 active futures accounts. Having said that, let’s assume the transfer was from a CFTC regulated futures account to an SEC regulated securities account.


That an end of day money transfer of $165 million out of a segregated account in the futures brokerage unit into the securities unit, approved in mere seconds, is almost surreal. It could be speculated the speed at which this approval came might have indicated advance knowledge of the issue. Conversely, if approvals of this magnitude are routinely granted this quickly, the issue of proper design and implementation of internal controls and procedures is brought into play.


To understand the significance of the approval, legal conditions are required between the bank depository and the FCM identifying the special segregated account status. Further, what are known as 4-D and 30.7 account titles clearly identify the special nature of the customer segregated account. Regulations that govern these special accounts cannot be violated--not on an end of day basis or even intraday, according to sworn Congressional testimony by CFTC General Counsel Dan Merkovitz. Did the transfer paperwork specify the 4-D or 30.7 account title? With these rigid requirements, speculation among industry participants is that the move to transfer money out of a customer segregated account would not happen by “accident” in a moment of “chaos.”


According to the aforementioned February 6 status report filed in Court by Trustee Giddens, MF Global had a bad habit of dipping into customer funds during the day only to reconcile by the close of business. Mr. Giddens states (emphasis ours):

"The investigation to date has found that transactions regularly moved between accounts and that funds believed to be in excess of segregation requirements in the commodities segregated accounts were used to fund other daily activities of MF Global. In the past, such transfers were in amounts of less than $50 million, but as liquidity demands increased and could not be met from internal sources, much larger amounts were used, apparently with the assumption that funds would be restored by the end of the day. By Wednesday, October 26th, as the result of increasing demands for funds or collateral throughout MF Global, funds did not return as anticipated."


Recognize that some may interpret this statement as an admission that fraud regularly occurred at MF Global. The unambiguous statement by the customer’s trustee clearly states that the provisions of the Commodity Exchange Act (CEA) designed to protect customer funds were likely routinely violated, and knowingly so . Yet, neither he nor anyone else in the know can so much as hint at fraud?


In the report, Mr. Giddens falls back on the chaos angle, stating, "As these withdrawals occurred, a lack of intraday accounting visibility existed, caused in part by the volume of transactions being executed..." One has to read between the lines here, because based on Giddens' prior disclosures, the primary cause of the lack of accounting visibility was the habitual violation of CEA regulations, but this is not mentioned--only the sheer "volume of transactions."


One of Several Smoking Guns Being Ignored?


Back to the WSJ article, in what might be construed by some as covering tracks, it then quotes the back office staff as saying they noticed a mistake and then tried to reverse it. If this were a crime, the mastermind might be saying right now, here’s what you tell them: “Oops, we just transferred $165 million from customer segregated funds to JP Morgan. I hate it when that happens. And because this case is a SIPA/Chapter 11 bankruptcy, we can engineer the process so that fraud is not investigated from the start and MF Global customers have no claw back rights. The money stays at JP Morgan.” And, as was reported in the press early in the bankruptcy, customers will have to be happy with sharing whatever might be recovered from the estate.


“Midlevel finance officials usually couldn’t move such funds without direction from more senior officials,” the article continues. This is the essential point. It is the author’s speculation that at some point there was likely an order from one of the big three in MF Global – Mr. Corzine, COO Bradley Abelow and/or CFO Henri Steenkamp. Given the $6.3 billion trade in risky sovereign debt was known as the “Corzine trade,” the risk allocation of the trade that put the customer broker unit on the hook for all losses could be characterized as “his brainchild.” Further, in all likelihood it was Mr. Corzine who had key trade management relationships with JP Morgan, and it might be assumed he had awareness of $165 million being sent to the firm. Any mid level investigator might rightfully conclude that Mr. Corzine’s knowledge of the money transfer was highly likely, if not based on his actual instruction.


At the very least, MF Global's internal controls were sorely lacking in design and implementation, and anyone who signed off on them, including Mr. Corzine and PricewaterhouseCoopers, may eventually have to answer for these alleged transgressions.


The article further revealed interesting developments at J.P. Morgan:


“J.P. Morgan also has been questioned about the $165 million transfer, according to a person familiar with the matter. Four days before MF Global filed for bankruptcy protection, the company's brokerage unit borrowed the same amount using a secured credit facility led by J.P. Morgan. The loan was paid back the next day, this person said. It couldn't be determined if the loan and transfer were related.”


These types of relationships and apparent cozy transfer of money between two entities highly related to the process warrant clear explanation before calling the case cold. However, such explanation might be rather difficult given the fact that neither MF Global senior management nor key people in the back office have been questioned by investigators.

But that is only if fraud is investigated. Remember, in the MF Global case there is not even the apparent suspicion of fraud. No reason for any serious investigation into this story.

To quote the classic movie Wizard of Oz: “Ignore the man behind the Curtin.” Ignore MF Global everyone. There isn’t a story here…

Tuesday, March 6, 2012

Stuart Smalley Might Disagree

Great piece today from Yahoo news by #NatalieWolchover entitled People Aren't Smart Enough for Democracy to Flourish, Scientists Say. The article at Yahoo also has lots of great links to other work in her piece.

Contrary to SNL's character Stuart Smalley who thinks we're good enough and smart enough and doggone, it people like us, I have mocked society's obsession with the likes of American Idol, Survivor et al. I have ridiculed the likes of Kim Kardashian and her 13.6 million strong legion of followers vs say constitutional expert Judge Andrew Napolitano (@judgenap) and his meager 60k horn rimmed glasses wearing nerds. But it's only the constitution right?

Please read Natalie's piece I have reproduced below and as you do think about the fact, which many studies prove, that 6 out of 10 of these 'people' are on some from of psyche drug. Makes for a real head shaker now. Maybe now we can all stop wondering how they passed the Patriot Act, among the litany of other things.

PEOPLE AREN'T SMART ENOUGH FOR DEMOCRACY TO FLOURISH, SCIENTISTS SAY.

By Natalie Wolchover | LiveScience.com –

The democratic process relies on the assumption that citizens (the majority of them, at least) can recognize the bestpolitical candidate, or best policy idea, when they see it. But a growing body of research has revealed an unfortunate aspectof the human psyche that would seem to disprove this notion, and imply instead that democratic elections produce mediocre leadership and policies.

The research, led by David Dunning, a psychologist at Cornell University, shows that incompetent people are inherently
unable to judge the competence of other people, or the quality of those people's ideas. For example, if people lack expertise on tax reform, it is very difficult for them to identify the candidates who are actual experts. They simply lack the mental tools needed to make meaningful judgments.

As a result, no amount of information or facts about political candidates can override the inherent inability of many voters to accurately evaluate them. On top of that, "very smart ideas are going to be hard for people to adopt, because most people don’t have the sophistication to recognize how good an idea is," Dunning told Life's Little Mysteries.

He and colleague Justin Kruger, formerly of Cornell and now of New York University, have demonstrated again and again that people are self-delusional when it comes to their own intellectual skills. Whether the researchers are testing people's ability to rate the funniness of jokes, the correctness of grammar, or even their own performance in a game of chess, the duo has found that people always assess their own performance as "above average" — even people who, when tested, actually perform at the very bottom of the pile. [Incompetent People Too Ignorant to Know It]

We're just as undiscerning about the skills of others as about ourselves. "To the extent that you are incompetent, you are a worse judge of incompetence in other people," Dunning said. In one study, the researchers asked students to grade quizzes that tested for grammar skill. "We found that students who had done worse on the test itself gave more inaccurate grades to other students." Essentially, they didn't recognize the correct answer even when they saw it.

The reason for this disconnect is simple: "If you have gaps in your knowledge in a given area, then you’re not in a position to assess your own gaps or the gaps of others," Dunning said. Strangely though, in these experiments, people tend to readily and accurately agree on who the worst performers are, while failing to recognize the best performers.

The most incompetent among us serve as canaries in the coal mine signifying a larger quandary in the concept of democracy; truly ignorant people may be the worst judges of candidates and ideas, Dunning said, but we all suffer from a degree of blindness stemming from our own personal lack of expertise.

Mato Nagel, a sociologist in Germany, recently implemented Dunning and Kruger's theories by computer-simulating a democratic election. In his mathematical model of the election, he assumed that voters' own leadership skills were distributed on a bell curve — some were really good leaders, some, really bad, but most were mediocre — and that each voter was incapable of recognizing the leadership skills of a political candidate as being better than his or her own. When such an election was simulated, candidates whose leadership skills were only slightly better than average always won.

Nagel concluded that democracies rarely or never elect the best leaders. Their advantage over dictatorships or other forms of government is merely that they "effectively prevent lower-than-average candidates from becoming leaders."

This story was provided by Life's Little Mysteries, a sister site to LiveScience. Follow Natalie Wolchover on Twitter @nattyover.