Intention vs. Responsibility

March 24, 2012

Great quote from the spokesperson for MF Global. Sums up the major issue in Wall Street. It’s not what those in charge “intend” happen. It’s that which the ensure happens that matters, particularly when it comes to regulatory matters and supervisory responsibilities.

I’m sorry it’s just not enough for me that a CEO intend to do, or not do something. I expect a CEO to ensure things do or don’t happen under his or her watch. If he or she fails in that role, well the road to hell has always been paved with….

“Holy shit Batman, I know you intended to save Gotham, it’s a shame it got nuked. What do you think you’ll do now? … Oh, sure, I bet St. Louis will love you. I’m in.” -Robin

MF Global’s Corzine Ordered Funds Moved to JP Morgan, Memo Says

March 24 (Bloomberg) — Jon S. Corzine, MF Global Holding Ltd.’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in a brokerage account with JPMorgan Chase & Co., according to a memo written by congressional investigators.

Edith O’Brien, a treasurer for the firm, said in an e-mail quoted in the memo that the transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News yesterday. The e-mail, dated Oct. 28, was sent three days before the company collapsed, the memo says. The memo does not indicate whether that phrase was the full text of the e-mail or an excerpt.

The account could have contained both client and company funds, the memo notes. Whether the transfered funds were those of the company, its clients or both is not known.

“If client funds were transferred at his direction, it raises new questions,” Seth Berenzweig, managing partner at Berenzweig Leonard LLP, a law firm in McLean, Virginia, said in an interview with Bloomberg Television. “This is a new storm cloud that is now headed for Jon Corzine and it raises a lot of issues.”

O’Brien’s internal e-mail was sent as the New York-based broker found intraday credit lines limited by JPMorgan, the firm’s clearing bank as well as one of its custodian banks for segregated customer funds, according to the memo, which was prepared for a March 28 House Financial Services subcommittee hearing on the firm’s collapse. O’Brien is scheduled to testify at the hearing after being subpoenaed this week.

‘Funds Were Safe’

“Over the course of that week, MF Global’s financial position deteriorated, but the firm represented to its regulators and self-regulatory organizations that its customers’ segregated funds were safe,” said the memo, written by Financial Services Committee staff and sent to lawmakers.

Steven Goldberg, a spokesman for Corzine, said in a statement that Corzine “never gave any instruction to misuse customer funds and never intended anyone at MF Global to misuse customer funds.”

Vinay Mahajan, global treasurer of MF Global Holdings, wrote an e-mail on Oct. 28 that said JPMorgan was “holding up vital business in the U.S. as a result” of the overdrawn account in London, which had to be “fully funded ASAP,” according to the memo.

Barry Zubrow, JPMorgan’s chief risk officer, called Corzine to seek assurances that the funds belonged to MF Global and not customers. JPMorgan drafted a letter to be signed by O’Brien to ensure that MF Global was complying with rules requiring customers’ collateral to be segregated. The letter was not returned to JPMorgan, the memo said.

Corzine Testimony

Corzine, 65, in testimony in front of the House panel in December, said he did not order any improper transfer of customer funds. Corzine also testified that he never intended a misuse of customer funds at MF Global, and that he doesn’t know where client funds went.

“I never gave any instruction to misuse customer funds, I never intended anyone at MF Global to misuse customer funds and I don’t believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds,” Corzine told lawmakers in December.

In his statement, Goldberg said Corzine did not specify which funds should be used to replenish the JPMorgan account.

“He never directed Ms. O’Brien or anyone else regarding which account should be used to cure the overdrafts, and he never directed that customer funds should be used for that purpose,” Goldberg said. “Nor was he informed that customer funds had been used for that purpose.”

$1.6-Billion Shortfall

The bankruptcy trustee overseeing the liquidation of the company’s brokerage subsidiary has estimated a $1.6-billion shortfall between customer claims and assets available.

Lawmakers and investigators from the Commodity Futures Trading Commission, Securities and Exchange Commission and Department of Justice have been reviewing events leading up to MF Global’s bankruptcy filing. Executives including Corzine, a Democrat who served in the Senate from 2001 to 2006 and as governor of New Jersey from 2006 to 2010, gave testimony on the collapse at three congressional hearings last year. Corzine was co-chairman of Goldman Sachs Group Inc. before entering politics.

Representative Randy Neugebauer, a Texas Republican and chairman of the Financial Services oversight and investigations subcommittee, is preparing a final report on his investigation into the firm’s failure.

‘What Went Wrong’

“One of the goals of our investigation is not only to find out where the money went but to identify what went wrong in order to prevent this from happening again,” Neugebauer said in a statement.

O’Brien is scheduled to appear before lawmakers with Christine Serwinski and Laurie Ferber, two other MF Global executives named by Corzine as being involved in the transaction, according to the memo. Henri Steenkamp , the firm’s chief financial officer, is also scheduled to testify, as is a representative from JPMorgan who has not yet been identified.

MF Global and its brokerage sought Chapter 11 bankruptcy after a $6.3 billion bet on the bonds of some of Europe’s most indebted nations prompted regulator concerns and a credit rating downgrade. Corzine quit MF Global Nov. 4.

During his testimony, O’Brien was identified by Corzine as someone with knowledge of a transfer of funds from customer accounts before the firm sought bankruptcy protection Oct. 31.

Reid H. Weingarten, O’Brien’s lawyer, did not immediately respond to a phone call and e-mail seeking comment.

The memo’s account of the e-mail exchanges aligns with what Terrence Duffy, the executive chairman at CME Group Inc., told lawmakers during a December congressional hearing. Auditors at CME, which had authority to oversee MF Global, learned from an employee of the brokerage that Corzine knew about the loans involving a European affiliate, Duffy told committee members.

To contact the reporters on this story: Phil Mattingly in Washington at pmattingly Silla Brush in Washington at sbrush

To contact the editor responsible for this story: Maura Reynolds at mreynolds34

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Advertisements Article: More Boomers Selling Homes, but Who Will Buy Them?

March 10, 2012

More unaccounted for overhang. Will there be enough appropriately sized rental units for seniors leaving their homes behind? Will seniors have enough wealth if they are forced to sell homes into distressed markets? In many cases their home was considered part of their savings and a major asset on the balance sheet. Where do boomers want to retire to?

Baby Boomers putting their house up for sale could flood the market in coming years, while the younger generations may not be interested in buying, a new report says.

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Top Reasons Why the Market May Stumble

March 9, 2012

• Israel / Iran escalation explodes
• China’s slowdown stalls
• Syrian devotion creates collateral support on both sides increasing risk premia in stalemate
• Sovereign liquidity bazooka posturing has bluff called by bond market.
• Greek bond swap is a failure as new bonds plummet shortly, installing fear for efficacy of European control over the crisis.
• LIBOR fixing case escalates or gets more notable attention creating mistrust in credit markets
• Oil prices get squeezed by geopolitical events or surprisingly good data and trigger a new recession.
• Facebook IPO becomes symbol of the excess in this rally and seals the top of this market and it’s own fair in the bear market that follows. Irrational but practically fair guess.
• Obama’s GOP challengers fade and his tax policy surfaces into the election
• Major hedge fund blows up
• High frequency trading investigation roils liquidity providers creating another flash crash” as market makers unwind into these lower volumes markets with fewer retail clients buying.
• Credit rating downgrades surprise to the downside in magnitude and timing.
• European cooperation breaks down into elections as popular votes support protectionism, liquidity unexpectedly unwound.
• interest rates back up suddenly 50 bps causing shocking losses feeding the sell of in “safe assets” and spiking over more heavily into selling of “risk assets”. Dollar rallies again.
• US real estate recovery exposed as weaker than originally thought with inventory overhang growing with new sales activity much like unemployment may grow as more people reenter the workforce.
• Government enforcement of Dodd Frank puts new pressure on banks earlier than anticipated, forcing more derisking.
• Apple iPad debut falls short of lofty expectations stories turn to “after Steve jobs” and the company’s massive weighting in indexes roils markets as it corrects.
• Capacity utilization unexpectedly soars as obsolescence becomes apparent and prices rise squeezing demand already starved by higher oil and weaker borrowing by consumers.
• By weather or other natural disaster global food supplies are squeezed and prices for key commodities sky rocket crimping the global consumer.

Creative Destruction

March 5, 2012

So how many jobs have been lost by companies, products and devices replaced by Apple’s innovation. I love Apple but I’d be willing to bet that’s a net negative number. Article: Apple’s Job Creation Data Spur an Economic Debate

Apple says it has “created or supported” 514,000 American jobs, including those of delivery drivers. The New York Times reports.

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