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Generational Dynamics Web Log for 18-Nov-2011
18-Nov-11 World View -- MF Global bankruptcy begins to claim victims

Web Log - November, 2011

18-Nov-11 World View -- MF Global bankruptcy begins to claim victims

Obama's Australia announcement considered a 'betrayal' by China

This morning's key headlines from

* Obama's Australia announcement considered a 'betrayal' by China
* MF Global bankruptcy begins to claim victims
* Barnhardt Capital Management closes because of MF Global outcome
* News site 'Politico' approves fraud by lawmakers
* Protesters attack U.S. Embassy in Athens, Greece
* IMF has not yet approved next €8 billion bailout payment to Greece

Obama's Australia announcement considered a 'betrayal' by China

Australian Prime Minister Julia Gillard greets President Obama in Canberra (AP)
Australian Prime Minister Julia Gillard greets President Obama in Canberra (AP)

President Obama's announcement in Australia of stationing of American armed forces in Australian bases to counter China's growing military strength will be viewed by many Chinese as a betrayal of the promise of "constructive partnership" that Obama and China's president Hu Jintao agreed on in a meeting in January. China's Global Times alleged the U.S. was seeking to weaken China by nurturing hostile forces within the country while wrecking Beijing’s relations with its neighbors. It suggested Beijing reduce its massive purchases of U.S. government debt — which have helped keep U.S. interest rates low — to get Washington to stop meddling in the South China Sea, where China is asserting claims to islands, reefs and atolls contested by five other governments. AP

MF Global bankruptcy begins to claim victims

A U.S. bankruptcy court judge ruled on Thursday that about 60% of the money they had in cash accounts managed by MF Global Holdings, at the time that the hedge fund firm declared bankruptcy three weeks ago, will be returned to them. According to law, they should have immediately received 100% of the money, since customers' cash is supposed to be segregated from company cash. However, $600 million has disappeared, and suspicion has fallen on the CEO, former Democratic New Jersey governor and Obama administration superstar Jon Corzine, who is suspected of losing the $600 million after illegally co-mingling company and customer funds. Corzine had invested his firm's money heavily on European bonds, betting that the European financial crisis would be solved by now. But as it worsens, MF Global went bankrupt. Bloomberg

Barnhardt Capital Management closes because of MF Global outcome

I've been advising readers for years to stay out of the markets, because they're far too dangerous for any but the most sophisticated investors -- and probably even for sophisticated investors. That's because today's culture of fraud and extortion is not for honest people. Ann Barnhardt has echoed these warnings in a letter that she sent to her customers:

"It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. ...

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.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by [Jon Corzine], stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. ...

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm."

Barnhardt's remarks apply to the futures markets, but the stock market is becoming equally dangerous, because of the same culture of fraud and extortion. Ordinary people should focus on preserving assets, keeping money in their homes or in FDIC insured bank accounts.

I omitted from my excerpts of Barnhardt's statement her remarks about "the abject lawlessness and contempt for humanity" of the Obama administration -- not because her remarks aren't true, but because they apply to pretty much every politician and banker these days, in Washington, New York, Brussels, and elsewhere. Zero Hedge

News site 'Politico' approves fraud by lawmakers

Even by non-existent Washington media standards, I was startled by the Politico news site story that condones insider trading by Congress, saying that the accusations are a right-wing conspiracy.

I've written many times how much the culture has changed since the 1990s, when the Silent Generation (survivors of WW II) disappeared, and Generation-Xers reached middle management positions in the mid-2000s decade. It's not that all Gen-Xers are crooks; the vast majority are honest. But they've created the culture of fraud and extortion that we've been experiencing by refusing to criticize almost any Gen-Xer for any crime, no matter how egregious. This has been apparent in books on the financial crisis by Mike Taibbi and others that document massive fraud by Gen-Xers in financial institutions, but never actually blame any of them, somehow painting them as victims, despite the crimes they've committed. The difference between the Silents and the Gen-Xers is that most Silents had morals and ethics, and many Gen-Xers apparently do not.

During the 1980s savings and loan crisis, thousands of people were criminally referred by regulators, while during this crisis, which is many times bigger, there have been almost none. That's the difference between the Silents and the Gen-Xers. There's been only one criminal conviction: Raj Rajaratnam has been convicted of insider trading and sentenced to 11 years in jail. (Bloomberg)

This brings me back to the Politico article that I referenced above.

Massive insider trading by Congressmen and Senators of both parties was exposed earlier this week on CBS's show 60 Minutes, when BigPeace editor Peter Schweizer revealed his research that shows how they used inside information on secret lawmaking negotiations to line their pockets with huge profits in the stock markets. Even though they should be given jail sentences like Raj Rajaratnam's, they're free to do what they want because Congress has exempted itself from the insider trading laws. They can commit all the crimes they want without fear of criminal prosecution. They can buy stocks on Monday and then pass a law on Tuesday that causes the stock price to triple. It's all perfectly legal.

But to the Gen-Xers at Politico, Schweizer's work is a vast right-wing conspiracy. The politicians who take our money and screw us are just innocent victims of Schweizer and his right-wing buddies, according to Politico.

Politico's article is one of the sleaziest I've seen, and that's saying a lot because there's a hell of a lot of sleaze in the mainstream media. Politico

Protesters attack U.S. Embassy in Athens, Greece

Protests in Athens on Thursday (Reuters)
Protests in Athens on Thursday (Reuters)

Some 30,000 people took to the streets in Athens on Thursday, in commemoration of the 38th anniversary of the ultra-right junta of the "Black Colonels." Most demonstrations protested Greece's austerity program, demanded by the European Union and International Monetary Fund as conditions to receive the next €8 billion bailout payment. Several hundred protestors attempted to storm the U.S. Embassy but were stopped by police, after which tensions grew between the two opposing sides and involved Molotov cocktails from the protestors and tear gas from the police. The protesters were mostly communists who blame the United States for supporting the "Black Colonels" in their suppressing a university students' uprising on November 17, 1973. The communists demand that Greece secede from the eurozone and that communism be reinstated in the country. Ria Novosti

IMF has not yet approved next €8 billion bailout payment to Greece

Greece's interim Prime Minister Lucas Papademos has won a vote of confidence from the parliament, and is now trying to get approval for the austerity budget required by the EU and the IMF to receive further bailout money. The IMF has stated that another condition is that the austerity measures must have strong political support from all parties. However, the next €8 billion bailout payment has been put into question because Antonis Samaras, Greece’s main opposition leader, has balked at signing a separate letter pledging commitment to austerity measures requested by EU officials, saying his support for the transitional government is enough. Bloomberg

(Comments: For reader comments, questions and discussion, see the 18-Nov-11 World View -- MF Global bankruptcy begins to claim victims thread of the Generational Dynamics forum. Comments may be posted anonymously.) (18-Nov-2011) Permanent Link
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