CGI's Swami: All kinds of stuff going on behind the scenes
The Rumor Mill News Reading Room
CGI's Swami: All kinds of stuff going on behind the scenes
Posted By: Susoni
Date: Friday, 11-Nov-2011 05:37:10
"The rumor is, JPMorgan shorted the stock of MF Global prior to the
decision, that Greece is a non-credit event. And what he's saying here,
is that the firm in MF operations which was closest to them was
JPMorgan. And they saw what was going on. So they shorted the stock. The
stock isn't trading. And that means they don't have to cover their
short. Everything that they shorted is pure profit. And he says that
Jamie Dimon is the one who was the mastermind behind this. And also
involved Mary Shapiro, who is the head of the SEC; Gary Gensler, who is
the head of the CFTC; Eric Holder who is the attorney general; and
William Daley. And he says that William Daley, Obama's chief of staff,
left his post. Ya know, he's stepping down, because of this scandal.
And, so there's all kinds of stuff going on behind the scenes that we
don't know about."
"We have noted again and again that the seemingly single-minded effort
to avoid a credit-event or involuntary restructuring is yet another one
of the actions of an ignorant and ill-informed elite who simply do not
understand the unintended consequences of any and everything they do to
calm a desperate banking system. Today saw Willem Buiter, of Citigroup,
agree with our perspective in terms of both the realistic lack of impact
from a CDS event on Greece (per se) and moreover his perspective that
the lack of a credit event could throw bond markets into a chaotic state
as seemingly worthless CDS contracts and CTD bonds are tossed like hot
potatoes from one smart banker to another smart hedge fund."
Not triggering CDS in a deep Greek sovereign debt restructuring would likely be more damaging than triggering
In that case, the value of CDS as an asset class – which retains a
significant hedging and risk management role – would be much impaired
The lengthy Citigroup prose is summarized rather simply as avoiding the
trigger when it is obviously a trigger-worthy event (using our
vernacular) could cause far more trouble than any they are seeking to
avoid for fear of contagion and losses. Peter Tchir, of TF Market
Advisors, added this evening:
Given the number of European Leaders who are still up and making
statements, it would seem we finally have a deal. Either that or they
were all clubbing together, which can't be completely ruled out.
50% haircut for banks. Will the banks actually be forgiving Greece 50%
of their obligations or are the banks about to get some super cool
security that has lots of bells and whistles, so they can say it is a
50% write-down? I'm betting the latter, which just means EFSF funds get
used up more quickly.
This will NOT be a Credit Event. As I sent earlier, it doesn't fit the
legal definition of Credit Event in the ISDA documentation. I would
expect the "basis" to go out of control, as banks sell useless CDS
hedges. I am not sure what the immediate impact on the broader sovereign
bond market will be. It may try to react positively to the "deal" and
the CDS tightening, but I would be careful as sophisticated banks will
be busy selling their bonds now too. The "dumb" banks will probably try
and sell as much sovereign CDS as they can and cut bond exposures in
other countries, because this is now the best risk-free asset on the
planet The CDS does remain outstanding, so it doesn't go away if it
The $593 million shortfall in client money at MF Global Holdings Ltd.,
the broker that filed for bankruptcy on Oct. 31, appears to result from a
“massive hide- and-seek ploy,” Bart Chilton, a commissioner at the U.S.
Commodity Futures Trading Commission, said today.
The agency took the rare step of publicly announcing its investigation,
which began on Oct. 31, saying it was in the public interest to confirm
the enforcement action. Jill E. Sommers was named as the senior
commissioner during the probe, after Gary Gensler, the agency’s
chairman, recused himself.
“This isn’t just a lost and found inquiry; it’s a full-on effort to get
to the bottom of what appears to be a massive hide-and-seek ploy,”
Chilton, a Democrat, said in an e-mail.
“It’s a distinct possibility, some would say probability, that somebody
has done something with the money, and that it’s not going to be ‘all of
a sudden discovered’ with an innocent explanation,” Chilton said. “If
that’s the case, it’s patently illegal. I don’t know yet. Our
investigation will uncover that, and we’re aggressively pursuing this.”
Gensler recused himself from the investigation because of his history
with Jon S. Corzine, the former head of MF Global. Gensler worked with
Corzine at Goldman Sachs Group Inc. and during his time as a Senate
aide, while Corzine represented New Jersey as a U.S. senator.
‘Get to the Bottom’
“I have complete confidence in the dedicated men and women in
enforcement to carry out the necessary investigation to get to the
bottom of what happened,” Sommers, a Republican, said in a statement.
The probe of MF Global’s cash movements is being conducted by the U.S.
Justice Department, the Commodity Futures Trading Commission, the
Securities and Exchange Commission and the bankruptcy trustee’s staff in
cooperation with the Securities Investor Protection Corp., James W.
Giddens, the trustee, said on his website.
The CFTC also began a review of futures brokers to determine if client
funds are properly segregated. The initial review will include between
10 and 12 futures brokers and the CFTC hasn’t set a deadline for the
review, a person familiar with the review said.
Diana DeSocio, a spokeswoman for MF Global, didn’t respond to requests
for comment. Steven Goldberg, a spokesman for Corzine in New York, said
he had no immediate comment.
"Led by former Goldman Sachs (GS: 99.50, -0.17, -0.17%) chief Jon
Corzine, MF Global collapsed under pressure from a bank run caused by
clients and counterparties scared about more than $6 billion in net
exposure to the risky bonds of euro-zone nations like Portugal, Italy
Hubris Clouds Vision
In many ways, the MF Global collapse proves that at least some Wall
Street executives haven’t learned one of the principal lessons from the
’08 disaster: too much leverage -- which magnifies winnings as well as
losses -- can kill you.
“Wall Street will always push the envelope. It’s part of the DNA of Wall
Street,” said James Gellert, CEO of Rapid Ratings, an independent
Just before the euro-zone crisis deepened, Corzine, who was attempting
to transform MF Global into a mini-Goldman Sachs, directed his traders
to make more than $6.3 billion in bullish bets on these assets.
These positions represented an enormous bet when compared with his
company’s relatively small size: With $40 billion in assets and $1.4
billion in equity, MF Global was levered up an alarming 30 to 1. That’s
not far from the 38 to 1 level of borrowing at Bear Stearns before it
collapsed in 2008."
"“It’s absolutely not a failure of regulation. It’s a failure of the
firm to make rationale and intelligent investment decisions and to bear
the responsibility for the investment decisions it made,” SEC chairman
Mary Schapiro told FOX Business this week.
Still, it’s troubling to some that regulators appear intimidated by
big-name CEOs, even in today’s anti-Wall Street environment and armed
with the Dodd-Frank financial overhaul laws.
“If regulators don’t have the nerve to do it now, when are they going to?” said Geisst."
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