Bernanke, Geithner And Company Derelict In Their Duty
Not just Bernanke and Geither but they along with the rest of the clown-car brigade at the NY Fed and Treasury. The Fed must be stripped of its authority to “supervise” institutions as it has repeatedly refused to perform its legally-mandated duties when it comes to regulating these firms.
The Federal Reserve Bank of New York has informed MF Global Inc. that it has been suspended from conducting new business with the New York Fed. This suspension will continue until MF Global establishes, to the satisfaction of the New York Fed, that MF Global is fully capable of discharging the responsibilities set out in the New York Fed’s policy, “Administration of Relationships with Primary Dealers,” or until the New York Fed decides to terminate MF Global’s status as a primary dealer.
For those who are unaware the status of “Primary Dealer” is a firm that has a responsibility to maintain an orderly market in the sale of US Treasury securities. That is, they’re required to bid. As compensation for this they’re the market makers and of course get their cut from that intermediation activity.
Here’s the problem: MF Global got in trouble by taking on too much European debt, gearing itself too highly, and they had inadequate capitalization to withstand the problems present in Greece and elsewhere in Europe. The NY Fed and The FOMC, for their part, again failed to do their job exactly as they failed to do their job in 2008 and did nothing about this right up until the firm effectively failed.
Why do I charge that this is the second time around for them? Because it was and this is a statement of fact.
In 2008 roughly a month before Lehman failed the firm attempted a routine repo transaction with Citibank. Citibank rejected their collateral and Lehman had nothing else to pledge. The NY Fed had to know this had occurred because tri-party repos inherently involve the NY Fed as the third party. Yet the NY Fed did nothing in the context of suspending Lehman, they did not inform the public of this material adverse event, they did not demand that the market be informed despite the fact that this is a requirement of a public listing and certainly merited a Form 8-K filing. That Citibank knew and thus The NY Fed had to know Lehman was bust well in front of the markets and the public being told was one of the things we learned from the Jenner and Block report into the Bankruptcy of Lehman that was part of the bankruptcy proceedings and is now part of the public record of the events surrounding Lehman’s failure.
In general I have no duty to inform someone else if I find out about some sort of problem with a public company. If I discover that problem without resorting to non-public information (e.g. by reading their balance sheet) I am entitled to use it to trade on and attempt to make a profit.
But I’m not a regulator — The NY Fed and Federal Reserve are. The Fed has an overriding duty to the markets and to the public as the primary regulator for these institutions, and post 2008 there is simply no excuse for what amounts to willful blindness.
These people need to be removed from power — at minimum — as they have repeatedly demonstrated an unwillingness to perform their duties with regard to regulating financial institutions.
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The Consequences Of Failed Regulators
Now we get to see the consequences of the failed regulation with regard to MF Global.
CME and other exchanges have all suspended the firm’s clearing capabilities. This resulted in the turnstiles being literally locked for those who were members of the exchange and clearing through MF.
So if you are a floor trader using MF as your clearing firm and went to take a leak, you can’t get back on the floor. Whatever positions you might have held at that time cannot be hedged or otherwise managed!
This is going to severely hurt — and probably bankrupt — a lot of people through no fault of their own.
Who’s fault is it?
Bernanke’s, the NY Fed’s and Geithner’s (Treasury’s.)
Because MF should have never been allowed to carry that much exposure on their book without enforcement action taken by the regulators. The regulators allowed it and the firm is now collapsing.
So be it – those who owned the stock will “get theirs” for their lack of diligence.
But the traders who had no idea what was going on and get reamed as a consequence should be surrounding the NY Fed, The Federal Reserve and Treasury tomorrow morning. They ought to put on their own “Occupy” movement until this clowncar brigade is removed and replaced for rank dereliction of duty.
Post-Lehman, when the NY Fed and Federal Reserve did the same damn thing there is simply no excuse for what happened to these innocent parties in this instance. While I know it won’t happen and the government will (of course) claim “sovereign immunity” the fact of the matter is that the officials involved should be held personally responsible for the harm these individuals suffer as a consequence of their malfeasance.
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Ah, Our Fine Regulators (MF Global – Again)
Here we are once again, with the fine federal regulators who do their job keeping track of primary dealers and properly looking at the health of the firms are the core of our financial system.
What began as nearly $1 billion missing had dropped to less than $700 million by late Monday. It is unclear where the money went, and some money is expected to trickle in over the coming days as the firm sorts through the bankruptcy process, the people said.
But regulators are examining whether MF Global diverted some customer money to support its own trades as the firm teetered on the brink of collapse. If that was the case, it could violate a fundamental tenet of Wall Street regulation: Customers’ money must be kept separate from company money.
Such a finding would move the discussion from sloppy internal controls at MF Global to something more troubling. While the investigation is in its early days, it raises the specter that regulators could sanction the firm or the employees responsible.
That’s right, “sanction” the firm. And with what they would they pay any such “sanctions”? Hmmm…. what’s going to happen to their customers?
Oh yeah, that’s right – they’re screwed, right?
Ps: Not all funds are SIPC covered, and this is going to come as an ugly surprise to a large number of people, I suspect….
Throw Bernanke’s and Timmy’s ass in the dock on this one; there’s absolutely no excuse for allowing this to occur.