Tuesday, July 10, 2012

There's Never Just One Cockroach (Another MF Global)

As if we needed any more proof that our financial system is rotten to the core, especially after the breaking of news over the Libor Gate scandal, we find out yesterday, that PFG Best has pulled a mini MF Global whereby $200 million in segregated client funds, have disappeared. The founder, Russell Wassendorf has attempted suicide (Unlike sociopath John Corzine who feels no shame). Perhaps he wasn't a bundler of campaign money for Obama and feared he may be prosecuted unlike other banksters.

From CNBC:

The Federal Bureau of Investigation confirmed it was involved in investigating the circumstances surrounding a $200 million shortfall in customer accounts discovered at a Chicago-based futures broker.
 The probe into Peregrine Financial Group was prompted by an apparent suicide attempt by company founder and chairman, Russell Wasendorf Sr. “We can confirm that we are involved, but we cannot comment because it is an ongoing investigation,” said a spokeswoman for the FBI division in Omaha, Neb.
The National Futures Association, the regulator, said it had learned on Monday of the shortfalls in 2010 and 2011, and ordered Peregrine to stop doing further business.
The development comes only nine months after MF Global, a much larger futures broker, left behind a $1.6 billion hole in customer funds as it slid into bankruptcy protection. The NFA, a self-regulatory body, said had “reason to believe that PFG does not have sufficient assets to meet its obligations to its customers.”
Peregrine reported holding $400 million on behalf of customers in late June, but on Monday an NFA inquiry revealed only a fraction of that amount was deposited at the broker’s bank.

Some may ask, "Why is this so important?" The reason is because the US has historically been a safe place to invest because of a stable government, the rule of law, well defined property rights, and a stable financial system. Since 2008 we have seen that the financial system is not sound. Property rights have been eroded, and since October 31st 2011, we have seen a company (MF Global) abscond with over $1 Billion in client money with seemingly no consequences. Jon Corzine is not in jail. He has not even been arrested. As of last March, he had not even been questioned by the SEC or the CFTC.

When investors cannot have confidence in regulators to keep them from being ripped off and ,worse, see that there are no consequences for illegal behavior, they will opt out of the system. Not just stocks as we've seen since 2008, but all parts of the financial system.

What we have today is a massive loss in confidence in American institutions and the financial system in the entire Western world. The only good news is that the sooner the current system comes to its logical end, the sooner we can begin a new system, built on solid money and a stable, honest financial system.

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