Posts Tagged “AIG”

Too Little, Too Late (and a Jab at the Oracle)

1 | By Shah Gilani

Dear Reader,

In yet another sign that markets are broken, yesterday’s huge market advance came on the heels of two presumably separate (yeah, right) central bank moves.

Both were designed to add liquidity and support to shaky and dangerously deteriorating markets.

(That was good news?)

First, China lowered the reserve ratio its banks have to hold against loans they make. They didn’t do that because things over there are rosy. They did it because the property market is teetering and financing has been drying up.

Full story here…

A Brave New (Broken) World

1 | By Shah Gilani

I said it the other day, and I’ll say it again.

The markets are broken.

It’s not that they’re not functioning on a daily basis, pricing risk and assets and performing their price discovery duties. They are doing that – or at least trying to.

Those are the little, daily things that markets do, and there are things there that are broken. (I’ll get to those things another time.) Think of those little things as the “hows” or the “mechanics” of buying and selling.

Think of the big things as the “whys” or the “psychology of investing.”

Those are the things that are broken.

Until they are fixed, or “things” change, drastically, we are in for some really wild swings in the months, quarters, and years ahead.

I’m going to point out all of these big things to you, over time. But today I’m going to point to just two.


Starting now…

The Inside Story of How Our Financial Regulators Let Us All Down

0 | By Shah Gilani

Did you hear the story about MF Global?

No, not the headlines about its bankruptcy – the real story.

If you haven’t heard it yet, it goes something like this.

MF Global became a primary dealer only eight months ago.

“Primary dealer” is an elite status. It means the firm is one of only 22 government bond dealers that trades directly with the Federal Reserve’s New York trading desk.

Only, the Federal Reserve doesn’t regulate or oversee MF Global, the Commodities Futures Trading Commission (CFTC) does – or rather is supposed to.

But, even more incongruously, the CFTC isn’t the first overseer of MF Global . It ceded that responsibility to the CME Group Inc. (Nasdaq: CME), which owns and operates the largest futures exchanges in the United States. The designated self-regulatory organization for more than 50 futures brokers, CME was supposed to be the cop on the beat.

However, the not-so-funny thing about the relationship between MF Global and the CME Group is that MF Global recently boasted on its Website that it “was the top broker by volume at CME’s metals and energy exchanges in New York and in the top three at its Chicago exchanges.”

So, is it any wonder that the CME just last week audited MF Global’s segregated customer funds and found them to be in compliance?

These are the same supposedly segregated funds which the CME is now saying may have been tampered with. According to the CME:

“It now appears that [MF Global] made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday October 31, 2011.”

How much money are we talking about? About $633 million – or 11.6% out of a segregated fund requirement of about $5.4 billion.

Do you see what I’m driving at?

So the real story is, t he Federal Reserve, which doesn’t regulate MF Global but regulates all banks in the United States, lets a futures commission merchant with investment bank wannabe desires become an insider in its dealings. Meanwhile, a private for-profit enterprise that runs the self-regulatory apparatus that oversees its own customers steps in for a federal agency that’s supposed to be in charge of commodities, futures and derivatives markets.


And that’s only the tip of the iceberg….