MF Global Collapse Reveals Systemic Risk


My Sunday Washington Post column is out this morning. Today, we look at The systemic risk revealed by MF Global’s collapse.

As has been the case so many times, the details of this debacle are found in the regulatory changes lobbied for — and recieved — by Corzine and the MF Global legal crew. In researching this column, I discovered several deeply disturbing facts.

Here’s an excerpt from the column:

1. What MF Global did with client monies was “technically” legal (though it probably violated the spirit of the law).

2. Britain’s leverage loopholes provided a back door for U.S. firms such as Lehman Brothers and MF Global to “re-hypothecate” client assets — and leverage up.

3. As a result of MF Global’s lobbying, key rules were deregulated. This allowed the firm to use client money to buy risky sovereign debt.

4. In 2010, someone from the Commodities Futures Trading Commission recognized these prior deregulations had dramatically ramped clients’ exposure to risk and proposed changing those rules. Jon Corzine, MF Global’s chief executive, successfully prevented the tightening of these regulations. Had the regulations been tightened, it would have prevented the kind of bets that lost MF Global’s segregated client monies.

5. None of MF Global’s Canadian clients lost any money thanks to tighter regulations there.

6. Little noticed in this affair is (once again) the gross incompetency of the ratings agencies. Had they not been maintaining “A” ratings on Spain and Italy, MF Global could not have made its disastrous bets there.

The dead tree version of the paper uses a photo of Corzine that is not particularly flattering:

click for ginormous version of print edition


The systemic risk revealed by MF Global’s collapse
Barry Ritholtz
Washington Post, December 18, 2011

Washington Post Sunday, December 18, 2011 2011 page G6 (PDF)

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