Friday, November 18, 2011

Someone With Considerable Integrity

Or perhaps enough sense to realize that this is going to get ugly.  A firm that I have never heard of before--Barnhardt Capital Management--has just closed up shop.  You should read the CEO's explanation:
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
 Over at PJMedia, David P. Goldman has a detailed discussion of how Corzine (formerly Democratic Senator from New Jersey, and a big player in the Democratic Party) did not just gamble recklessly with clients' money, but stole it:
MF Global’s problem — presuming that customer money really was lost in proprietary trading — is much simpler. The technical term is “theft.” Breaking the wall that separates customer money from the firm’s money is like rape: it’s hard to argue that you did it by accident. There is no way that senior management could not have known that customer money was being misappropriated. When the management bet the firm on Italian bonds, it counted every penny of collateral it had to put up for margin. That’s what trading desks do, every day, all day. Hundreds of millions of dollars were stolen, including my residual pittance. What did Corzine know, and when did he know it? Corzine ran a trading desk. He’s a punter; that’s one of the reasons he got the boot from Goldman Sachs. People who run trading desks obsessively watch a spreadsheet that tells them exactly how much cash they have as margin against levered trades, and where the cash comes from.  There is simply no way that someone in senior management could NOT have known that hundreds of millions of dollars materializing ex nihilo in the cash column came from customer accounts. Corzine has lawyered up and isn’t talking.
The sheer scale of the looting done by Corzine, and the private investors in Solyndra, just boggles the mind. Oh yes: Vice President Biden boasted in 2009 about how the Obama Administration called Corzine first for guidance.  See the November 14, 2011 The Atlantic:
Jon Corzine has been the CEO of Goldman Sachs, a United States senator, and the governor of New Jersey, the position he held in 2009, when the Obama administration was preparing to take office. His mix of Wall-Street and public-sector executive experience is doubtless why the Obama transition team called on him for advice. As Joe Biden tells it, they'd gathered a few dozen economists in Chicago to talk over the financial crisis. Some were suggesting a bank holiday.

"I literally picked up the phone and called Jon Corzine and said Jon, what do you think we should do," Biden said. "The reason we called Jon is that we knew that he knew about the economy, about world markets, how we had to respond, unlike almost anyone we knew. It was because he had been in the pit -- because he had been in the furnace. And we trusted his judgment."


  1. One additional comment: someone noted that a section of her letter that you and others haven't quoted is perhaps what put her over the top: the fact that this is not being handled normally but through the bankruptcy process means people who either got out in time (and it was obvious to all including as I recall the credit rating agencies that MF was going down, that was in fact what triggered the denouncement) or who just withdrew money in the normal process of moving investments around are subject to clawbacks (see the legitimate use of them in the Maddof mess).

    That plus freezing customer accounts while they had positions open (part of the not handling this normally if her description is accurate) ... those both sound beyond the pale to me.

  2. Some confirmation of the points made by the author of this missive.

    While this item is at the rumor level it expresses the same concern, that "The system to protect futures accounts is broken." Note also some of the upper left hand sidebar related articles, particularly "Every Single MF Global Client With A Live Trade Is Getting A Margin Call Today".

    HT Zero Hedge.