muses of the moment

January 31, 2012

More MF Global news: Are you set up to fail?

Click here for an article from WSJ about how MF Global customer’s money is frozen on the foreign currency markets.

And this important story from Why the Brokerage Industry Should Be Worried.

And you should be worried too. If any of your money goes thru a brokerage house at any time, it is now at risk.

Unlike the banking industry, where the Federal Deposit Insurance Corp. covers losses up to a limit for depositors, brokerage customers are at the mercy of the Securities Investor Protection Corp., an agency that’s been accused to being either slow to pay, unwilling to pay or both.

That’s why this isn’t just about a bunch of farmers, traders and institutional investors who are on the hook. It’s about the safety of the system — and by all appearances, nothing is safe.

If investors pull money from the brokerage industry, we will have another frozen liquidity problem but much worse than 2008. No liquidity means no credit for regular business activity.

groovygirl says:

The three posts today illustrate exactly how and when the global debt collapse will happen and how it will affect you and your investments. Reread the blog posts.

Jim states in his interview that the ISDA (controlled by the five big US banks, who also hold over 90% of the European debt credit swaps) determines if x% cut on Greece’s debt is technically considered a default. To continue to bury the truth and kick the can down the road, they will not consider it a default, no matter what the percent. But when will Mr. Market not listen to them, consider a default of any % a real default and call in the insurance/hedge? There is no money for the hedge. It is papered over in an emergency and covered in flexible accounting practices on the balance sheets.

This is exactly what happened to MF Global. They got called on their bets of Greek debt in a 50% haircut, not official default. The swaps were called in, but there was no insurance to cover the bets because it was not an official default. The only money in MF Global to cover a part of the bet was customer money. This money was stolen from pension funds, investors, non-big banks, and hedge funds to cover the other side of bets at the Big Five (in this case mainly JPM and GS). The customers will never see that money again.

As the European debt defaults, regardless of whether they call it a default or not, the bets will slowly be called in. The Big Five Banks will be covered by QE to infinity, but what about the other MF Globals out there? The small investors? The pension funds? Their money will be stolen just like the MF Global situation. MF Global was a test crime for the really big heist coming down the road.

Now I suspect that the Fed can paper over these losing bets for a while with only smaller entities going under. But when Martin Armstrong’s Economic Model calls for a peak on October 1, 2015 and this is also a peak year in the panic cycle, groovygirl would say QE can’t paper over the problem past 2015.

It is all right there. Exactly how it will happen and how QE will continue until it can’t anymore and how the Big Five Banks will be the only ones standing with everyone else’s money.

Am I saying that the entire US brokerage industry will be wiped out? No. Can we know which ones before hand? I don’t know. This is a new risk that no one is talking about. How can you protect your investments moving forward?

If you have to use a brokerage house, no rehypoteacation, hold only paper stock certificates. Have physical gold  and silver outside the brokerage trading system and the banking system. Hold treasuries through treasurydirect, not a broker. If you trade, understand you may lose that money, make it a small part of your total investments. It is NOT insured and the system is now set up to steal it from you under the guise of the Global Debt Crisis and Collapse.

The scenario above is separate from any devaluation or revaluation of the US dollar and a loss of purchasing power. What is listed above is the risk to investments touched by the brokerage industry strictly from the implosion of debt, specifically Europe.


  1. Wowaa. Those were timely articles.
    So GG, say I’m a hard working guy and have saved a few over the years which are in a sep-ira at a major brokerage like say, Schwab, and the stocks in the account are held with them I believe its called in “Street Name” or something like that.
    (I’m not asking for investment advise, just your opinion please)

    Should I take possession of those stocks?

    Should I cash out my ira thru the broker and maybe perhaps start my own ‘private’ ira acct. thru lets say just a regular acct? I’m thinking this for the faster access to the funds, which are mainly invested in silver companies now. I’m having a fear of the gov taking my accounts. Have a cpa friend who says the gov wont have access to my ira yet seeing and hearing the moves by congress towards what seems that goal.

    An mfglobal to those who are suffering from this clown corzine is hard on a person who has worked years for the boss is bad enough, devastating to a self employed.

    None of what we are seeing in the world is by chance, this was/is all planned, IMHO.

    Comment by Aj — January 31, 2012 @ 1:16 pm

  2. Aj,

    Jim Sinclair says investors should take possession of stocks. GG agrees. GG hesitates to suggest you should cash in your IRA or 401k because of the huge tax penalties involved. Any potential losses may net out in that situation. Instead, gg would suggest, if she had a 401k, to stop putting money into it. And instead start investing “on your own” with the same amount of money you would have put in the 401k.


    Comment by totallygroovygirlfriday — January 31, 2012 @ 4:25 pm

  3. Great post. Jim’s interview struck me as rather confused. Maybe he was tired. This is much more clear, so thanks.

    Comment by Lore — January 31, 2012 @ 11:06 pm

  4. gg,

    There is one way to avoid tax penalties on 401K (not IRA, I do not think).

    In a divorce, the party receiving a portion of a 401K from the other spouse may cash it in without penalty. The FIT and SIT will be due as normal taxable income.

    Consult your tax “professional.” They probably don’t know about this but they can find the IRS ruling if they look for it.


    Comment by icd — January 31, 2012 @ 11:34 pm

  5. hi there,

    you state:
    This money was stolen from pension funds, investors, non-big banks, and hedge funds to cover the other side of bets at the Big Five (in this case mainly JPM and GS). The customers will never see that money again.

    But, listening to Celente recently he has stated that he’s seen a return of at least 70% of what was stolen from him (the last interview I heard). So is he an isolated case of $ return or are many clients still 100% non-returned? Or is everybody at 70% or higher return on their accounts?

    You may be more in-tune with this than i, but it sounds like we get our news from somewhat similar sources at times, though i’m certainly not as in-tune as you …


    Comment by cc — February 1, 2012 @ 11:14 am

  6. CC,

    Yes, around 70% of money has been returned. It is my understanding that this is what happened.

    Monday 110-31-11: bankruptcy declared.
    Customer open positions were not closed, but accounts had no money in them.
    Customers got margin calls because positions were open and they had no money in their accounts. This went on for a week. They had to close positions, most at a loss. Why their positions were not closed when their accounts were closed…I have no idea, completely stupid.
    So no money in any accounts
    One week later, customers are outraged, about 30% of money is returned.
    About 4-8 weeks later about 30% more is returned, that is 60-70% returned total
    That was the last return of any money
    Of course, during that time, people didn’t have access to their money, trading, trading positions, treasuries, silver in the vault.
    Customers hire lawyers to try and get money back….more money down the drain.
    So, as we stand everyone is missing at least 30% plus lost trading and attorney fees. I doubt they will see this money again.


    Comment by totallygroovygirlfriday — February 1, 2012 @ 12:13 pm

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