I'm sorry, I don't follow. You do understand what's going on right regarding the sovereign debt issue right?
Guys, this is really bad. Like Lehman Brothers bad. Corzine is finished. No way he escapes prison. Customers are going to lose money until after years of bankruptcy proceedings are over. This could spill over across all markets. This could be a very scary event.
Yeah I do, and I get the significance of the trades he made. He was not alone by any stretch. He could have come clean, and while he made an error, the error was one that many have made, as we shall soon see. Rather than going to jail, he could have become a crusader for what must be done differently going forward.
No, I don't think you understand. Let me walk you through it. MF has segregated assets from their clearing business. They used these assets to buy sovereign debt for let's say 80 cents on the dollar. These are not cash transactions but usually done as swaps via a line of credit. MF posts collateral of let's say 10% on the notional value of the debt. Then August comes and emerging markets get clocked. Suddenly the debt gets crushed. MF has to now manufacture false marks to keep their collateral requirements down or their credit will get called. So in order to mark the debt, he buys more to sustain higher market prices. He keeps doing this. Now the creditors are getting scared and start asking for more collateral. He has to lay out more cash which is fine as long as he can sustain his marks. At some point, he runs out of capital. He realizes if the debt gets marked down he will no longer have the cash to support the debt and he will get called on the remaining available credit. So now he taps into customer funds which is suppose to be absolutely segregated from the proprietary capital. He takes the customers money to sustain the marks long enough for the debt to go back up so more collateral can be released. It doesn't work and he runs out of cash. The creditors are now calling in his credit which he doesn't have. The CFTC is going in now to look at the books and they see he is seriously underwater. Now they begin to question how he has been able to sustain the holdings and they figure out he has been siphoning off funds from customers. This is not about losing money, this is about outright fraud on the order of Madoff.
Maybe I am simple, and I do not deny it. But I do not see how this any different than trying to average down. He blows up, but he blows up with OPM, which is illegal, so I am told.
The error, in my small mind, is not realizing that his situation was not sustainable and taking his lumps. Jail, prison, tomato, tomatoe.
Because he was using money that wasnt his, which he was not authorised to trade, is it really that hard to understand? It isnt illegal to blow up with OPM provided you have the authorisation to trade it, and you didnt do anything illegal in the process of blowing up.
Obama just so happens to need a whipping boy right now so he can look like he is taking down corrupt wallstreeters, I guess we are about to find out how well liked Corzine was inside the democratic party, but it would definately be a fitting end to that piece of shit if he ends up being the poster boy for both wallstreet AND political corruption.