3 big questions for MF Global fiasco
By MarketWatch
NEW YORK (MarketWatch) — As regulators peel back the MF Global Holdings onion, one thing is clear: it stinks.
New disclosures made Tuesday about the financial state of the alternative asset and investment banking firm show that MF Global was a confused mess inside. Client money is missing. Its bankruptcy filing is being challenged. Regulators appear to have been out of touch. Read full story on MF Global collapse .
If this were 2008, MF Global would be just one chapter in a year of bank busts. But these kinds of implosions weren't supposed to happen three years later, given new global regulations and attention paid to leverage. So what went wrong? Here are three questions to ask:
1. Where were the regulators? By the time the Federal Reserve Bank of New York suspended MF Global, it was clear the firm was over leveraged, with some reports saying the ratio was 80-to-1. Client money is missing. At the very least, bookkeeping at MF Global was sloppy. Regulators and accountants should have stopped the madness before this point. The company was told to boost capital in August — but it's clear the bank's exposure was far greater than anticipated.
2. Where is the money? At least $100 million in client money is missing. This is a cardinal sin in the world of investment banking. Client money cannot be borrowed or mixed with house money. Should the suspicions prove true, this will be more embarrassment.
3. Why did Jon Corzine, MF Global's CEO, claim everything was OK, in the company's waning days? The former Goldman CEO was quoted less than a week ago saying "Reflecting the stressed markets in the quarter, we deliberately chose to reduce overall market exposure in most principal trading activities and focused on preserving capital and liquidity."
Sorry, Jon. Less than four days later, MF Global filed for bankruptcy protection.
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