What Really Happened to the MF Global Money

Re-hypothecation on steroids.

(Business Law Currents) A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.

Read the whole thing.

Imitation is the highest form of flattery

If imitation is the highest form of flattery, then Apple should be thoroughly flattered:

Entire Apple stores being faked in China

China reaches a new milestone in fake goods: entire Apple stores, signs, sales assts and all

BEIJING (AP) -- At first, it looks like a sleek Apple store. Sales assistants in blue T-shirts with the company's logo chat to customers. Signs advertising the iPad 2 hang from the white walls. Outside, the famous logo sits next to the words "Apple Store."
And that's the clue it's fake.
China, long known for producing counterfeit consumer gadgets, software and brand name clothing, has reached a new piracy milestone -- fake Apple stores.

I know China "owns" us; we hear about it everyday. But until I start reading stories about how we're faking successful Chinese branded stores here in the US, I'm not going to worry about it too much.

This is an indication that the Chinese are beginning to have too much money. It is my belief that only people with too much money buy Apple products in the first place.

Value Destruction on Steroids

What would you think if you bought, say a Bugatti Veyron supercar at what you thought was a screaming deal of $250,000. Shortly thereafter, not only did you realize that what you thought was an exotic sports car was actually a Yugo, but that it was going to cost you an additional $850,000 just to get rid of it.

Now we know what it must have felt like to be Bank of America after they bought Countrywide Financial in 2008. But instead of talking about relative pocket change in the hundreds of thousands of dollars, add a couple of orders of magnitude and make the numbers $2.5bil and $8.5bil respectively.

BofA Agrees to $8.5 Billion Settlement, Sees Quarterly Loss

Bank of America (BAC) has confirmed it will pay $8.5B to large investors who lost money on mortgage-backed securities. The settlement is the largest in U.S. banking history and covers securities issued by Countrywide Financial, which BofA bought in 2008 for $2.5B. The bank will also record an additional $5.5B provision in Q2 2011 for representations and warranties exposure. Bank of America now expects to report a Q2 loss of $0.88-$0.93 a share, including a goodwill impairment charge of $2.6B. The investors include Pacific Investment Management, BlackRock (BLK) and the New York Fed. BofA rose 4.4% in premarket trading after news of the deal, with some estimates having put its liability at much higher than $8.5B. The deal could embolden investors to seek similar settlements with other major U.S. banks such as Wells Fargo (WFC) and JPMorgan (JPM). 

 *sigh*...

US Credit Rating Outlook Cut To Negative

Yesterday the big story was that S&P put the US government "on notice" that it risks losing its AAA credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt. I love the terminology. Anybody that's sat through a mandatory firm-wide harassment seminar will immediately recognize that when you put somebody on notice it means they've officially crossed the line of comfortable civility that should exist between adults in the workplace. The real question here is why it took so long for S&P to recognize the fact the the government crossed the line? I am of two minds on this one. On one hand they're stating the obvious, but better late than never. On the other hand, given their record of complicity and the very prominent role they played in the housing bubble debacle, why should they have any credibility at all? Nevermind that, why are they still in business?

Consuming ourselves

Bill Gross' most recent investment outlook likens our current fiscal path to the mating ritual of mantises. He has this to say:

The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit. As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that “old normal” norms have returned. Not likely. There will be pain aplenty and it’s imperative that we recognize now what the ultimate cost of blueberries will mean for American citizens of tomorrow. Four major factors come to mind:

1. American wages will lag behind CPI and commodity price gains.
2. Dollar depreciation will sap the purchasing power of consumers, as well as the global valuation of dollar denominated assets.
3. One of the consequences of perpetual trillion dollar deficits is the need to finance them, and at attractively low interest rates for as long as possible.
4. Trillion dollar annual deficits add up, and eventually produce a stock of debt that can become unmanageable: witness Greece, Ireland, or a host of Latin American countries of generations past.

Read the whole thing.