Marty Klinker is the 2000 Top Producer of The Year and a successful cattle and grain producer from Fairfield, Mont. Klinker submitted this letter to AgWeb on how the MF Global Bankruptcy is impacting his business and how he believes it may impact the entire agriculture industry.
Does Anyone See the Monster in the Closet?
What is the fall out of MF Global's Bankruptcy and CME's lack of fulfilling their responsibility to Safe Guard The System as the DSRO for MF Global?
By now most everyone is aware of the MF Global melt down. This, it seems, is just another in a long line of failed big businesses. Beginning with Enron and World Com, then AIG, Lehman Bros, Fannie & Freddie, GM, etc. etc. etc; we have heard of the mismanagement of these large companies by a few that cause a crumble and instant evaporation of equity for stock holders, lenders and creditors.
We have watched massive bail outs and then watched the market contemplate the morals of those receiving large bonuses as executives for companies that failed miserably. Then, as in Fannie and Freddie's case, it appears they have the nerve to come back for more bail out.
I believe this has desensitized us all to the point of not paying attention when the next big one falls. After all, with the prior mentioned failures, the equity markets had a pull back, the economy had a significant slow down, jobs were lost and unemployment reached highs not seen in 25 years. But, somehow we all continued on.
What is another big failure on Wall Street? We have seen it before. It hasn't effected us with too much discomfort, other then the general distaste we have in our mouth for those who are in positions of great financial power and choose not to uphold their moral or fiduciary responsibility, or, worse yet out right lie and steal.
The difference is we are within a few strong $,25 to $.50 point up moves days in the grain markets from possibly collapsing the markets on all exchanges.
Why? Because the markets are under margined somewhere in the neighborhood of $2.4 to $3 Billion dollars.
How did this happen?
On Friday 10-29-11 all positions in customer accounts were liquidated in advance of the weekend to plan for an exchange to a new FCM by way of sale.
Thru the weekend, it was found by a potential suitor that MF Global had "lost" $636,000,000 in segregated money from customer accounts. Thus, this book of business could not be sold to a new FCM.
Monday, 11-7-11, all customer accounts with positions that were liquidated on Friday were transferred to new FCMs and the new FCMs initiated new positions on the customers behalf. Also early Monday MF Global filed for Bankruptcy, and trustee was appointed and the trustee froze all the accounts of MF Global, including the customers segregated accounts.
Thus, no margin money was transferred to the new customer account causing these new accounts to be in margin deficiency.