Wednesday, October 26, 2011


We all saw the effects of poor risk management and excessive leverage in full force in the plunge of MF Global Holdings. The stock lost 47% in yesterday’s trading.

Do we really need to go over the results?
Can’t we just look at the facts?
Do we really need to spin the same broken record day after day?

The words excessive leverage, inadequate capital requirements, poor risk talking and management, and potential ratings downgrades should not be new to anyone who lived through the 2008 credit crisis.


People are still shocked that companies are run into the ground following the above meme.  I am truly shocked to find out there is gambling going on at the World Series Of Poker.

Just reading the research reports describing MF Global is downright tiring. How many times do we need to read the same thing over and over again

Let’s see.

1- Excessive Leverage – CHECK!

2- Not Enough Capital – CHECK!

3- Zero Risk Managment – CHECK!

4- Counterparty Risk - CHECK!

5- Potential Ratings Downgrade – CHECK!

What is truly troubling here is that MF Global’s European Sovereign Debt exposure is totally being discounted. The company has exposure to $6.3B in ESD, which is being supported by $1.2B in shareholder equity as of yesterdays close.

Why do you think most analysts and investors are pushing this to the side? Well of course – Bailouts! Tax Payer Funded Slush Funds. The thinking here is that this is non issue. Doesn’t matter if they have $1 or $100B in exposure as long as the EFSF/IMF/ECB are backstopping the losses. If this is not moral hazard I don’t know what is.

I am not saying that MF Global will be bailed out. They probably will be forced into a miserable death just because Jon Corzine didn't leverage the company enough. If Jon Corzine wants to save his company he should get on the horn with the guys at GS and be on the other side of say a couple trillion in derivatives.

Doing the same thing over and over again in the real world leads to insanity, but in the financial services world it just leads to more bailouts.

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