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And the Wallstreet GREED rolls on!
Trading company's collapse traps Montana farmers
By TOM LUTEY Of The Gazette Staff The Billings Gazette | Posted: Thursday, December 1, 2011 6:11 pm | (15) Comments
.The collapse of MF Global, a trading company that made bad bets on European debt with customer money, has crippled American farms, including some in Montana, according to U.S. lawmakers.
Farmers, through no fault of their own, have lost millions of dollars. Bankruptcy trustees are scrambling to find $1.2 billion missing from customer accounts but have produced little after a month of searching.
The Senate Agriculture Committee questioned federal regulators Thursday at a hearing in Washington, D.C., about how customer trading accounts that were supposed to be off-limits were apparently gambled away on foreign debt.
"It's just a bunch of greed without adult supervision," said U.S. Sen. Max Baucus, D-Mont., who presented federal regulators with the losses of Marty Klinker, a Fairfield farmer who has $231,000 tied up in the collapse.
"And here's a case where Marty, for example, has lost a lot of money," Baucus said. "He trusted the system, and the system let him down. How is he going to get his money back?"
Gary Gensler, Commodities Futures Trading Commission chairman, told the committee that it wasn't clear whether Klinker and others could be made whole.
MF Global's October collapse — now the eighth-largest bankruptcy in U.S. history — grabbed headlines last month both for its size and its celebrity CEO Jon Corzine, a former New Jersey governor, senator and one-time Goldman Sachs executive.
The collapse has not only damaged MF's clients, said Sen. Debbie Stabenow, D-Mich, but it has also shaken investor confidence in the nation's ability to trade commodities.
In a letter to Stabenow, the Agriculture Committee chairman, and other senators, the National Association of Wheat Growers, American Farm Bureau Federation and 16 other key agriculture groups implored Congress to restore trust in the markets.
"Many farmers and grain merchandisers are being deeply affected by the MF Global bankruptcy," the groups said. "We have always believed that the risk to customer funds when trading on exchange was virtually zero. Now we see that is not the case."
Grain elevators with assets trapped in the bankruptcy may not have money to buy wheat. Farmers unable to recover hundreds of thousands of dollars have seen their life savings diminished overnight.
At the Montana Grain Growers Association convention this week in Great Falls, nervousness over the MF Global ordeal was palpable.
"There are guys who have hundreds of thousands of dollars in margin money that they can't get out," said Gary Brester, a Montana State University economist who attended the convention. "It's like a bank going under, except there's no backing."
Commodities futures contracts are not backed by insurance, unlike stocks or bonds that are secured by $500,000 in coverage.
"I hope all these people get their money back because most of these people never did anything wrong," said Brester, who specializes in agricultural marketing. "That's the real tragedy. Many of them were trying to manage risk."
Farmers used MF Global as a conduit to sell grain for future delivery, allowing them to lock in a sale months ahead of harvest. Those types of contracts have given American farmers financial stability for more than a century.
The accounts farmers used to make those transactions were supposed to be segregated, meaning MF Global couldn't dip into them without customer approval.
Klinker told The Billings Gazette that he had no idea money was being taken from his account until it was too late. The bankruptcy locked up Klinker's accounts and roughly 50,000 others. Shortly thereafter, a bankruptcy trustee announced the missing $1.2 billion, saying MF Global might not have enough assets to make every client whole.
Klinker said MF Global never should have been allowed to drag its customers' segregated accounts into the bankruptcy.
"It was as if the town of Billings ran out of money in their budget and had to declare bankruptcy," Klinker said. "Then in their filing they declared every house in the city, as well."
Klinker had roughly $336,000 in liquid assets and $108,000 in open trades at MF Global when the bankruptcy went down Oct 31. Two weeks later, the bankruptcy court approved a distribution of $520 million, or 60 percent of the $869 million in cash accounts that had been frozen since the bankruptcy.
But the Fairfield farmer has received only $12,000 of his $108,000 in open trades, and $201,000 to cover his liquid assets.
Klinker faults not only MF Global, which is based in New York, but also the Chicago Mercantile Exchange, the private market that the federal government allows to "self-regulate." The exchange was ineffective in making sure the segregated accounts were secure, he said.
The watchdog role over segregated accounts is crucial, senators said Thursday. For lack of insurance, policing the accounts is the only way to assure traders that their money is safe.
Investigators now suspect money began disappearing from segregated accounts after MF Global's own $6.3 billion investments in European sovereign debt went bust.
The FBI is probing the MF Global case to see if crimes were committed. Gensler said the Commodities Futures Trading Commission is investigating whether segregated accounts were raided, which would be a securities violation.
While witnesses for the CFTC and federal Securities and Exchange Commission were guarded in their assessments of whether MF Global acts were criminal or even warranted fines, Senate Agriculture Committee members were more pointed.
"They made very bad bets, and now the money is gone," said Sen. Mike Johanns, R-Neb. "They basically took the money and played like they'd play in Vegas."
Read more: http://billingsgazette.com/news/state-and-regional/montana/trading-company-s-collapse-traps-montana-farmers/article_420b6361-a777-5201-a1f1-ebb4b0a9564f.html#ixzz1fQ0jspSL
