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CME Motives Confirmed

Here is another interview by Warren Pollock and the Roy Orbison dude who is representing about 8000 of the MF Global customers, James Koutoulas. Mr. Koutoulas criticized me on November 18th immediately after my "Going Galt" letter announcing the closure of Barnhardt Capital Management was picked up and went viral.

The entire interview is worth a listen, but I want to zoom in on the portion beginning at 13:47. First, here is the relevant excerpt from my letter of 11/17/2011:


EXCERPT FROM ANN'S LETTER:
I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Okay, now Koutoulas speaking with Warren Pollock a few days ago beginning at 13:47:

http://www.youtube.com/watch?v=kubJzffkn....

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Well, I've met with [CME Chairman] Terry Duffy on this several times, and, um, he makes some really good arguments. He's like, "Listen. Could we make this go away? Yes. But, if we do that, there's $185 billion dollars in seg funds out there. We set a precedent that says we have to back $185 billion, and that is a much higher bar." Can they back $185 billion? No. They can't. And his point of view is that not one penny of money that was actually held by CME is lost or missing.

So, if Mr. Koutoulas is accurately recounting the words of Terry Duffy, and I have no reason to think that he isn't, I was exactly right in my letter. The CME has an $8 billion default slush fund which could have made the MF Global situation go away INSTANTLY. The CME could have stepped in, essentially taken over the firm, squared the books, and then sold the firm intact with customer integrity completely maintained. They have done it before. Many times. In fact, that is the base, root function of the CME. It is also their moral and legal obligation because the CME was the entity that was charged with auditing oversight of MF Global. MF Global was under the regulatory auspices of the CME on the private side, and the CFTC on the government side. The CME was liable and thus failed, and failed CRIMINALLY in their fiduciary duty.

But why? They had the money ready to go in a reserve slush fund for a situation EXACTLY like this. Why didn't they do it? Because they KNEW and they KNOW that MF Global is, as I said, the mere tip of the iceberg. They KNOW that all of the other firms are doing the same damn thing, and are exposed to exactly the same risk, albeit probably not as insanely leveraged as Corzine had MF. Corzine is a psychopath.

Terry Duffy and the rest of them know that this is a SYSTEMIC PROBLEM, and not just a one-off. Think about it. If this really was just a one-off, the CME would have done what they always do. They would have backstopped, kept everything running smoothly and this would have all been forgotten literally by the end of the first week of November. Instead, they have essentially destroyed the entire marketplace. Why? Because they figured that there were at least some sort of odds that the CME corporation would survive this, even if those odds were slim, provided that they set a precedent of NOT BACKSTOPPING ANYONE. But if they set the precedent of backstopping now with MF Global, when the inevitable total systemic collapse comes (which will be four minutes after Europe collapses), the CME corporation will absolutely be destroyed with a 100% certainty IF THEY ARE NOT ABLE TO LAY THE BURDEN OFF ONTO EITHER THE FEDERAL GOVERNMENT (aka the taxpayers, aka us) OR ONTO THE CUSTOMERS THEMSELVES (aka the taxpaying public, aka us). So either way, the precedent has now been set and ratified by the corrupt government, CFTC, SEC, DOJ and judiciary that when the come-apart happens, WE THE PEOPLE are going to pay for it, one way or another. And the CME mafia will walk away scott-free and largely intact.

Why Koutoulas can't see this and moons over Duffy is simply beyond me. Oh, wait. No it isn't. Mr. Koutoulas, like pretty much everyone else in this culture, is totally and completely incapable of detaching himself from his wealth and his business. He can't let go, and thus is completely deluded into believing that this is all going to work out and everything is going to go back to normal in a few months. The chairman of the CME apparently told Mr. Koutoulas TO HIS FACE that the CME would no longer fulfill their fiduciary duty and that Mr. Koutoulas' clients would have their wealth confiscated AGAIN AND AGAIN AND AGAIN. And he calls that "a really good argument." The mind reels.

The only argument that makes is the argument that ANY financial market fiduciary is now 100% obliged to shut their firm down and protect their clients. If a client asks a broker, "Will my money be safe with your firm?" the only honest answer is "No", which then demands that the fiduciary decline to open the account, and close all of his existing accounts. If the fiduciary answers, "Yes, your money is safe" then the fiduciary is LYING to the customer, which is a criminal breach of fiduciary duty.

It's over. It's a catch-22. The only honorable way out for ANY broker in the United States is to shut down and protect his customers.

War is hell. This is war, ergo, welcome to hell.

And for the record, I take zero satisfaction in being right on this point. This is like being proved "right" in declaring that your house is on fire. I don't want the house to be on fire, but it is, and so I'm going to go ahead and speak up about it instead of worrying if the people sleeping in the burning bedrooms might think me a self-righteous know-it-all. The house is on fire. I'm telling you, THE HOUSE IS ON FIRE. GET THE HELL OUT. NOW.

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Yeah, they're all leveraging customer seg funds

http://www.youtube.com/watch?v=GMI6JYX2e....