The fundamental piece of this story is that derivatives are like gambling for every winner there is a loser. If you ignore the political comments and focus on the rest of the content, you will understand that the money that people lose does not disappear! Someone else has it and the right question is who? Thanks Bud for the article Aivars Lode
Was The "Collapse" Of MF Global Premeditated? A Conspiracy Theory
Submitted by Tyler Durden on 12/13/2011 20:31 -0500
Derivatives, unlike stocks where the equation has always been murky, are for the most part zero-sum products: one's gain is someone else's loss (net of commissions) unless of course the entire system collapses in a daisylinked chain reaction (think AIG). And MF Global's bankruptcy, by dint of being a derivatives broker, and the resulting massive losses to both shareholders and clients, means that some entity, on the other side of all these failed bets, made off like a bandit.
Which bring us to a rather disturbing theory proposed by Walter Burien of CAFR1.com who has floated the rather the chilling idea, and what some may call an outright conspiracy theory, that by scuttling MF, Corzine effectively helped some shell company (or companies) which were controlled by a "cabal" of his closest confidants (we will let readers come up with their own theories who the former CEO of Goldman Sachs may have been close with) to make the offsetting profit that resulted from the accelerated and massive losses borne by MF's stakeholders in the vicious liquidation. As Burien says: "A government and media cover up would just focus on MFG's loss. A true and open investigation would be focused on "who" took the other side of the coin; the profit." And now that we know that Corzine allegedly lied to the Senate, just how much deeper does his transgression go, and did his really hand over the company on a silver platter to some anonymous "Hold Co" by taking on massive risks he knew were going to blow up in his face, albeit knowing the "other" side of the trade would compensate him for it? After all, Corzine's legacy may have been forever tarnished, but if there was one thing the man knew after all thosemostly successful years at Goldman, it was risk. So did he really blow up MF on a idiotic risk miscalculation bet within two years of joining, purely by mistake, or is there something more?
"Collapse" of MF Global?
Corzine is a thief. He lost by trading activity the house's (MF GLOBAL) money to the tune of a billion dollars and then dipped into the client's money for 700 million dollars (almost a 2-billion dollar loss). It is the #1 criminal infraction that can be committed in the commodity futures market by using client's funds for a house posistion and with something of this magnitude theCFTC would have gotten an arrest and seizure order against Corzine from day-one when discovered if it was for other than the politically connected Corzine.
Here is the BIG point that needs to be immediately passed on to the public. In a situation like this the "loss" to MFG is just one side of the coin. The other side of the coin is who made the profit that counter balances with the loss.
If Corzine had this set up as an intentional sting operation, in advance a shell trading company is established and for example purposes we will call it Hong Kong Trading Partners LTD. (HKTP) held in Singapore. The sting goes like this:
As Corzine through MFG takes a derivative futures market position HKTP takes the exact corresponding opposite position tit for tat to what MFG is entering into. The market goes against MFG creating a loss but now the equal profit is growing in HKTP.
MFG increases their position and HKTP likewise does the same and the market again goes "against" MFG and "for" HKTP.
Now for the play-out of the sting. It is announced MFG has taken this large position with their own funds and also did the primary no-no of using client's funds to back it.
Well, procedure is clear in this type of situation: "Forced liquidation of all positions held by MFG"
What this does is give HKTP the liquidity to get out of their position from MFG's forced liquidation without causing an adverse movement to HKTP's position when being liquidated. MFG's forced liquidation is HKTP's volume needed to get out of their position and lock in their profit. Wealth transfer complete; MFG and a few of their clients decimated, and none outside of the sting are the wiser if no one carefully looks at who was playing the other side of the position against MFG.
If Corzine and a few of his buddies set up a sting as noted above, as far as they are concerned, they did not loose 1. something billion dollars for MFG and MFG's clients, what they did was they transferred 1. something billion dollars to themselves through a shell global trading company(s).
In most cases when a sting like this plays out it is not just one shell company used to play the other side of the coin, usually it is spreed out between ten or more shell trading companies.
A government and media cover up would just focus on MFG's loss. A true and open investigation would be focused on "who" took the other side of the coin; the profit.