Just the tip of the iceberg

[gregpet]

<a href="http://www.moneytalks.net/market-
opinion/6174-oh-oh-qregulatedq-derivative-markets-
about-to-blow-uph.html">Uh Oh</a>

[gregpet]

Link not working.

Oh Oh. "Regulated" Derivative Markets About To
Blow Up? PDF Print E-mail
Written by Karl Denniger
Friday, 18 November 2011 11:52

Dear Clients, Industry Colleagues and Friends of
Barnhardt Capital Management,

It is with regret and unflinching moral certainty
that I announce that Barnhardt Capital
Management has ceased operations. The reason
for my decision to pull the plug was excruciatingly
simple: I could no longer tell my clients that their
monies and positions were safe in the futures and
options markets – because they are not. And this
goes not just for my clients, but for every futures
and options account in the United States. The
entire system has been utterly destroyed by the
MF Global collapse. Given this sad reality, I could
not in good conscience take one more step as a
commodity broker, soliciting trades that I knew
were unsafe or holding funds that I knew to be in
jeopardy.



I have learned over the last week that MF Global is
almost certainly the mere tip of the iceberg. There
is massive industry-wide exposure to European
sovereign junk debt. While other firms may not be
as heavily leveraged as Corzine had MFG
leveraged, and it is now thought that MFG’s
leverage may have been in excess of 100:1, they
are still suicidally leveraged and will likely stand
massive, unmeetable collateral calls in the coming
days and weeks as Europe inevitably collapses. 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.

comment via Karl Denniger:

Oh boy.

Look folks, the risks involved here are real.

Rick Santelli was just on CNBC pointing out that
there have been no answers forthcoming on the
MF Global mess. There are reports that several
people who you would never expect to have
gotten caught in something like this did, including
Gerald Celente.

The reason they got caught is the same reason I
would have gotten caught if I had been clearing
through MF Global: Despite being around the
markets since well before the 2000 crash and
having successfully negotiated that and the 2008
mess everyone has believed, right up until MF
blew up, that customer funds were in fact
segregated and thus this risk would never occur.

Simply put everyone has now discovered that this
assumption is wrong.

Nothing that has come out of the CME, the SEC or
Washington DC that has restored my confidence
that MF Global is, in fact, a one-off situation. In
point of fact The Fed is now requiring margin on
certain repo transactions where they never did
before, implying that there may well be additional
snakes in the grass and additional unrecognized
and intentionally hidden risks of this sort.

Read Ann's entire missive. Yes, it's highly partisan,
but given what has just happened and Obama's
continued insistence that "no crimes were
committed" (yet no grand juries have been
convened to investigate, so how would he know?)
it is entirely justified.

Folks, we must insist that the rule of law be
brought back into the forefront. We mustdo this
particularly with credit instruments and other OTC
derivatives and that has to happen right now. In
addition all off-balance sheet BS must be ended
immediately.

I have, since 2007, advocated that all credit
instruments be forced onto an exchange and that
cash margin be required on all underwater
positions, marked nightly, without exception or
offset. This has been "pooh-poohed" as impractical
due to bespoke contracts and other
considerations.

Now it turns that I was in fact right - there were
additional "snakes" in the grass that were
cheating. First we had ENRON, then Bear and
Lehman and now this.

Here's reality folks: We either fix this problem and
do it now or you had better pray that Europe
doesn't detonate, because if it does you're going
to see the very thing that everyone was talking
about back in 2008 happen on a global scale, it's a
hundred times the size that Lehman was, and we
will not be immune to it here in the United States
-- in fact we'll damn near be the "center of the
sun!"

There is the potential for an imminent cascade
failure on these contracts just as there was in
2008; it has not gone away, it has not been
attenuated, it has in fact grown in size since 08
and if we do not act to put a stop to it and the risk
becomes realized it will be too late.

[farmaholic]

link doesn't work for me

[wd9]

Fixed, i think

<a href="http://www.moneytalks.net/market-
opinion/6174-oh-oh-qregulatedq-derivative-markets-about-to-blow-uph.html">Uh Oh</a>

[wd9]

Dam.

[URL="http://www.moneytalks.net/market-opinion/6174-oh-oh-qregulatedq-derivative-markets-about-to-blow-uph.html"]Uh Oh[/URL]

[cottonpicken]

Thanks for posting that,missed it.

I have heard the mf missing funds are around 3 billion.

[parsley]

Been watching it closely even all last week. T
Real Clear Politics runs some depth
commentaries on it. Pars

[cottonpicken]

The fact that denninger is pulling the plug?

Everyone has been watching this mf thing like a
hawk,if somebody like denninger is saying liquidate
because the derivatives domino has tipped-we are in
trouble to the nth degree,like 1 quadrillion
trouble,checkmate germany we win ww2.

This news has hardly hit any fringe economic sites.

[furrowtickler]

So - sell any grains/oilseeds we have left - cash out and hang on, or WTF?

[parsley]

After 1929 crash, my grandmother bought a
brand new fancy car for a ridiculously cheap
price. The dealer needed money for food

Cash was handy. Pars

[Hopperbin]

ha, I sold yesterday at the close.
USA dollar ended up the day down slightly, not good I think for grain prices. USA is on borrowed time. Hard to say, the thing they and Canada have going for them is the incoming immigrants bringing in millions of dollars, skills, etc. What we fail to take note of is the ski rocketting amount of new immigrants going back to their home countries.

[Hopperbin]

Granted the amount of immigrants going back today is not important typically unheard of. If it rises by 50 percent per year could be a different story and is happenning

[chuckChuck]

Don't worry the money in your investment is only an illusion. There is only one way to sort this out, unfettered capitalism.

Besides you probably need more exercise chopping wood and hauling water.