Tuesday, 1 November 2011

MF Global gone tits up

Where "tits up" means Chapter 11 bankruptcy protection.

MF Global is (was?) a brokerage with significant operations in London and New York. They offered client services such as spread betting, savings, investments etc. Crucially though they also invested on their own behalf. This means they were gambling with their money and yours - and somewhere along the line the two seem to have gotten merged.

This can happen if you keep lots of different people's money in the same pot; before you realise it you can't tell which is yours and which is theirs. MF Global seem to have gotten confused and lost all their money followed by all their customers' money.

Shame!

FSA and SEC asleep at the wheel again, and $40bn (I'm guessing here) has vanished into the ether. Quite what incomprehensible bet they made that went wrong I don't know. But the money is gone.

There was a time when it was illegal to gamble with your money and also keep customer money. But that was a while back. There are still brokerages which don't trade on their own account and arguably these are the only safe ones.

Of course there is some risk of contagion; firms they owe money to also going bust. The coming days will tell.

This is all a bit sub-Lehmans, but still significant.

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