From The World Socialist Web Site: http://wsws.org/articles/2011/nov2011/pers-n08.shtml
By Barry Grey
8 November 2011
The collapse last week of US broker-dealer MF Global has put the spotlight on the parasitic speculation and outright criminality that are at the heart of the US financial system. It has also provided a text book example of the corrupt and incestuous relationship between the American financial aristocracy and both the political system in general and the Democratic Party in particular.
Facing a run on its holdings, a collapse in its stock, and credit downgrades of its debt to junk status, the Wall Street investment firm with $41 billion in assets filed for Chapter 11 bankruptcy protection on October 31.
A last ditch bid to find a buyer for MF Global fell through when regulators discovered that $633 million in clients’ money had gone missing. It is suspected that the company, headed by former Goldman Sachs CEO and one-time Democratic senator and governor of New Jersey Jon Corzine, moved money out of client accounts in an attempt to meet margin calls from its creditors. It is a crime for a firm to use clients’ money to trade on its own account, let alone to pay off its debts.
Multiple investigations have been launched by federal financial regulators, along with criminal probes by the FBI and the US attorney for Manhattan. Last Friday, after having hired a prominent criminal lawyer, Corzine resigned his post as chairman and CEO of MF Global.
The collapse of the firm, the eighth biggest bankruptcy in US history, was the first major corporate failure resulting from the European debt crisis. It demonstrates that nothing has been done since the Wall Street crash three years ago to rein in the speculative activities of financial firms. The same practices that led to the global recession continue unabated.
Several months after taking control of the firm in March of 2010, Corzine began making enormous bets with borrowed funds that the sovereign debt of countries such as Spain and Italy would not collapse. He placed a single bet of $6.3 billion—six times MF Global’s capital—on risky European state bonds, driving his firm’s leverage (its assets to capital) to a ratio of 40 to 1.
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