Wall Street train wreck slams farmers


The fallout from the collapse of MF Global continues to reverberate around farm country. The firm’s demise is yet another painful case of how Wall Street’s recklessness is overwhelming under-resourced regulators and hurting people around the country. The response from Congress? Incredibly, an appropriations bill agreed by the Senate and House this week would slash the Obama Administration’s proposal for funding the nation’s commodity market regulator by a third.

MF Global, led by former CEO of Goldman Sachs and U.S. Senator Jon Corzine, gambled big on European sovereign debt and lost. The 230-year-old company is also a major commodity futures trader—acting as a clearing broker for clients that included, among many others, farmers and grain elevators. A broker like MF Global is required to keep their own investments and trades completely separate from client accounts, this ensures that clients are protected from losses sustained by the firm. But when MF Global declared bankruptcy, there was more than $600 million missing from client accounts. The Chicago Mercantile Exchange (CME) froze all of the companies’ assets and now many are having trouble getting all of their money back.

MF Global’s bankruptcy had an immediate impact on commodity futures markets (which include agriculture, energy and metals), slowing down the volume of trade, increasing volatility and roiling agriculture markets around the world, as far as Australia.
Some who didn’t even hold accounts with MF Global have been affected. Senator Al Franken wrote in a letter to regulators that Minnesota grain elevators, which had futures trading accounts with other firms that were tied to MF Global, have had their accounts frozen. “Unlike large Wall Street banks, elevators are not sophisticated financial actors and normally do not carry large cash reserves. A large loss of equity for grain elevators would have cascading effects on rural Minnesota’s economy, affecting everyone from large cooperatives to small farmers,” wrote Franken.
Bob Zelenka of the Minnesota Grain and Feed told the Pioneer Press that “it’s a limited number of (Minnesota) elevators that are affected, but the amount of money at stake is pretty large.”
Rural bankers were furious, according to a DTN report from the Agricultural Bankers Conference last week. “Segregated is supposed to mean segregated. Why put more fear into an already volatile market?” said Joe Kessie, of Lake City Bank in Indiana.
The Dodd-Frank bill passed last year was to have launched a set of tough new rules to regulate commodity futures markets, among other provisions. But according to DTN, MF Global was one of the Wall Street companies that has aggressively lobbied against proposed Commodity Futures Trading Commission (CFTC) rules to limit the type of investments companies can make involving segregated funds. The CFTC has delayed issuing the rules under pressure from Wall Street.
CFTC Commissioner Bart Chilton called MF Global the poster child for greater regulation. A Reuters report found that MF Global has drawn more sanctions from the CFTC than any of its industry peers over the last decade—repeatedly for “risk supervision failures.”
But the CFTC’s capacity to fully enforce not only current law, but also the tougher rules being developed through implementing Dodd-Frank, is in doubt. A Congressional conference committee cut the Obama Administration’s proposal for CFTC funding by nearly $100 million. A recent blog by the watchdog group Better Markets says it all: “not funding the CFTC is like taking the police off the streets in a high-crime area, which is what Wall Street is.  Risky trading in dark markets is highly profitable to Wall Street and very expensive for every other person in America.”

IATP has been reporting since 2008 on how big money players like MF Global have wreaked havoc with agriculture markets, affecting farmers and consumers. For more, check out IATP’s reader: Excessive Speculation in Agriculture Commodities.

Photo: Jon Corzine, former CEO of MF Global. (Used under creative commons license from Paul Lowry.)