Wall Street at its finest ... Hedge Broker Shuts Down Firm With Chilling Letter About the Market

Wow. This is Wall Street at its finest. Even Rush Lumbaugh wants to know how this happened. You think this could become a part of "Occupy Wall Street" laundry list? Have they even started one? If not, NOW THERE's AN IDEA!

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http://barnhardt.biz

Business ‘Going Galt’: Hedge Broker Shuts Down Firm With Chilling Letter About the Market

RECENT UPDATE: The AMERICAN media seems to be jamming information on this. But the European media is reacting:  The stock market has already been affected by this MF Global robbery.  Many international investors are pulling out.  As Gerald Celente observed, "What?, they couldn't come up with a measly 600 million to pull this thing out?"  It has already cost billions in lost investment.

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Ann Barnhardt describes herself as a an “an old-school commercial hedge broker specializing in CATTLE and GRAIN.”

And she just shut down her business by delivering a passionate and chilling open letter posted on her website.
“I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not,” she writes.


And then she unloads:
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette. [Emphasis added]


The letter caught the attention of Rush Limbaugh on Thursday.

“The letter from the hedge fund guy sounds particularly filled with vitriol, but he’s right about something,” Limbaugh said after reading an excerpt. “Corzine was that firm, and the customers’ money is gone, and it’s like $600 million of it, and it’s gone, and they’re trying to get it back, it’s a miniature Madoff in that sense. And somebody did steal that money. Somebody at that firm, which is now bankrupt and 1,100 people or thereabouts have been laid off, somebody stole the clients’ money. It is a big deal to a lot of people.”

We’ve included the entire letter (originally presented in two parts) below (courtesy of Zero Hedge):
BCM Has Ceased Operations (source)
Posted by Ann Barnhardt – November 17, AD 2011 10:27 AM MST
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. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

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.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.


Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

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.

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, “clawback” is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity’s collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company’s bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to “clawback” those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client’s account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:
“This is the Lord’s doing; and it is wonderful in our eyes.”

With Best Regards-
Ann Barnhardt

“I am going to head out of town for a few days, but will be checking email and messages,” Barnhardt wrote, after describing her letter as “going Galt” — a reference to Ayn Rand’s “Atlas Shrugged.”

“Thanks to one and all for the kind support and prayers. Please be assured of mine in return, for all of us.”


Read more at  http://barnhardt.biz

 

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I actually see this is a very responsible..act we should be asking all of our  pension funds  to wise up and totally divest form these risyk purely speculative commeodities funds.  This is a fairly new speculative tier in the markets that doesn't serve trade, doesn't serve, prodiction. doesn't serve humanty, doesn't serve anything morally defensible.

All of us should stand with this lady and we can do that by standiing with and for the original as approved and passed into law provisions of Dodd-Frank.  and  working together to get quite a bit  beyod that. to forbidding this purely speculative tier of the market. 

The instruments that she is referring to, "derivatives" overshadow and distort legitimate economic transactions whic serve peole ( us people) serve job creating tranactions in "free markets"..they are like a tapeworm..a cancer on top of infesting, impairing what does serve us. Not all derivatives are purely speculative, purely about profit but what she is pointing to is.long only .commodtities price indexes They are not the whole market..not the whole story.

The particular segment she is referring to , commodities derivatives which are price indexes, is a huge bubble about to burst with devastating consequences that will affect all of us..you, me. the already chronically poor, the 70-80 million joining them every year.

This is exactly what I have been urging we take to time to understand, take time to name and hold up as we the 99%.  This courageous financial services adviser is doingthis work..  .she is refusing to contiune to play a high stakes game of "musical chairs" that will leave "dumb money" holding the bag and taking the loss.

Three guesses what "dumb money" is.

It is the pension funds of school teachers, publc employees, policemen,..ordinary working folk; it is you educatin fund ; your IRA;  your ilong term investment in deferred compensation, the education funs your folks set up so you coud go to colege debt free..  It is not the people who created and earned huge profits on these funds with our money. 

Something about this letter and the tone of the entire exchange seems a bit fishy [contrived]. 

Hi Jitendra,

Contrived?

Do you disagree with my analysis that us ordinary folk will be most hurt when this commodities bubble bursts?


Over the 11 years I was on the New York State Banking Board (1986-1997) the now so called too big to fail banks were forming through voracious mergers and acquisitions. Their one aim was to repeal Glass-Stegall ( which forbade speculation by banks) and to get into the derivatives business. Both of these were accomplished in 1999.

One type of derivative, credit default swaps, used in connection with mortgages, was the causes of the 2008 crisis and market collapse. 

 I have been doing a lot of research on food derivatives, especially  on whether they .have contributed to rising food prices and the resultant dramatic increase in the the numbers in chronic hunger globally The type of derivative most prevalent in commodities is a price index.  There seems to be no dispute that the huge amount of money that floated into commodities after the credit default swap mess has caused a ginormous bubble which will burst and cause as much harm as the 2008 credit default swap collapse..

The customer money at stake in derivatives market isn’t the money of rich individuals. it’s the money of pension funds and other large portfolios held for ordinary working people.

I thought it important to mention that. 

I think it’s important to understand how inextricably linked we all are to the unregulated operations of the derivatives markets worldwide.   We can't insulate ourselves from that by banking at crdeit unions and joining dollar banks. We can't even insulate ourselves from that by living off the grid or giving up our cars, or shopping at thrift stores and goodwill..

My comment was addressed only to these two points in the exchange..not to any side commentary about Limbaugh or about President Obama.  I think it is important to understand that if we want a better future with a new economy that we all have to get behind re instating Glass Stegall and implementing the regulatory reforms that were in the original Dodd-Frank as passed into law. 

That has to happen before we can rebuild.


We are all at risk in what that broker is pointing to whether or not we have a penny in the market.

I know very little about the particulars of the  MF Global seizure ( Here’s a background article
http://www.businessweek.com/news/2011-11-26/mf-global-s-bankruptcy-...)  I can tell you that in my day on the Banking Board, regulatory agency takeovers such as that described  were done to protect the public.

The people at the bottom of the pack get hit first and hardest.  On my island that’s people who have no bank accounts..and certainly no market investments..they have no loans or debts of any kind..they are people who get paid in cash pay their electric bills with money orders at the post office. They are the millions who can no longer feed or clothe themselves or run their cars or fuel their boats or heat their homes because of what derivatives and our present endless growth centered system economic does to the prices of basic and essential goods and services.

The commodities bubble referred to in the brokers letter has already driven millions more to food banks, food stamps and soup kitchens; driven millions more into permanent homelessness. Homeless shelters all over America are filled to capacity an nable to take nay more in.

(Ps guess who runs the financial end of the food stamps and makes more money when more people are on the program?..JP Morgan Chase.., the very same folk who are at the heart of the commodities  derivatives  bubble..and its CEO Jamie Dimon is one of many key Democrats in the 1%..the 1% isn't all right wing conservative )

Contrived?

Or Making an important point..very central to understanding what our present reality is, us 99%, and some very essential steps that have to be taken to try and correct our course.?

Yes; it does have an edge of 'fishy', I agree. I closely watch this edge of a sharpening blade, where truth and lies meld into a cheesy mess. I believe that we must find ways to discuss what gets revealed when discussing these edgy stories, as it's the place where mythical transformation has a chance to happen.

Hi Vic,

 

Yes, this caught my eye too.  I posted and blogged about it some time ago here.

 

What she is saying is correct.  There is a ginormous commodities bubble just lingering on the verge of an explosion that will be far worse than the mortgage scandal and will probably most hurt pension funds..the crash will be global and devastating. all this is done mostly, you know with other people's money, pension funds and insurance company funds which back the policies we haveall paid for an count on..the hedge funds make their money on the trades.  It's like  a hi stakes game of musical chairs..who will be left holding the bag when the music stops?

Dodd Frank, enacted and Law was to have provided some but not all the corrections needed to bring oversight to commodities speculation but it has been delayed and disemboweled and blocked and the only thing actually implemented was an insipid piece on position limits in October.

 

I just finished a big piece at TED Conversations on this with lots of links if you are interested in more background on how food commodities speculation affects us all:

http://www.ted.com/conversations/6056/commodities_speculation_a_cau...

Thanks for calling attention to it again here at Occupy Cafe.. 

This is terrifying. Do you believe we are in for a total collapse? What would that mean? I know nothing about banking systems.

Banking and bankers are at the core of the problem and have been for over 200 years.Watch "The Money Masters" on youtube (see another one of my blog posts for link) and learn what you don't know so we can change it.

http://www.occupycafe.org/profiles/blogs/the-money-masters-video-is...

Vic

Gisele, Vic..I am glad you are keeping this focus on derivatives in the front of awareness and that you understand the significance of that hedge fund electing to close with such a public notice.  It is a warning to all of us that the walls are falling down.

The issue that effects all of us  is that creatures of law, banks and financial markets,  whose actions do affect every aspect of our lives, were for a decade let totally loose, free of all the tethers that tried to insure that their operations were accountable to public interests, could not cause us harm.  As a member of the NYS Banking Board (1986-1997), when speaking for consumers, issue by issue, application by application, I always pointed back to the wonderful language of the Glass Stegall ( which use to separate speculation from banking) that said "banks are affected with a public interest" because of the impacts their operations can have on us.  That was thrown out along withthat lawful declaration that banks are affceted with a public interest..even that standard is gone from law with the repeal of Glass Stegall. 

I love the language in the move to ammend 28th amendment to the constitution in response to Citizens United that would put this in our consiution..it more or less says all corporations whether for profit or not , are creatures of law..allowed to come into being only by permission of the state ( that is still true and has always been true) and not natural persons. that it is not a right to form a corporation that is not in the public interest and that it is a public right  through law/regulation.  So it would make the language of Glass Stegall a matter of consitutional law in plain english.  Very important.

It's odd because one of the things I think about a lot is how socialism has been transformed into a dirty word. People don't seem to realize that schools and police forces and road systems are all socialist. That got me to thinking about what should or shouldn't be socialized. What we socialize are what society deems essencial to basic modern life. Everyone is dependent on these tools of civilization working smoothly for us to advance as individuals so we socialized them.

Basic banking is an essencial service. It would be impossible from a practical perspective to do without banks assuming we don't want to become hermits keeping our money in our mattresses. Certainly modern society could not exist without them. If private banks don't want to be regulated then we need one national bank that is socialized so that people have the freedom to choose a financially conservative bank.

I doubt it will ever happen but it's a good threat.

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