From Volume 38, Issue 44 of EIR Online, Published November 11, 2011

U.S. Economic/Financial News

Bankruptcy of MF Global Is Shape of Things To Come

Nov. 1 (EIRNS)—MF Global's bankruptcy filing on Oct. 31 is the first signal of the explosion of the latest euro bailout deal—a deal which is re-done daily, but can never work.

MF Global, run by former New Jersey Gov. Jon Corzine, ran on the basis of Corzine's previous trading strategy at Goldman Sachs, which is to take a large positions on theories he believed to be "well thought-out." In this case, the "theory" was that the Eurozone would never allow a default.

The company bought large holdings of debt from Spain, Italy, Portugal, Belgium, and Ireland at a big discount, believing that the Eurozone would never allow a default, and that there would be big profits down the line. But doubts about the euro deal prompted rating agencies to cut MF Global's rating two notches, and that required the firm to put up more capital on margin.

Having no capital, MF Global looked for a buyer, and a deal with Interactive Brokers Group was being made, when Interactive discovered that $600-700 million of MF Global's funds were missing. Federal regulators, including the CFTC, are investigating what happened to the customers' money. While one possibility is that banks holding the money were slow to produce it for a failing MF Global, it is far more likely that the firm used some client money to support its own trades, in a last-ditch effort to survive. This is a serious violation of the rule that customers' funds must be kept separate from the firm's money.

MF Global's bankruptcy filing because of its bets on the Eurozone debt, rattled world markets. The Australian Stock Exchange's 24-hour trading platform suspended grain and wool futures trading. Britain's Financial Services Authority established a Special Administration Regime to handle cross-border cooperation and speed return of assets to creditors for the first time.

Nevada First To Make 'Usual' Foreclosure Practice a Felony

Nov. 6 (EIRNS)—A new law in Nevada makes the practice by which millions of Americans have been thrown out of their homes a felony.

"Banks can no longer finesse and fib like they used to," Reno lawyer Greg Jensen told the Reno Gazette-Journal. "That's because AB284 imposes consequences on them for acting like they have in the past—serious consequences."

Assembly Bill 284, which went into effect Oct. 1, makes making misrepresentations in foreclosure filing information a felony. The law includes measures to deter robo-signings and requires foreclosure-related filings to include the names and addresses of the mortgage note holder, deed of trust beneficiaries, servicers, and trustees—what used to be standard practice before the bankers came up with the Mortgage Electronic Registration Systems to circumvent the law throughout the country.

To prevent conflicts of interest, the law also prohibits servicers from using subsidiaries as trustees, limiting the role to Nevada title companies, Nevada-licensed attorneys, and other entities regulated under Nevada's Trust Company law.

As a result of the bill, in Washoe County, where Reno is the county seat, notices of default (the banks' first step in executing foreclosures) dropped from more than 600 in September, to less than 20 in October.

Less Than Half U.S. Unemployed Now Receive Benefits

Nov. 5 (EIRNS)—A new analysis reported by AP today, shows that the percentage of the officially unemployed who are receiving unemployment benefits has been dropping steadily for the past year and a half. Early last year, 75% of those reported as unemployed were receiving benefits. That figure is now down to 48%, and is slated to fall even further if Congress fails to renew the emergency unemployment program that provides benefits out to 99 weeks. But even if Congress does extend the program, it will be irrelevant for an estimated 2 million people who have been unemployed for longer than 99 weeks. Their only options are food stamps and other social programs. Nearly 46 million people received food stamp benefits in August, a record for the program. Disability payments have also seen applications skyrocket by 50% since 2007.

On Nov. 3, a group of 53 House Democrats, led by Rep. Lloyd Doggett (Tex.), proposed legislation to renew the benefit program for one year, and cancel interest payments due in 2012 from states that borrowed money from the Federal government to pay the benefits. "Congress has never allowed emergency unemployment benefits to expire when the unemployment rate is anywhere close to its current level of 9.1%," said Doggett. "If Congress fails to act, more than 2 million Americans who lost their jobs will lose their unemployment coverage by the middle of February, including 124,000 in my home state of Texas. More than 6 million will lose benefits during 2012."

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