MF Global After Effects

As of my last post last night about what it appears MF Global did (using client's funds to meet margin calls-STRICTLY ILLEGAL), it seems a new crisis is emerging as liquidity in several markets is drying up.

Specifically effected, in Australia Grain Futures and Options were suspended, Corn contracts were cut in half yesterday from Friday's volume.

 "Reports of short falls of client money ... if true would be a disaster for all the smaller brokers and banks as nobody will trust them anymore," one London trader said.


Think of this as being similar to a bank run, but not just on banks, more specifically on broker/dealers/clearing houses- a whole new angle to the liquidity freeze event.


I keep coming back to this Lehman comparison in many ways, but in this case, if and it looks like "if" has already started, customers start pulling their money from perfectly legitimate dealers, it will cause a self-fulfilling prophecy, like how the credit markets froze during the Lehman crisis.


We now have Lehman like events not only effecting commodities, stocks, but sovereign nations as well. A world wide credit/liquidity freeze would be something that I can't imagine could be undone.


Since Bernie lived through those terrible days of Lehman, I wonder if he'll try to get in front of this rather then play catch up like he did last time. It's already clear he's been flooding the market with money. This week may get even more bizarre and volatile yet.


Just as a reminder, I use to teach my beginner students to just stay away from market tops as the volatility was insane. Increased volatility is and has been for well over a century, the hall mark of every market top.