What the Failure f MF Global Means for Jefferies and other financial institutions

Just like Bear Stearns and Lehman Brothers, once there is blood in the water, Wall Street feeds on it's own in the quest for profits. It doesn't matter that Corzine was a governor or Goldman Alumni or one of Wall Street's biggest supporters of the current administration, blood in the water rarely has a happy ending and to that extent, Jefferies is bleeding in the water.

The price action over this year has shown there to be a problem, the price action the last week has shown that they are 90% likely to be the next failure, but what is truly disturbing is that the shocks from Europe or the ripples as we have yet to see the Tsunami, are already reaching our shores. Potentially 2 of our largest financial institutions in one week, that's faster then 2008, except at the end game of Lehman when everything was about ready to collapse. However, we, the general public never understood how dire things REALLY were until years later. It makes one wonder how dire things are RIGHT NOW?

Egan Jones was the first and as far as I know, the only timely downgrade of MF Global while all last week CNBC paraded pundit after pundit talking about how the 200 year old firm will be fine, many of the same said the same of Lehman just days before their collapse.

Jefferies has the equivalent of 77% of shareholder (or did ) tied up in sovereign debt, just like MF Global (albeit MF was a larger scale). As Jefferies price falls and margin calls come in, they must be met or they can't do business. MF Global went the route of illegally using customers money, to the tune of up to $1.5 billion dollars, and nearly $700 billion of customers funds is still unaccounted for.

This creates a crisis of confidence, just like the Lehman era, no one in the Financial sector knew what their counter party risk was and every financial company lied about their own risk, only to write down more and more every quarter.

It's like a bank run, but right now it's hitting the medium size Brokers. It's still up in the air as to whether the MF Global customers (who's finds were supposed to be insured against this kind of loss) will actually be protected because of the illegal things that happened at MF Global. This makes the crisis of confidence even worse and we may not know it, but there could be a liquidity run on all the brokers right now-even CME/ICE.

The main point I think is the pace of acceleration, many thought the US would not be impacted unless the EU went in to recession or saw defaults on the sovereign  level, it's happening a lot sooner and a lot faster.

Remember as always, keep your eye on the trend, not just the day to day or the intraday action, the trend is more likely to tell you what is really going on then anything else you have available at your disposal.