Finance 101: Why Your Creditor Should Not Be Your Agent…
Yves Smith sends us to Michael C. who sends us to Carrick Mollenkamp, Lauren Tara LaCapra and Matthew Goldstein of Reuters:
INSIGHT - In MF Global, JPMorgan again at center of a financial failures: In late October, as MF Global Holdings Ltd teetered toward bankruptcy, Jon Corzine phoned his close-knit circle of Wall Street friends for help…. Global executives came to believe that JPMorgan Chase & Co. (JPM.N), one of MF Global's primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds…. By adhering to procedure and not cutting MF Global any slack, these people say, JPMorgan was able to slow the delivery of funds… hundreds of millions of dollars of MF Global money may be still stuck in accounts at JPMorgan….
To meet the sudden outflow, MF Global during the week of October 24 tapped the $1.3 billion loan commitment from a syndicate of banks led by JPMorgan. MF Global also decided to sell $1.3 billion of… commercial paper…. MF Global had used customer funds to invest in the short-term debt and now badly needed to liquidate the IOUs and move cash into the customer accounts to meet their demands…. Corzine turned to his old employer, Goldman Sachs… ask[ed it]… to buy the IOUs, offering a slight discount…. Cohn agreed…. Goldman traders made the purchases…. MF Global sought to settle the deal that day…. JPMorgan, in its role as middleman, was able to control the speed with which MF Global's asset sales were processed…. While MF Global waited for the funds from JPMorgan, it frenetically tried to avoid a second cash demand generated by the second Moody's downgrade…. To meet those demands, MF Global on October 28 undertook yet another set of asset sales totaling $4.5 billion. It sold the securities to JPMorgan, yet the bank was slow to settle this trade as well…. JPMorgan declined to confirm whether it bought the securities….
MF Global, during the weekend before it filed bankruptcy proceedings, made one final push to sell more assets. In London, it tried to sell off short-term European bonds, according to one trader at a London bank…. What remains unclear is whether JPMorgan held on to the funds, and where the funds are now. People familiar with the situation suggest that the funds are still at JPMorgan…
