MF Global would have had several trading days in 2011 with moves of 5% to 10% on this sovereign risk. MF Global was so thinly capitalized that this trade alone could eat up half of its capital. Any of MF Global's other asset positions moving the same way in 2011's highly correlated markets would have put MF Global in a position of negative equity.

From a risk management point of view, examiners have to consider the very strong possibility that MF Global had several negative equity days throughout 2011. An investigation into money flows throughout 2011 is in order.


According to the New York Times, "investigators are now examining whether MF Global was getting away with illicit transfers as early as August." The illicit transfers refer to the use of customer funds to make up for MF Global's own shortfall of funds needed to meet its margin calls and other expenses.


Money went from a U.S. customer account to a U.S. MF Global account, and then it was transferred to a U.K. account. Even those who wish to claim Corzine slipped through a dubious loophole in the U.K. are out of luck. The original impermissible transfer of money occurred from a U.S. customer account to a U.S. based MF Global account. In my opinion, Corzine knew or should have known there was a strong probability that customer funds would be transferred. As it happens, they were.


MF Global was short of funds, and the money that seemingly magically appeared in its 'nonseg' account was first transferred from a customer account.

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