Why isn’t anyone asking the most obvious question?
How is it that regulators failed to spot the risky bets that MF Global was making? Didn’t they learn anything after 2008?
Where was the Federal Reserve Bank of New York, MF Global’s primary regulator? asks Steve Blitz, senior economist at ITG Investment Research.
“How is it that the Fed (FRBNY) allowed a primary dealer to operate with 40 to 1 leverage in this day and age?,” he writes.
“The FRBNY has, and always has had, minimum capital requirements for primary dealers in order to effectively eliminate counterparty risk on settlement.
“In the past several years the Fed, Bernanke in particular, has made the point that the Fed is the regulator of choice to oversee macroprudential risk as far as the financial system is concerned. Yet here we are in 2011 and the Fed (FRBNY) and the SEC for that matter have failed yet again, it is as if we are back in 2007.
“Running the ship aground but taking credit for the rescue operation worked to enhance Bernanke’s reputation in 2009/2010, but it shouldn’t any longer.”
“This really is the story of MF Global’s demise – once again the Fed and the SEC were absent and failed in their self-appointed role as guardians shielding the economy from macroprudential risk created by the financial system. The markets and the economy are lucky MF Global was too small to matter, they could have been bigger. What other dealer desks are leveraged to this extent? Does the Fed or SEC know?”
Well, Mr. Blitz, if they don’t know, it’s probably because they don’t want to know. At least they’re good at asking one question, though: Where did all the money go?