Yesterday we advised readers that 1.42 million ounces of registered silver, and 16,645 ounces of registered gold are not currently available for delivery per the CME, due to the MF Global bankruptcy.
This is roughly $50 million worth of silver, and $30 million worth of gold- or $80 million total.
So the question needs to be asked- why are $80 million in gold and silver unavailable for delivery? Did it vaporize overnight?
Forbes today has released an article that may shed some light into WHY $80 million worth of registered gold and silver are currently unavailable- because the warehouse receipts of MF's clients were stolen by company execs and used as collateral for a short term $400 Million loan obtained in an attempt to bridge the failing company until a buy-out could be arranged. When the news of the loan and missing customer assets became public, the lender instantly liquidated the illegally pledged assets- which apparently included $80 million in registered gold and silver.
Still wondering why The Doc advocates taking PHYSICAL DELIVERY of gold and silver and holding in your own possession?
Now the question remains- WHO lent MF Global $300-$400 Million against $700 million of customer assets a week ago Thursday?
Why do I believe MF Global executives transferred customer assets not cash to “house” accounts? Because missing cash would be noticed immediately. Their clients were still trading and clearing and cash was required to settle. Securities such as U.S. Treasury Bills, blue-chip equities such as CME Group stock held by many exchange members, and physical assets such as gold, warehouse receipts, and other certificates of title are less active. They would not be missed Thursday through Monday.
What did MF Global do once these assets were moved to a “house” account? I believe they pledged the customer assets as collateral for a short term loan.
A privately arranged line of credit, secured by a basket of assets discounted by up to 50% due to the risk of default and the firm’s desperation, could be unwound as soon as a deal to sell the firm was struck. All the assets could go back into the customer accounts and no one would be the wiser.
Any firm willing to lend $300-400 million for a week or so against approximately $700 million of customer assets was certainly wise enough to require recourse to those assets in the event of a bankruptcy. Some of the assets, like CME stock, were sure to drop in value if the bankruptcy occurred.
When MF Global filed for bankruptcy midday on Monday October 31, 2011, the lender owned the customer assets.
My guess is the pledged assets were immediately liquidated.
No one is raising their hand to admit they’re the firm who lent MF Global several hundred million dollars, enough to get them through the weekend, based on collateral MF Global had no right to pledge. It’s not clear what the responsibility of a firm is in that situation to ask questions and confirm title. What is clear is that the arrangement, most likely a favor called in based on very strong relationships, must have been planned in advance. When all else failed to generate enough cash on Wednesday afternoon, someone at MF Global pressed the button and set the wheels in motion.
The lender must have had the capacity to make such a loan and the ability to execute a strategy intended to leave few traces. But there are always trails to follow.
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