MF GLOBAL: LEVERAGE IS STILL IN FASHION

After all the lessons of Lehman, Bear Stearns, too-big-to-fail, blah blah blah, ex Senate Finance Committee Chairman John Corzine got ahold of a mid sized futures trading company and levered up a bet on European Sovereign debt at 33-1.

Now, at 33-1 - or about 45 billion in roulette wheel spins for 1.5 billion in assets - the bet only has to go 3 percent against you for you to be wiped out.  3 PERCENT margin of error on a 45 billion dollar bet.  And he's betting on European Sovereign Debt.  My 10 year old daughter could explain to you why that's a dumb-assed bet.

But this guy, who ran Goldman Sachs, who ran the Senate Finance Committee, thought nothing of not only making the outsized dumb-assed bet, but of stealing clients' money out of their accounts in order to have more capital to put up for his personal dumb-assed bet.

Now, all those poor schmucks trading a few contracts of euros, or gold, or soy beans, are out all the money.  Because it's gone.

Why would Corzine do this?  Because he only has a 100 million dollars and there too many billionaires out there who look at him like he's an asshole for only having a 100 million.  If you don't have a billion you just don't get invited to the right parties.  So any risk is worthwhile in order to get to that next level.  That's the whole sad story.  That's what America has become.

If that's going on under the watchful eyes of the Commodities Trading Commission, what's your guess on how everybody else is levered up in a business where there are no rules and no limits to how much anyone can lever up with bets that far exceed not only the underlying assets of the bettor, but also the existing asset pool of the underlying commodity.

You can trade hundreds of tons of gold though there's probably less than 40 tonnes available for delivery.  (Nobody knows for sure since nobody is allowed to audit central banks.).  The same is true for all commodities.  The same is true for all types of debt - which has now become as commodity asset class.  The asset class of choice for John Corzine and MF Global.

It will be pointed out that MF is a little player.  So what?  You think the big players are acting any differently?   There are currently somewhere in the neighborhood of 500 Trillion Dollars of Derivative Bets being gambled among the MF Globals of the World.  And nobody knows the exact margin of error on these bets.  But if MF Global is any indication, they're probably pretty thin.