What is in this article?:
- Fallout over the late-October bankruptcy of MF Global Holdings Ltd. has spawned FBI and Justice Department investigations and left many wondering how, in the wake of supposed Wall Street reforms, government oversight of another financial institution was so lax.
- More importantly for the agriculture sector, the bankruptcy and government response has prompted many questions about the safety of futures trading.
Farmers and ranchers
What about the farmer/rancher side of this specifically? Do you have any elevators that are customers?
“We’re working with an (investment bank) and all their clients are through elevators.
“We’ve spoken to ranchers in Tennessee and farmers in Iowa, Indiana, Minnesota, and throughout the Midwest.
“I’m sure your readers know all too well how illiquid the average farmer is. Usually their money is tied up in real estate and equipment with the rest in working capital.
“To ask a farmer to post more funds to cover margins is very difficult to do. It may require the sale, or mortgage, of real estate assets or liquidation of equipment.
“The people we’ve spoken to say this will be devastating. Some could face bankruptcy very quickly if they’re not liquidated.
“And (farmers) are really in the worst position of all the customers. The trustee created all these new protective classes, by accident, in the bankruptcy process.
“My investment bank, almost all our accounts, we got to cash on Oct. 31. So, they’re getting 60 percent of their funds sent to them.
“But if you’re a farmer with a hedge on and open positions, they just transferred 60 percent of your margin. … That means you’ll probably have less than 25 percent of your total assets sent to you. In some cases, it’ll be less than 10 percent or 5 percent.
“So, farmers have all this money tied up with no idea when you can get out. And you have to be able to access it. It’s a terrible position to be in.
“The only advice we have for farmers, right now: make as much noise as you can.”
On congressional hearings and the coalition’s public relations…
“Aside from our legal campaign, we have a public relations campaign. We’re trying to influence anyone with the ability to sway this process. Right now, that’s focused primarily on the judge and trustee because they have the most immediate effect. But it’s branching out to Congress.
“In mid-December, the House Finance Services Committee will hold a hearing (on this). I’m speaking with (legislators) this week to try and get several of our customers before that committee to help put a human face on this disaster.
“Right now, the witness list contains a who’s who of who is at fault. That will help ascertain who to blame and, perhaps, how to prevent this from happening (again). But it won’t help explain what’s happened to customers. We want farmers, ranchers and others to provide statements – get them before the committee, talking – so the congressional record reflects ‘hey, this isn’t just Wall Street people being burned. This is Main Street being burned big.’
“Eventually, this will affect consumer prices. If farmers don’t think futures trading is a viable mechanism to offset their price risk, they’ll begin using other means. Down the line, that will yield price inflation. You add that into a fragile economic recovery and it’s a recipe for disaster.”