Although an MF Global-specific hearing is set for mid-December, a Thursday morning hearing of the Senate Agriculture Committee had the investment firm’s failure fully in its sights. Even though the hearing was originally set to check in on Wall Street reform, the opportunity to grill Commodity Futures Trading Commission (CFTC) head, Gary Gensler, on MF Global’s collapse – and the subsequent discovery that customer funds, perhaps over $1 billion, had been “lost” – proved too ripe for committee members to pass up.

With weeks’ worth of unfavorable press coverage along with outraged legislator comments and press releases related to MF Global oversight, Gensler had to know he’d best not enter the chamber leading with his chin.

The immediate concern for the legislators revolve around suspicions that MF Global mingled customer and firm funds illegally. Throughout the hearing, committee members repeated constituent stories about the awful impact the firm’s bankruptcy has had on farm country. As investigations by the FBI and Justice Department unwind MF Global’s actions, farmers and others in the agriculture sector face frozen accounts and the possibility of recovering only a portion of their rightful funds.

However, another chief concern is this: What will it take before the oversight is robust enough to prevent occurrences such as MF Global?

If the congressional hand-wringing, legislation and endless hearings following the 2008 economic collapse, the Wall Street bailout and millions of lost U.S. jobs didn’t sufficiently strengthen oversight of the financial industry, why should investors have any confidence in the markets?

“This has essentially evolved into an MF Global hearing,” admitted South Dakota Sen. John Thune about 90 minutes into the proceedings. Thune then read a message he’d received from a grain elevator managing constituent. “’This MF Global failure is causing tremendous stress in our, and other business operations, as we’re unable to use our futures accounts and unable to access funds. The continuation of this may cause my industry to suspend purchasing grain from farmers as we’re unable and unwilling to hedge our purchases in an exchange that is not secure. This lack of certainty and security is starting to make traders across the world question the security of all positions -- even those not held in MF Global accounts. Timeliness is of utmost importance. The trust we all have in the regulated futures industry is at stake.’

“Marketing agricultural commodities through hedging and use of futures has become nearly as important as growing a crop,” said Thune. “What’s occurred with MF Global has severely damaged these practices for many producers and facilities.”

The MF Global bankruptcy “underscores the importance of having effective oversight in all of our financial markets. We need these markets to function properly, and we need consumers to have faith in them,” said Michigan Sen. Debbie Stabenow, Chairwoman of the Senate Agriculture Committee. “MF Global’s customers included farmers, ranchers, co-ops, small businesses, and individuals who use these markets to hedge their business risk. Now, their confidence is shaken, and MF Global’s customers are understandably very angry. With hundreds of millions of dollars of customers’ money missing – maybe more than a billion dollars – it’s clear that something went terribly wrong.”

Gensler also took heat for the timing and manner of his recusal from the CFTC’s investigation of MF Global. Gensler and former MF Global CEO, Jon Corzine (who has also served as New Jersey governor and senator) worked together at Goldman Sachs over a decade ago. In early November Gensler said that relationship meant he’d not be involved in MF Global dealings – something that the CFTC had already been working on for over a week.

Clearly chomping at the bit, agriculture committees in both houses are considering subpoenaing Corzine to compel testimony at coming hearings."The circumstances surrounding the MF Global bankruptcy are unprecedented,” said a joint statement by Oklahoma Rep. Frank Lucas and Minnesota Rep. Collin Peterson. “Many of our constituents have lost funds and many more have lost confidence in futures and derivatives markets, which are under the jurisdiction of our committee.  On December 8, the House Agriculture Committee will hold a hearing to examine the facts and circumstances that led up to the bankruptcy, and the efforts underway to recover customer funds and return them to their rightful owners. To that end, Jon Corzine’s testimony is critical to fulfill our objectives on behalf of our constituents, which is why we have taken this extraordinary step to ensure his attendance. It is our hope the hearing next week will lay the groundwork to address the situation and begin to restore confidence."

Back at the Senate hearing, having staked out his “non-participation” position, Gensler left it to Securities and Exchange Commission Chairman Mary Schapiro to answer North Dakota Sen. Kent Conrad’s questions about the specifics of the MF Global investigation.

“We’re investigating the disclosure and accounting by (MF Global),” said Schapiro. “What they did expose in their second quarter is net exposure to sovereign debt; they exposed – but not as clearly – their gross exposure. They reported they had $16.5 billion in reverse repos, of which 70 percent was collateralized by European sovereign. So, that wasn’t as direct as the net exposure disclosure.”

An incredulous Conrad replied “That’s a loophole so big you could drive a mack truck through it. My God, if that isn’t closed down, we must ask ourselves what we’re doing.”

Thune wanted to know “in plain and simple terms” the CFTC’s plan – “not only of action items but also in terms of outreach to the ag community” – to ensure the use of hedging and futures markets can be safely continued?

“What we’re doing is really asking ourselves and the staff and each commissioner what we can do better.” said Gensler. “Specifically, what we’re doing now along with the CME (Chicago Mercantile Exchange) and National Futures Association (NFA), is conducting on-site reviews of all the futures commission merchants. (The CFTC has) taken the top dozen, or 14, and gone in to look at the segregated accounts. The CME is taking the next 35 or 40. The NFA is taking the others. We hope to finish (those reviews) in the month of December.”