Monday, November 14, 2011

Last week I mentioned three things to watch in regards to the fixed income markets. A brief recap of these situations should shed some light on what to expect over the near term. The first item was the referendum in Ohio in re public employee’s rights.  The voters in Ohio rejected the Republican Governor and Legislature program to strip the unions of most of their powers. I agree with the FT this morning that it was a question of Republican overreaching rather that any mandate for the Democrat Party. As I mentioned previously the American public understand the new economic realities in re retirement costs and health insurance. Most people will accept an adjustment in paying for the programs, what happened in Ohio was the Republicans wanted to enforce a radical agenda in addition to necessary financial reforms. The unfortunate part of this is that no progress has been made on the issues that need addressing.

This leads to the second item which is the “super committee” and their inability to reach any type of compromise in re spending cuts and tax increases. Again this is a case of the Republican members of the committee looking to enforce a radical agenda rather than take steps to solve the country’s financial issues. The country is ready for the adults to assume control of the government but there doesn’t seem to be any one on the right who has the courage to do what is necessary for the country and not just toe the line outlined by FOX news. Once again the American public is further along that our “leaders”.

The final issue is the search for money at MF Global. How in the name of everything good and holy can the regulators (CME, SEC, FINRA, CFTC etc) allow this to happen post 2008? Have they learned nothing? An overleveraged brokerage house seems to have no internal controls and cannot get financing goes out of business. After the company closes nobody seems to be able to identify where a significant amount of client money resides. This company has been subjected to regulatory audits where the regulatory authority comes in and verifies the financial health of the company. Does this make any sense? How can people not lose their jobs at the SEC, FINRA, CME, CFTC etc?  How can the Administration not demand Mary Shapiro’s resignation from the SEC?

This is one more in a string of institutional failures by the people who are paid to enforce the rules and protect the investor.

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