Let me cut through the Bee Ess for you . . .
Posted by Ann Barnhardt - December 8, AD 2011 11:15 AM MST
The Congressional Ag Committee keeps asking about what are appropriate investment vehicles for FCMs to park customer seg funds. And there is all kinds of bee ess being bandied about. Let's cut through this and answer the damn question.
THE ONLY APPROPRIATE INVESTMENT VEHICLE FOR CUSTOMER SEGREGATED FUNDS IN A FUTURES COMMISSION MERCHANT IS
UNITED STATES TREASURY PAPER, with the specific Treasury product being:
90 DAY T-BILLS.
This is the decades-long convention, it is COMMON KNOWLEDGE, and it is JUST COMMON SENSE. The entire interest dynamic for FCMs and IB's was based on one metric and one metric only: 90 DAY T-BILL RATES.
I don't give a CRAP how low interest rates are, and how much revenue has been lost to FCMs due to low rates of return on Treasury paper over the last 3-4 years. IT IS IMMORAL TO EXPOSE CUSTOMER SEG FUNDS TO ANYTHING MORE RISKY THAN THE EXTREMELY LOW-RISK U.S. T-BILL MARKET.
As an IIB, I wasn't making any interest return on my posted escrow capital that I had to carry with my FCM over the last two years. When I first started BCM in 2006, the 90-Day T-Bill yield I was earning on just my escrow accounts paid my entire quote system expense. When the Fed synthetically suppressed interest rates down to next-to-nothing, that revenue to me went away. So . . . does that mean that I then was allowed to trade illegally in my customers' accounts and gin up fraudulent commissions in order to make up for that loss of revenue?
HELL NO. My loss of interest income was MY PROBLEM, not my customers' problem. And in the same way, the FCM's loss of interest income did NOT give them the right to raid customer seg funds and "invest" those funds in uber-leveraged, uber-risky bets.
One last point: REMEMBER, if the bets that Corzine made with the customer seg funds had actually "worked" and paid off, the CUSTOMERS WOULD NOT HAVE RECEIVED OR SHARED IN ONE RED CENT OF THAT PROFIT. That profit would have been kept in total by the FCM, and the customers would have never known that THEIR SEGREGATED FUNDS were the funds used to make those bets. The psychopath Corzine was willing to make the uber-risky, suicidally leveraged bets because HE WAS PLAYING WITH OTHER PEOPLE'S MONEY.
90-Day U.S. T-Bills always have been and always will be the ONLY acceptable investment vehicle for customer seg funds in an FCM.
Oh, and Jon Corzine is a miserable liar and a sociopath who should spend the rest of his life in prison.
