Ann Barnhardt, a hedge broker specializing in cattle and grain, is quitting the brokerage portion of her business, and has posted an announcement as to why.
Big deal? Uh, yeah.
I’ve had similar more general conversations with several people along the lines Ann follows in her announcement over the past several months (really, upon reflection, including relatives, over the past year). These discussions obviously pre-dated what Ann saw as the point which dictated her exit. I’ve never articulated my thoughts on the situation here at BizzyBlog because, as a non-trader and non-insider who doesn’t closely follow the day-to-day ebb and flow of the markets, I’m not in a position to prove them or to know that I’m interpreting matters properly. Ms. Barnhardt is.
That’s why what follows is a big, big deal (link is to her blog’s home page, as Ann doesn’t have permalinks; excerpted heavily because of the importance of her assertions; HTs to Zero Hedge and Rush Limbaugh):
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.
The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid – even as their clearing firm collapsed and was quickly replaced by another firm within the system.
Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.
I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.
… And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.
… Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.
To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. … my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.
As for me, I can only echo the words of David:
“This is the Lord’s doing; and it is wonderful in our eyes.”
My contention is that the extent of the lawlessness goes far beyond the futures markets. Though there were obviously several decades of missteps and craven political calculations which led to it, I insist that the final of three key tipping points of the financial system’s credibility occurred on October 14, 2008, when Hank Paulson put a figurative gun to the heads of the CEOs of the nation’s largest banks, and — utterly without any legal authority, i.e., lawlessly — forced them to “accept” partial ownership and “temporary” de facto control of their firms.
In that same general time frame, the Federal Reserve, in this case secretly and again utterly without any authority, began engaging in massive transfers of funds to troubled domestic and overseas entities, while Fannie Mae and Freddie Mac’s implosions exposed how the two government-sponsored frauds-by-design systematically lied about the quality of the mortgages underlying the securities they issued and the loans they kept on their own books to the combined tune of likely trillions of dollars. No one involved, or at least no one involved at a sufficiently high level, has done hard time.
We began heading down the road Ann cited three-plus years ago when Fan and Fred collapsed without personal consequences for anyone, when Ben Bernanke turned the Fed into the world’s discount window, and finally when Hank Paulson formally announced the beginning of the government’s tyranny over the private portion of the banking system. Note well that all of this took place under cover of the final two months of a presidential election campaign, when apparently no one is allowed to object to anything lest they be accused — perish the thought! — of “politicizing” matters. Now, barring a sea change, it appears that someone who gambled away hundreds of millions of dollars which weren’t his won’t face consequences, while those whose funds were looted are becoming victims of system-enabled theft.
Ms. Barnhardt doesn’t understand how in good conscience one can confidently invest other people’s money, or make recommendations to people as to how they should invest their own money, in what have become lawless financial markets. Neither do I. People who wish to invest on their own are obviously free to try their luck, and of course some will do well. Others won’t. But please, let’s not have anyone kid themselves. In a lawless market, if you do well, it’s because you got lucky, not because you were smart — unless your definition of “smart” includes keeping your head down and not getting noticed, or joining the morally bankrupt cronyism game yourself.
Thank you, Ann Barnhardt. How many other financial advisers, planners, and “market” participants who know the truth are going to have the courage to stop playing along?
Y’know Ann, there’s an Oval Office in Washington which could really, really use a morally grounded occupant — or a reliable, reform-minded Treasury Secretary.