The Collapse of MF Global

Floor Speech

Ms. KLOBUCHAR. Mr. President, I rise today to discuss the collapse of MF Global. While its demise hasn't triggered the sort of economic turmoil we saw in 2008, let me assure you it is having a devastating impact on the livelihoods and savings of many in my State.

Sadly, the story of MF Global is all too familiar. It is the story of another overleveraged financial firm that took on too much risk and did little to disclose its bets. Once again, the folks whom the system was supposed to protect have been left holding the short end of the stick. Three years after the U.S. financial system was nearly toppled by this sort of recklessness, it seems little has changed on Wall Street.

Today, Mr. Corzine appeared before the House Agriculture Committee to testify on events that led to the bankruptcy of MF Global--the firm he led--as well as the whereabouts of roughly $1.2 billion in customer funds that remain missing. While taking responsibility for the collapse of the firm in his testimony today, Mr. Corzine chose to use much of his testimony defending the strategy that ultimately led to the firm's demise and that left many in my State with their life savings on the line. In regard to the missing customer funds, he responded that, as CEO of MF Global, he wasn't really in the position to know what happened.

If executives at MF Global were willing to steer their ship into dangerous waters, they should be able to account for the safety of their customers' funds
held in segregated accounts--something considered sacred within these markets.
If anybody still doubts that Wall Street has not learned from its mistakes, I would have you talk with the farmers in my State who can't access their life savings and aren't sure when or how much of it they will ever get back.

Dean Tofteland, from Luverne, MN, a town of 4,600 people--his family grows corn, soybeans, and raises pigs on their farm in southwest Minnesota. He currently has over $200,000 in what was supposed to be a segregated MF Global account, which he cannot access and which he may never fully recover. He is not a speculator. He invested to reduce his risk--locking in prices ahead of the growing season so he is protected from price fluctuations that can eat into his profits.

Talk to Dennis Magnuson, a pork producer from Austin, MN, who had a substantial amount of money with MF Global that he used to stabilize the cost of feed for his pigs. Both Senators in the Chamber are from States that have livestock, and they know the cost of feed has been escalating. That is why he vested. He knows the risks--price swings, poor crops, bad weather. These are all part of farming. But his account at MF Global was supposed to help manage those risks, not become one.

It is not just individual farmers; the effects of MF Global's collapse are rippling through the whole agricultural community.

Here is a letter from Philip Deal, who writes:

I am the CEO and General Manager of Wheaton-Dumont Co-Op Elevator in Wheaton, MN.

Wheaton is located on the western edge of Minnesota by the North Dakota/South Dakota border. Our cooperative has approximately 1,200 active members and a total membership of more than 5,000. So the MF Global situation affects a great number of people here.

We employ about 115 people, and we are easily the largest nongovernment employer in all of the communities we operate in.

Our business uses a Chicago Mercantile Exchange and Minneapolis Grain Exchange to hedge grain purchases and sales. We do not speculate. We have always relied on the implied fiduciary responsibility of the Commodity Futures Trading Commission and the Chicago Mercantile Exchange to safeguard our segregated funds.

The impact to our business has been huge. We have been forced to double-margin the missing funds. This has increased our interest expenses and decreased our ability to buy and sell grain.

Simply put, we cannot afford to lose any money on this deal. On a local level, the very future of our business is at stake. On a larger level, if segregated funds are lost, market participants will leave the market, open interest will decline, and market liquidity will fall. Everyone loses.

Sadly, Philip Deal is correct. The failure of MF Global has caused millions in investor losses, created significant uncertainty in the markets, and has left many in my State confused and angry--and they should be angry.

Just 3 years after the 2008 financial collapse, and what has changed? How can ordinary folks trust this system? Who can they trust to protect them?

Two weeks after the collapse of MF Global, it was announced the Commodity Futures Trading Commission, which is leading the investigation into the missing funds, will receive only two-thirds of their budget request for 2012, potentially limiting the agency's ability to do its job at a time when the markets they oversee are expanding exponentially. This is not acceptable. We need to make sure our regulatory agencies aren't allowing Wall Street bankers to go down the street in their Ferraris while those standing up for the middle class--those at the agencies that are supposed to regulate them--are not following behind in a Model T Ford.

We don't know with certainty what the ongoing investigations into MF Global will find, but there is little doubt Congress has work to do. Already the CFTC, after our hearing in the Senate Agriculture Committee last week, has come up with some changes they are proposing to how these funds can be invested. I think more needs to be done. There are also rules of disclosure being considered and that were discussed today at a House hearing, as well as in our Senate Agriculture hearing, that need to be changed. These changes were made to the CFTC rules in 2000 and in 2005 they loosened the rules and expanded things. They need to go back to where they once were, where they protected investor savings.

Investor trust in segregated accounts is vital to market confidence and is the cornerstone of customer protection in the commodity futures market. This trust has been breached. I urge my colleagues to join me in demanding those responsible for the MF Global failure be held accountable for their actions and that steps are taken to prevent this from ever happening again.

Mr. President, I yield the floor.

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