Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Meanwhile, from the other side of the Atlantic came news of trouble at the high-profile brokerage firm MF Global. American regulators had ordered MF Global to boost its net capital to cover against the multibillion-dollar position it had built in Irish, Spanish, Italian and Portuguese sovereign bonds. Inverting the legendary big short position that speculators had built against mortgage-backed securities in 2007, MF Global had taken a “big long” in eurozone sovereign debt. It was gambling that other investors were underrating the stability of the eurozone and the value of peripheral bonds. As institutional investors like pension and insurance funds and banks offloaded their eurozone securities, it was MF Global that bought them up. As had been true in the case of the big short, there was a race between market sentiment and the ability of the contrarian investor to stay liquid. In October 2011 time ran out on MF Global. The regulator’s call for more capital triggered inquiries into its balance sheets and revealed that to tide it over in the face of huge market pressure it had been dipping into client funds. By the end of October one of the most high-profile investors betting that the eurozone did indeed have a future collapsed.36 It was a bitter irony that it was precisely as MF Global filed for protection that the eurozone finally began to take steps toward a more decisive resolution of the crisis. On October 23 the European leaders held a gathering to sketch the outlines ...

Its's all timing