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MF Global: Does Money Vaporize, Just Like That?

Did the “vaporized” MF Global money dry up, like a raisin in the sun? Or did it explode? Probably none of the above—as investigators hunt for the missing cash, the answer will probably be much less abstract. Meanwhile, Midwestern farmers are sweating the firm’s incompetence.

One of the weirder headlines of our postmodern financial era came in the wake of MF Global’s collapse: the money “vaporized.” What, exactly, happens when money vaporizes? Does it dry up, like a raisin in the sun? Or does it explode? Water is often used as a metaphor for money—it flows, pools, and dams up. Maybe it can turn into vapor, too!

Local financial journalist Francine McKenna, who runs the invaluable Re: The Auditors and who also writes for Forbes and American Banker, recently discussed this question on the Kaiser Report. She’s a former accountant, so some of the things she’s talking about are fairly arcane, at least for a layman. But I was comforted by the fact that her interviewer, a Wall Street vet, seemed just as perplexed as me, not to mention the rest of the world.

“Vaporized” is sort of a euphemism for “yeah, we’re not exactly sure right now.” So that vapor can sort of be reconstituted, or at least traced. The Wall Street Journal video below is a good explanation. The money didn’t so much vaporize as it all got thrown into a big account; MF Global was supposed to keep track of whose money was whose, but that didn’t happen.

What seems to have happened was, to use a very simplistic metaphor, like something I have to deal with. My wife gets money from her law school, as a result of the public-interest nature of her work, to pay off her loans. It would be convenient if that could just go from the school to the lender, but instead they just cut us a big check every year. The plan is to put it in a separate savings account, because it’s not really our money, and I don’t want to have to do bookkeeping all year on it. But we can put it wherever we want, so theoretically we could just put it in our checking account and make sure it all went to the lender on time. But imagine, say, I got hit by a bus: in the panic and the bills, that money could easily end up with the hospital, the insurance company, cell phone bills, the landlord, and so forth.

If I was good with money, which I’m not, I could quickly retrace it. I’d think that MF Global, being a place that exists to deal with money, would be good with it. Turns out they weren’t. And this could be a serious problem here in the heartland:

Thousands of former clients of the failed brokerage, including farmers, cattle ranchers and investors, have not yet received tax forms that detail their profits and losses, preventing them from preparing accurate returns for the Internal Revenue Service ahead of a rapidly approaching deadline.

[snip]

Rohrs has received 1099 forms for each of his two MF Global accounts, which were transferred to brokerage R.J. O’Brien. However, one 1099 reflected only losses he incurred following the transfer in November, leaving out gains earned during the first 10 months of the year.

[snip]

Customer advocate group the Commodity Customer Coalition is pushing the government for more guidance. It estimated that “not a single MF Global customer has filed their 2011 tax return as a result” of the trustee’s delay in sending out 1099 forms.

One man’s “vaporized money": another man’s “molecular economy.”

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