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16 Sep 2012 - Futures Industry Must Honor Pledge

Let me begin by saying I firmly believe the commodity futures markets have an important role to play today for agricultural producers; first of all, in price discovery; secondly, and even more important, in risk management.

Then in my next breath, let me say how disappointed I am in the inability of the futures industry to do what it says it can do, that is to police itself. All we need to do is look at the past year. The most recent reminder came just a few days ago with the announcement that Russell Wassendorf, CEO of Peregrine Financial Group in Iowa, is facing 50 years in prison, which at his age amounts to a life sentence, for his role in bilking thousands of customers out of millions of dollars. He did this over the past 20 years, and went completely undetected by the industry that says it is responsible for doing ‘self-policing’.

Add to that last October when MF Global declared bankruptcy. The CEO of that company, Jon Corzine, said he had no idea where the $2 to $3-billion in customer funds disappeared overnight. Again, the customer’s funds, that are supposed to be untouchable, were not, and those traders and producers are still waiting for their money. It forced many farmers who had hedge funds with the firms to borrow money for their needed inputs at planting time this past Spring.

So the question I ask of the Commodity Futures Trading Commission, the government agency that oversees the markets, the futures markets themselves and the self-policing arm, the National Futures Association is...Where were you when all this was happening and why weren’t you doing your job? Punishment of the wrong-doers is fine, but it doesn’t bring the dollars back to those who believed that their funds were safe.

Beyond that I have heard from several angry farmers who have contacted the National Futures Association asking to get details of the status of their funds, only to be told, “ . . . this is confidential information, we can’t give it to you.” These are the farmer’s funds, for heaven’s sake, why can’t they get this information?

It is time for the futures industry to get back to basics and prove it can do what it says it can do. Integrity and trust in the markets have been severely damaged and failure to self-police will lead to more government rules and regulations.

My thoughts on Samuelson Sez.