The Derivative Project

Open Letter to The New York Times and the Star Tribune

Open Letter to The New York Times and the Star Tribune

Dear Editors of The New York Times and The Star Tribune:

The Star Tribune, Minneapolis, Minnesota published an article, MF Global Woes Ripple Into the Heartland this week concerning the plight of Minnesota farmers who have had thousands of dollars, used for hedging their crops, frozen, due to the MF Global bankruptcy.  These farmers have been told they may only recoup 66 percent of their money, if that.

The New York Times and the Star Tribune both published an Op-Ed, July 2010, by Minnesota wheat farmer Betsy Jensen, The Wall Street Journal, “Financial Overhaul Casts Long Shadow on the Plains.” joined with The New York Times by publishing an earlier heart-breaking account by farmers in Nebraska rattled by the Dodd Frank rules on July 13, 2010,   Both Ms. Jensen’s Op-Ed and the Wall Street Journal article inferred increased margin on brokers and limits on speculation would harm them, the farmers, which has no basis in fact.
Lack of funds to post requested margin, due to excessive leverage, is apparently what caused the collapse of MF Global. 

Customers’ and farmers’ segregated funds were used to make the margin calls by MF Global. Minnesota farmer Besty Jensen was advocating against increased margin for these trades, as were the Nebraska farmers. It was both the inablity of the brokerage firm, MF Global, to self-regulate and the failure of the regulators, the CME, to detect this unprecedented use of segregated funds.

It is indeed ironic that a Minnesota farmer called for less regulation, less margin and more speculation in an Op-Ed in The New York Times.  Congressman Collin Peterson (D-MN), ranking member of the House Agriculture Committee called John Corzine, former CEO of MF Global, to testify next week before the House Agriculture Committee.  Congressman Peterson said in the House Agriculture Press Release last Friday:

  • “The circumstances surrounding the MF Global
    bankruptcy are unprecedented. Many of our constituents have lost funds
    and many more have lost confidence in futures and derivatives markets…
It is quite apparent traders, hedge funds, and/or brokers, such as MF Global, convinced Ms. Jensen to write this Op-Ed, as it is in direct opposition to the publicly stated position of the National Wheat Association.  The Wheat lobby, which Ms. Jensen’s Op-Ed says she represents, asked the Senate in 2008 to investigate excessive speculation in their markets.

The 2009 Senate investigation, entitled “Excessive Speculation in the Wheat Markets”

concluded excessive speculation was harming the farmers ability to have an effective hedge. 
The grid-lock in Washington D.C. is the result of a poorly informed electorate and a poorly informed Congress.  Media, such as The New York Times and the Star Tribune and Minnesota Public Radio are a significant factor in this, by not providing the facts and fostering rational, factual debate on issues surrounding Wall Street regulations and regulators.

It is time for informed debate. Confidence has been lost in every capital market –from equities to bonds to futures.  Urgent action is needed by Congress to restore this confidence.  Here are the two crucial first steps:  (1) getting the facts on the table, with the help of main stream media and (2) eliminating self-regulation by the brokerage industry, immediately.

Editors of The New York  Times and the Star Tribune, here is the original letter sent to you in August 22, 2010 for publication today.

The New York Times

Star Tribune

“Reap What you Swap” (New York Times Op-Ed August 13, 2010) clouds discussion of
Dodd-Frank by making the incorrect inference that the bill may increase costs and/or
somehow limit legitimate speculation for farmers and other end-users.

A Senate investigation determined in 2009 that the futures markets in wheat had been
rendered in effective, as a hedging tool; from the excessive speculation by commodity
index funds’ ag swaps hedge exemptions.

Here is the position of the National Association of Wheat Growers in a letter (September
29, 2008) to the Commodities Futures Trading Commission on speculation and
regulatory reform of derivatives used by farmers:

“We encourage the Commission to consider ways that will bring cash and futures
markets together at expiration so that these contracts may once again serve as hedging
tools for our members. A better solution is to close the swaps loophole and apply the
appropriate speculative position limits to these entities.”

It would be helpful if the media would ascertain the validity of opinions that serve to
distort the legitimate, underlying purpose of derivative reform.


Susan Seltzer
The Derivative Project

August 22, 2010