Jim Puplava: Joining me as my special guest on the program today is Ann Barnhardt, formerly of Barnhardt Capital Management. And Ann, you were a commodity broker for eight years and then you formed your own independent brokerage for six years. A couple of weeks ago you made the painful decision to shut your doors because you felt your clients’ money and positions were no longer safe. What led you to draw those conclusions?

Ann Barnhardt: Well, obviously, it was the MF global collapse and more specifically the fall out after the MF Global collapse and the reaction by the CFTC, the SEC and most especially by the Chicago Mercantile Exchange [the “Merc”]. The actions, specifically by the Merc after the MF Global collapse were unprecedented, unfathomable and completely and totally intolerable. The Merc itself basically did the equivalent of sticking a nine millimeter in their mouth and pulling the trigger by not stepping forward, backstopping the MF Global client accounts and at the very least, the Merc should have allowed the MF Global customers to liquidate their accounts and then transfer to other firms. What the Merc did was the worst possible thing—they froze those people out of their accounts and didn’t allow them to liquidate while the markets continued to trade. And I cannot over-emphasize the importance of that, the risk that those people were exposed to in the cattle business (and my forte is cattle. I am actually a cash cattle person. My brokerage business was geared almost exclusively towards livestock and grade. I have a lot of contacts in the cattle industry who didn’t necessarily do their futures business with me but were contacts of mine who did do business through brokers that cleared through MF) who lost tens of thousands of dollars on hedge positions that they wanted to get out of but could not get out of in the week and a half after the MF Global collapse.

This has never happened before. This was a complete breach of fiduciary duty by the Chicago Mercantile Exchange itself to the point that it literally has destroyed the entire paradigm. I got to the point where I could no longer tell my clients that their free cash customer funds, not even exposed to the market place—just their cash sitting in their account, non-margined—was not safe. I couldn’t tell them that their money was safe. At that point it was morally incumbent upon me to get my client out of this completely dysfunctional, basically destroyed marketplace. Get them off of those railroad tracks and get them away from the risk. Now, I didn’t clear through MF, but with the European collapse and knowing what we know about how these financial entities are leveraged in European paper and the cascading nature of all of this I had to act before the proverbial poop hit the fan because if you sit around and you wait until after the poop hits the fan it is too late. You wouldn’t get anybody out. To me, it wasn’t really a painful decision. It was a complete no brainer.

Jim Puplava: In the past, when firms went under customer funds were intact and the exchanges would step in, as you mentioned earlier, to backstop everything to keep customers 100% liquid. And normally, a quick transfer from the bankrupt firm, the bankrupt firm would be immediately replaced. Why do you think they did not allow that to happen this time?

Ann Barnhardt: You tell me. I will use the word again, it is suicidal. What they did was suicidal. So you are absolutely right. Up until last month on Friday, October 31st, the customer segregation of funds rule was utterly sacrosanct. Even when Refco imploded and imploded quite dramatically in 2005, no customer funds were gone. It was on the prop trading side of the company but the customer funds were there, were accounted for, and it is the onus of the Mercantile Exchange to audit these FCMs [Futures Commission Merchant]. MF Global was under the auspices and under the supervision, of the auditing supervision, of the CME. And I believe that MF was audited not just annually, but quarterly. Also, there is the question of how in the world can the Merc miss the margin being posted. The Merc is supposed to be moving equity and doing margin wire transfers twice a day every day. How could those customer funds be “missing”. They aren’t missing. They were stolen. They were stolen by Jon Corzine and his cadre of associates at MF Global. So yes, again, to your listeners who may not fully appreciate the gravity of this, this has never, ever happened before. Nothing even close to this has ever even happened before and it is the function of the Mercantile Exchange itself—the reason why the exchanges exist is that they stand in the middle of every transaction and they act as the de facto counterparty to every single transaction so that, for example, my clients never had to worry about the credit worthiness of the other individual, whoever it might be, who is on the other side of any trade that they did.

Now, for every buyer there is a seller and it is a one-for-one, zero-sum game; but to ensure the credit worthiness and the integrity of the market, the function of the Mercantile Exchange itself is to stand in the middle of every transaction and be the guarantor. So a year ago when Terry Duffy held a press conference [watch it here] and said never in the history of the Mercantile Exchange has a customer ever, ever lost funds resulting from the collapse of a firm, he was telling the truth a year ago. Everything changed on Halloween of this year though. And that's why I had to shut the doors of my brokerage because I could not in good conscience continue forward knowing that the Mercantile Exchange was no longer going to fulfill their fiduciary duty.

Jim Puplava: In the futures market, which is highly leveraged, if you open up a futures contract you are usually leveraged 10-to-1, so they require an exceptional firm base on which to function. And the major integrity of the whole system is the segregation of customer funds. That was breached by MF Global. And let’s not sugar coat this, Ann, basically management stole all of the non-margin cash, invested it in highly speculative securities and what has astonished me has been the reaction of the exchange and regulators—where is the investigation into Jon Corzine?

Ann Barnhardt: Well that is the point of this. We are now living in a lawless, Marxist, Communist, usurped, what used to be a representative republic but is no more. This is no longer a nation of laws. This has now transformed into a nation of men. It doesn’t matter what crime you commit. In the case of Jon Corzine, this man has stolen in excess of a billion dollars. I think by the time it is all panned out it is going to be closer to $3 billion of customer funds that he stole. Why did he do it? Is he stupid? Well, of course he’s not stupid. This is a former head of Goldman Sachs. This man doesn’t have a low IQ per se. Why in the world would a man wake up in the morning one day and say you know what, I think I am going to steal all the customer seg funds in this FCM that I’m running, which is the biggest FCM in the country. Yeah, that sounds like a good plan. No. Why would a man like that even engage in a nefarious plot like this? Because he knew going into it he could get away with it. And the reason he could get away with it is he is in tight with the Obama regime. He is one of Obama’s highest fundraisers. Earlier this year Jon Corzine had a fundraiser dinner at his New York City apartment for Barack Obama where it was charged at $35,000 a plate. Okay? He bundled high six figures for Obama in one evening! He is a crony of the regime. This is Marxist Communism. There is no rule of law. And these people, these poor MF customers are just sitting out here helpless to do anything because there is no law enforcement because this is no longer a nation of laws. The rule of law no longer exists. There is no longer justice in this nation. And no nation, no culture, no society can survive if there isn’t a foundation of justice. That is why we are teetering on the precipice of collapse and I foresee civil war coming within the next several years.

Jim Puplava: You know, we had Gerald Celente on this program and he had an account with Lynn-Waldok, which was eventually taken over by MF Global, and he's been trading futures in gold. He had a plan when he built up enough he would eventually take delivery. Well, they stopped him out of his trade, sequestered his margin (or his cash) and forced him out of a trade and closed his account.

[Click here to listen to Gerald Celente's MF Global experience]

So what you are talking about—because the exchange did not backstop and then froze customer accounts—is they forced, would you say, millions if not hundreds of millions of dollars of losses on these customers?

Ann Barnhardt: Absolutely. If we are talking several billion in customer seg funds then the losses that were incurred could easily by the customers in that week, week and a half that they were frozen out could easily, easily get into the hundreds of millions it might even breach into the low billions. No question about that. And yeah, and even with options. You know, I talked to cattleman who have put options on as hedges to put a floor underneath the price of the cattle in case—so imagine this, you buy a put option four months ago, you pay the premium. You post that money. Then this happens, you are frozen out of your account. Your account gets transferred to another firm, without your consent. By the way, none of the customers were allowed any input into this. Their accounts were just sent to RJ O’Brien and other firms like that without their consent. And then once the positions were transferred, even if it was a risk limited position like a long put option, then the new clearing firm called them the next morning after the trade settled and said there was no equity in your account because all that money got stolen. So you are going to have to pay the premium for this put option again. So it's doubling the cost essentially for a lot of these people out here who are dealing in what is supposed to be the very risk limited paradigm of long options. The entire situation could not have been handled any worse. In fact, I would take it a step further. It was handled so poorly I can’t imagine that these people are that stupid at the Merc and at the CFTC and so forth. I can’t believe that the bankruptcy trustee is that stupid. This almost seems like it was so bad that it had to have been nefarious.

Jim Puplava: You know, Ann. You believe that MF Global is just the tip of the iceberg. That there is massive industry exposure to European sovereign debt. In fact, the day you and I are doing this interview the Fed just engineered a major swap with central banks. It was a central bank love fest on Wednesday of group money printing. That tells me that central banks acting in unison the way they did shows they are afraid that there's something big out there that is about to happen and that they are trying to maybe plug a hole in the dyke.

Ann Barnhardt: Well, if anybody out there understands fourth grade arithmetic you know from metaphysical certitude that Europe is done. Europe is mathematically impossible. It cannot be saved. You want to make a start. You even want to make a start at trying to bail out Europe we are talking $25 trillion just to start. And it would then—if you were going to bail out the entirety of Europe—you would now be talking about hundreds of trillions of dollars. Okay, people, there isn’t that much wealth or money on the surface of the earth. The total gross domestic product of the entire planet earth is I think just under $70 trillion. And we are talking about in excess of $100 trillion to bail out Europe? This is now mathematically impossible. These people have so leveraged themselves and so leveraged these governments in these countries giving their brain dead citizenry free hand outs and entitlements that it is now mathematically impossible to save the paradigm. It's not a matter of if the global financial system is going to collapse. Oh, it's going to collapse. You better trust and understand that. It's just a matter of when. And these piddling little maneuvers that these people are making that the Fed is doing. Oh, we are going to give Europe some money. Okay. What I saw this morning, what the Fed is getting ready to do in terms of Europe, is keep Europe going for another seven days. Well, fantastic. Thanks for that. That is literally the brain dead mindset of these politicians. All they are doing is looking to kick the can down the road. At first it was kick the can down another 10, 12 years. Then it is kick the can down the road for another year. And then it was well, let’s kick the can down the road for another few months. Now we're literally to the point where all we can do is kick the can down the road for a matter of a few days. It's not going to make it. I will be very surprised if we make it until Christmas.

Jim Puplava: You know, one would have thought Ann, after the 30 to 40:1 leverage leading up to the financial crisis of 2008, pre-Lehman, that financial firms would have learned. And especially a guy like Jon Corzine that saw Goldman have exposure to AIG with $13 billion in credit default swaps which we bailed him out 100 cents on the dollar. Apparently, this lesson was not learned at MF Global because the leverage, what was the figure? I think it was 100:1—it was just astounding.

Ann Barnhardt: The only lesson that these criminal degenerates learned from the 2008 situation was that they could do anything they want and that pimp daddy government would bail them out. You have to understand, people like Jon Corzine, these are evil, evil people. He went into MF Global looking to rape that company personally for his own good. And that's what the motivation of a lot of these people are. You have to get your heads around this. You have to get your heads around the fact that there are truly evil people in the world who do not give a crap about anyone or anything except themselves, their own personal wealth and their own personal power. And they would sell their grandmother to the Nazis for a nickel without hesitation if they thought they could get away with it. It's the same with people like Jon Corzine, and then we have talked about the fact that Jon Corzine is tied into the Obama regime. And we now know that the government is absolutely stuffed to the gills almost exclusively with this same type of moral degenerate culture. These people that are in the government—not just the Congress and Executive Branch but also in the bureaucracy—they are in it for themselves. They are in it for the money. And two weeks ago when we had the 60 minutes exposé on the insider trading, those of us who have been in the business have known intuitively that that was going on for a very, very long time. We knew that there was front running going on by politicians. A great example of this is someone like Harry Reid. When he entered Congress, Harry Reid had a low six-figure net worth. He now has an eight-figure net worth. And he's never done anything except be a United States Senator. The salary I think of which is something like $170,000 a year. How does that happen? How does a man with $170,000 a year salaried position go from having a six-figure net worth to an eight-figure net worth? That doesn’t make any sense unless he is doing nefarious, illegal, insider trading type deals.

It is obvious what's been going on. You have to start acknowledging these people for what they are, and that is moral degenerates who are basically sociopaths and psychopaths. Meaning they don’t feel any sympathy or empathy for other human beings. The only thing they care about is themselves. They will do anything. They will steal. They will lie. They will cheat. They will lie to your face. They will look in the camera with this tremendous earnestness and lie with fork tongues through their teeth in order to advance their wealth and power. And if we, as a people, don’t get real about this, if we keep having these Pollyanna visions that these people are all on our side and they are really looking out for us. And they are doing the best they can. We will be cork screwed into the ground and this nation will be reduced to a smoldering rubble. You've got to wake up.

Jim Puplava: I would like to go back to MF Global for a second. There is something even worse as you look into the details—it's been hinted and that there could be possible clawbacks. I’m wondering if you might explain that possibility and what a clawback means for, let’s say you had an account at MF Global and, I don’t know, you didn’t feel comfortable with the commodities market—the volatility. So you pulled the money out. There is a possibility they can go after you.

Ann Barnhardt: Oh, absolutely. Clawback is a fairly common tactic in bankruptcies. And what it is is looking at the bankrupt entity and looking at the money that went out of that entity in the time period immediately preceding the collapse. And I don’t know what time frame they would look at MF. I don’t know if it would be 30 days or 60 days or 90 days—I have no idea. But the trustee has in the last two weeks said that yes, clawback is on the table. So what that means is, let’s say for example, you are a savvy individual and you are a good steward of your money. And you are doing business with a firm that clears through MF Global. You are looking at MF Global’s publicly available bond yields. And you see in the six weeks before the collapse that their bond yields spiked parabolically [see chart here]. They went from 6% to 18%. That is a sure, sure sign of massive trouble. And so being an intelligent, informed, aware person who is a good steward of their wealth, what do you do? You say I’m getting out of this company. I am getting my money out of MF Global because something bad is about to happen looking at these bond yields. You can also do the same thing looking at the stock price. You could do the same thing looking at downgrades by the ratings agencies. There's all kinds of ways that you can come to these conclusions.

The other thing is if you're a hedger. If you are a bonafide hedger—if you had positions on and the market moves in favor of your hedge position on the futures side, you don’t leave that equity sitting in your account. What your broker like me does is they wire that money home because you are using that money probably to either offset a cash transaction or to pay down a revolving line of credit. You're not getting any interest on your money sitting at MF Global so you might as well get that equity out of there, send it home and pay down your line of credit so you are not paying interest on that money. So there would organically have been lots and lots of money flowing out of that company in the period immediately before the collapse. Either due to natural hedges, organic in and out functions or due to intelligent people looking at the bond yields and saying uh oh we better get out of here. The bankruptcy trustee can legally claw that money back. Say okay, I am going to go and I am going to dive into your pocket now. And I am going to claw back your money which you, in your responsibility and in your good stewardship pulled out of a company that you knew to be in trouble. Oh yeah, so these MF customers will essentially be raped three times—they will have their cash stolen out of their accounts, they were then locked out of their position so they couldn’t trade and were fully exposed to market risk, paralyzed, unable to do anything for excess of a week. And then, number three rape, is having the bankruptcy trustee come back and literally seize money out of your own personal checking accounts and business accounts and so forth. And clawing it back to feed this bankrupt entity. And you know what the cherry on top of the sundae of all this is? And this is what blows my mind—the bankruptcy trustee, right now, as this is being recorded on the 30th of November. The bankruptcy trustee is still allowing MF Global to trade proprietarily for itself, for the company proper.

It is unbelievable. The rule of law is dead in this country.

Jim Puplava: You know, adding to this just prior to that was the restructuring of Greek debt, where the derivatives association announced that it was a voluntary restructuring so therefore the bankers didn’t have to pay out on credit default swaps. So what you have here, Ann, I believe is a system where the government is protecting the too-big-to-fail at the expense of the customers. And with it, the rule of law is thrown out to protect Wall Street, what does that say about the integrity of the system? It is no wonder people are losing faith.

Ann Barnhardt: There is no integrity in the system. And let’s make it simple—it is not just about the government protecting the “too big to fail banks". It is about criminal oligarchs as individuals protecting each other. They don’t give a crap about the customers of JP Morgan or you know, Citi or Goldman or anything. What they care about is each other. The Obama regime is protecting Jon Corzine proper, the individual. Because he is one of them. He is one of these criminal oligarchs. And for your listeners who may not remember, Jon Corzine is a former congressman. But immediately preceding MF Global he was the Governor of New Jersey and he just cork screwed Jersey into the ground. It is Chris Christy who beat Jon Corzine to become the governor of New Jersey. So yes, this Republican, Chris Christy, was elected in New Jersey—uber liberal, blue state New Jersey—because Corzine financially destroyed this state. And again, this guy Corzine is former head of Goldman. He is not stupid. You have to stop thinking that these people are just misguided or that there is some sort of a difference of opinion on economic theory. These people are nefariously trying to destroy everything in this country. It's called the Cloward-Piven strategy. Go in and destroy and collapse the entire economy, everything and then rebuild a new Marxist, Socialist, fascist state out of the burning rubble of this destruction. This is intentional. This is nefarious. This is not a function of incompetence. It's a function of malice of forethought and conscientious theft and destruction.

Jim Puplava: What would you advice? I am a long term believer in the bull market in commodities, but how do you play commodities when the futures market is no longer secure? And what does this do to the proper functioning of the markets? In other words, now that you've closed your firm because you don’t believe in the integrity of the system and we just listed a series of reasons why—not honoring contracts, appropriating funds, not allowing trades to go off. Not one investigation, in fact, this goes even further than that. We had Bill Black on the program recently, who helped make prosecutions in the S&L scandal. And at that time, 2,000 individuals went to jail. There has not been one criminal charge brought by the justice department since the 2008 crisis. So given that this is where we are, what do you advise and what will you do personally?

[Listen to Bill Black's tell-all interview on why no one has gone to jail]

Ann Barnhardt: Well get the hell out. Get out of all paper and it's not just the commodities markets. This is going to cascade through everything. It is going to get into the equities. It is going to get into 401ks and IRAs, it is going to get into pension plans and so on and so forth. Total systemic collapse. Get out! I don’t know how I can be anymore plain about this. I say this over and over and over again and then I get scads of emails saying, well I can’t get out of my 401k. Yes, you can. Yes, you can. Take the penalty and get the hell out of there. What would you rather do? Would you rather pay the 10% penalty or would you rather have it all go up in smoke? Because that's what we're staring down the barrel of. Number two, we seem to have this backwards. In terms of what I do, cattle and grain specifically, the futures markets are the derivatives. The futures markets are derived from the actual cash commodity market. Now, I am blessed because my area of expertise is actually in the physical cash market, actual cattle on the hoof. So I have a consulting firm and I'll continue to teach cattlemen how to trade actual physical cattle. But, yeah, to all the people out there listening—you are going to have to get away from paper and get back into physical commodities, the real deal. Anything that is on paper anything that involves a promise or a commitment is no longer valid because as we said there isn’t a rule of law anymore. People can steal from you. Your money can be confiscated. And think how easy now it is to confiscate people’s wealth. Most of our wealth in this society exists as zeroes and ones on a computer server. It takes no effort whatsoever to steal zeros and ones on a computer server. So what I have been telling people is you need to get into physical commodities. And the rule of thumb is if you can stand in front of it with an assault rifle and physically protect it, then it's real—it's a real commodity. That includes food, that includes water, that includes long guns and ammunition. That includes fuel. That includes precious metals—gold and silver coinage. Most especially silver coinage because silver is the metal of barter and transaction and currency. Gold is the storage metal because it's so valuable per ounce. And also, silver is extremely undervalued relative to gold because that market has been synthetically suppressed for the last several years by again, these nefarious actors. So yeah, reallocate into physical commodities.

Jim Puplava: How do you know that somebody like just as we saw in 2008 or recently with MF Global—that is somebody like a Goldman, a JP Morgan that is writing credit default swaps on European debt—how do you know if you have an account with this group that they pledge your assets for collateral or they comingle them with the firm’s assets and then what do you do?

Ann Barnhardt: Oh, exactly. Corzine isn’t alone in this. The reason the MF Global situation happened the way it did is as we eluded to earlier because Corzine had that company just suicidally leveraged. He took those customer funds and then leveraged it into European, sovereign, junk paper at about 100:1 ratio. Massive. Massive leverage. That is why his collateral call was the first one to come and why it took him out because he was so heavily leveraged. Don’t kid yourself. These other entities are doing the same thing. It is just that they are not as heavily leveraged as Corzine was. So yes, the entire paradigm is no longer trust worthy. There is no meaningful government or industry wide regulation and I have been saying this for years. That regulation in the financial industry in the United States both government based and private regulation—private industry regulation—is a monstrous, monstrous joke. The top tier of those organizations are evil, nefarious people. The mid level are halfway stupid, halfway evil who again, are just there to collect their salary paycheck and will say and do anything that they are told and who really don’t understand the business that they are trying to regulate. And then the lower level, the grunts, the actual auditors who go out on site, a lot of those people are super incompetent, affirmative action hires. And yes, I said it and I am not ashamed of it. They are affirmative action hires. They have no business being there doing what they are doing. They are also hiring a lot of kids 15 minutes out of college who are literally reading off the script and couldn’t audit a company if their life depended on it.

So what they do is they send these incompetent people out into the field and into lower management. And then when the poop hits the fan, they blame them. It is absolutely evil and it is a complete joke. And Madoff was the first proof of that. There have been other ponzi schemes since Madoff happened that haven’t gotten as much notoriety, but there was a big one in the futures industry that all of the FCMs were invested in. And the regulatory body of the futures industry the NFA, they audited that Ponzi scheme, they totally missed it. They even admitted that they signed off on it because they really didn’t understand what they were doing. I mean, that is the level of incompetence and evil that we are talking about in terms of these regulatory bodies. The only way to fix this is to shut the whole damn thing down and start from scratch. I am personally looking in the next decade for the emergence of a new exchange within the United States [that is, a replacement of the Chicago Mercantile Exhange]. Word on the street is it might happen in Dallas and I would be fully in favor of that. Start over from scratch.

Jim Puplava: Alright. Well the message: get physical and protect yourself. We have been speaking with Ann Barnhardt, formerly of Barnhardt Capital Management. Ann, I want to thank you for coming on the program and sharing your thoughts.

Ann Barnhardt: Thank you for having me, it's been a pleasure.