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Is MF Global a Canary in the Coal Mine?
CNBC.com | October 27, 2011 | 02:35 PM EDT

Even while MF Global sinks, the markets seem surprisingly sanguine about the possibility of a financial crisis.

MF Global’s long-term credit rating was cut to junk status by Fitch today, and is rated just above junk by Moody’s. The stock has cratered. Jon Corzine, who heads MF Global, is shopping it to bigger Wall Street firms. More or less, he’s hoping someone with deep pockets will bail him out.

It’s still a bit of mystery what happened to MF Global. We know Corzine oversaw an increase in the risks the firm took, especially in European fixed income. The firm is leveraged something like 40 to 1. It’s very dependent on the confidence of lenders to stay in business.

All the very serious people on Wall Street keep saying that the problems at MF Global are “isolated” or “unique.” It’s not a bellwether or a canary in the coal mine, they say.

I’m not so sure. There were lots of firms that were supposedly not canaries in coal mines in 2007. Heck, even the entire subprime market was supposedly not a canary in the coal mine for the broader housing market.

See, for example, The Wall Street Journal’s “Subprime Fallout May Not Infect Broader Market” from March 12, 2007.

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