SOURCE: Paragon Financial Limited

Paragon Financial Limited

November 08, 2011 08:16 ET

Current Form of Dodd-Frank Doing Little to Protect MF Global and Goldman Sachs

The Paragon Report Provides Equity Research on MF Global Holdings and Goldman Sachs

NEW YORK, NY--(Marketwire - Nov 8, 2011) - MF Global Holding's recent declaration of bankruptcy appears to have accelerated the push for increased regulatory oversight of the financial investment and advice industry. Several parts of Dodd-Frank that are crucial to the financial advice industry have yet to be carried out and continue to face opposition on Capitol Hill. The Paragon Report examines investing opportunities in the Financial Sector and provides equity research on MF Global Holdings Limited (PINKSHEETS: MFGLQ) and Goldman Sachs Group, Inc. (NYSE: GS). Access to the full company reports can be found at:

"If nothing else, this will be a rallying call for those people who support Dodd-Frank," said Scott Colyer, chief executive and chief investment officer at Advisors Asset Management LLC. Academics are quick to point out that the Dodd-Frank financial oversight law would have done little to change MF Global's outcome. "We had multiple regulators looking at it, and then none of them picked anything up," said Jerry Markham, a law professor at Florida International University.

MF Global is considered to be the first major American victim of the European sovereign debt crisis. According to Thomson Reuters, MF Global's disclosure that it had bet more than five times its book value on the recovery of European sovereign debt sparked ratings downgrades and margin calls that quickly turned into a liquidity crisis for the futures brokerage.

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MF Global's failure has given more merit to the controversial "Volcker Rule" which is due to take effect next year. The rule would limit banks from investing in hedge funds and ban proprietary trading, which is a major profit center where banks trade for their own benefit rather than for clients. While MF Global is not a bank -- so can't tap into taxpayer funds by way of the Fed's emergency liquidity window in a crisis -- it could protect larger institutions from suffering a similar fate.

According to Reuters, the idea behind the rule is to prevent banks that enjoy some sort of government safety net, such as deposit insurance on customer accounts or access to Fed money, from using that backstop to make money for them. Dwight Smith, a partner at Morrison & Foerster LLP, says that at a minimum, the proposed rule would increase costs and discourage firms from making markets in securities.

Both Goldman Sachs Group Inc. and Morgan Stanley may consider dropping their status as bank holding companies to avoid expenses tied to the Volcker rule, said David Hilder, an analyst at Susquehanna Financial Group LLP.

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