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InvisibleBlack -> MF Global used loophole to legally take client money... (12/10/2011 12:24:08 AM)
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http://newsandinsight.thomsonreuters.com/Securities/Insight/2011/12_-_December/MF_Global_and_the_great_Wall_St_re-hypothecation_scandal/
quote:
A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.
MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.
If anyone thought that you couldn’t have your cake and eat it too in the world of finance, MF Global shows how you can have your cake, eat it, eat someone else’s cake and then let your clients pick up the bill. Hard cheese for many as their dough goes missing.
So apparently that 1.2 billion that's gone missing from client accounts wasn't "stolen" - it was used as collateral to fund the highly-leveraged purchase of European debt and won't be coming back. The people I know who had accounts at MF Global are being told they'll likely get back 60 cents on the dollar for their accounts.
I want you to seriously think about that. How well could you handle having your savings vanish and being told you'll likely get back 60% of it?
quote:
“7. Consent To Loan Or PledgeYou hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements [repos] or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.”
Do you know exactly what your brokerage house, mutual fund, investment bank, pension manager or IRA fund is doing with your money? Bear in mind that with the repeal of Glass-Steagall, that commercial bank you deal with may well now be part of an investment back or brokerage concern.
quote:
With weak collateral rules and a level of leverage that would make Archimedes tremble, firms have been piling into re-hypothecation activity with startling abandon. A review of filings reveals a staggering level of activity in what may be the world’s largest ever credit bubble.
Engaging in hyper-hypothecation have been Goldman Sachs ($28.17 billion re-hypothecated in 2011), Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging), Oppenheimer Holdings ($15.3 million), Credit Suisse (CHF 332 billion), Knight Capital Group ($1.17 billion),Interactive Brokers ($14.5 billion), Wells Fargo ($19.6 billion), JP Morgan($546.2 billion) and Morgan Stanley ($410 billion).
It's become pretty obvious that any argument that the laxity that resulted in the financial meltdown of 2008 has been addressed is pretty much bogus. In fact, these financial firms have become so convoluted and their dealings so byzantine and intertwined that it's effectively impossible to regulate them - certainly not with the current system of useless political hacks led by ex-finance CEOs (notably Goldman Sachs executives) appointed to positions of power.
These "too big to fail" financial institutions need to be broken up, the separation between commercial and investment banking restored, serious penalities put into place for any sort of financial malfeasance and the ability of any bank, brokerage house, or the like to have any transactions "off the books" removed.
Along those lines, membership on the House and Senate committees that oversee these areas need to be rotating and the concept that someone can sit on such a panel for a decade or more become anathema.
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