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Trillions of Dollars of Securities May Have Been Destroyed by Hurricane Sandy

George Washington's picture




 

The Depository Trust & Clearing Corp (DTCC) holds trillions of dollars of stock certificates in trust for their owners, through its subsidiary Cede & Co.

DTCC subsidiary Deriv/SERV also clears substantial volumes of derivatives such as credit default swaps.

The international headquarters for DTCC and its Cede & Co. and Deriv/SERV subsidiaries is located at 55 Water Street in Manhattan, and the vault storing trillions in stock certificates and other instruments was apparently flooded by Hurricane Sandy.

CNN reports:

Trillions of dollars worth of stock certificates and other paper securities that were stored in a vault in lower Manhattan may have suffered water damage from Superstorm Sandy.

 

***

 

The vault contains certificates registered to Cede & Co., a subsidiary of DTCC, as well as “custody certificates” in sealed envelopes that belong to clients.

 

The DTCC provides “custody and asset servicing” for more than 3.6 million securities worth an estimated $36.5 trillion, according to its website.

 

***

 

The building remains inaccessible, but the lower floors are believed to be flooded. The full extent of the damage cannot be assessed until power is restored and the building is deemed safe to enter.

The information is not lost, since it is stored on computer systems.  CNN notes:

DTCC Chief Executive Michael Bodson … said the DTCC’s computer records are intact and that the corporation has “detailed inventory files of the contents of the vault.”

But – as the Financial Times points out – there could be a hefty price tag associated with the damage:

As businesses in the affected areas continued efforts to pump out flooded basements, the DTCC admitted on Thursday that its vault remained underwater and officials had still not been able to assess the damage.

 

***

 

 

“Hindsight is 20/20. We have taken a lot of precautions, in terms of protection both for the security of our systems and of our records, and we have a full inventory of the certificates, as well as a robust recovery plan.”

 

***

 

In a white paper earlier this year, it said that it cost the financial industry almost $300m to replace $16 billion of certificates that disappeared in the collapse of the World Trade Center in 2001.

If it cost $300 million to replace $16 billion of certificates destroyed on September 11th, then – in a worst-case scenario of extensive damage to the paper held in DTCC’s 55 Water Street vault – it could cost many billions of dollars to replace the paper certificates.

Postscript 1:  Given that the U.S. government is backstopping a good chunk of the derivatives market, including the credit default swap clearing operations of of DTCC subsidiary Trade Information Warehouse,  I wonder if the taxpayer may end up paying for some of the replacement costs.

Postscript 2: In a world of potentially infinite rehypothecation of shares, how much do the physical certificates even matter?

 

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Mon, 11/05/2012 - 19:42 | 2950246 tradewithdave
tradewithdave's picture

Remember that missing Goldman Sachs laptop that was found in a garbage room in lower Manhattan?  Well, maybe they can put the same guy on this case.  I mean the odds of finding that laptop were pretty slim, but they got it. I think the lady who found it was able to boot it up, log into the email and figure out that it was a Goldman Sachs laptop and then probably call Lucas Van Praag personally to let him know that she found it.

I think if she can handle that, that these soaking wet certificates in sealed envelopes should be a cakewalk.  I know they're not "missing", but opening the envelopes, drying all that paper, etc. is a job for someone who has a knack for problem solving and a dose of luck... could save billions.

http://tradewithdave.com/?p=13092

http://tradewithdave.com/?p=13075

Mon, 11/05/2012 - 18:29 | 2950016 mrdenis
mrdenis's picture

Trillions of Dollors worth of securities missing .....lets rename it hurricane Corzine

Mon, 11/05/2012 - 18:01 | 2949935 Cynthia
Cynthia's picture

Here's Neil Young showing us that there's a creative destructive side to hurricanes:

http://www.youtube.com/watch?v=Obfci1CIqq8

Mon, 11/05/2012 - 18:01 | 2949934 beastie
beastie's picture

I am calling Shennanigans.

1 week of warnig is sufficient to move all this crap up a couple of flights of stairs.

It never happened,

criminal stupidity,

or criminal conspiracy is involved.

Pick one.

 

Mon, 11/12/2012 - 11:48 | 2972538 geoffr
geoffr's picture

I work in the building for a different company. No one had a clue that this would happen.

Mon, 11/05/2012 - 17:18 | 2949804 Hannibal
Hannibal's picture

How convenient and slick....!$@^&?

Mon, 11/05/2012 - 17:14 | 2949794 larz
larz's picture

Ive heard some of the smartest guys on wall street put all kinds of stuff in their basements even back up generators - frickin idiots

Mon, 11/05/2012 - 16:48 | 2949712 AgShaman
AgShaman's picture

We are underwater on our home mortgage.....and....our house is underwater. Can we get two bailouts this time?

"No problem....we've been looking for a way to swap the 'B'....for a 'Tr'

Mon, 11/05/2012 - 16:40 | 2949682 Kickaha
Kickaha's picture

They have everything listed on a hard drive.  It may just have become impossible for anybody to audit what they have placed on that hard drive.

Mon, 11/05/2012 - 16:32 | 2949612 NuYawkFrankie
NuYawkFrankie's picture

And in other Breaking News.....

 

 

All the gold bars stored in the basement of the NY Fed appear to have floated away....

Mon, 11/05/2012 - 16:33 | 2949646 cossack55
cossack55's picture

PLEASE!!! Everyone knows tungsten does not float.

Mon, 11/05/2012 - 16:07 | 2949550 ziggy59
ziggy59's picture

Water Street? Maybe change to UnderWater Street.

This charrade must end...

Mon, 11/05/2012 - 15:56 | 2949511 SmittyinLA
SmittyinLA's picture

They can also prop up the remaining housing pool by denying or complicating rebuilding permits-FOR YEARS. 

Romney really missed an opportunity to put both Christy and Obama on the spot by taking a position of "I would immediately waive federal permissions & fees to rebuild your own property and I would work with NJ to fund a program to have the feds pick up the permit fees & inspection costs for rebuilding NJ as soon as possible, winter is on our doorstep".  

 

 

Mon, 11/05/2012 - 15:48 | 2949480 Vince Clortho
Vince Clortho's picture

Note to myself:  Do Not store $36 Trillion in paper securities in vault below sea level.

Mon, 11/05/2012 - 17:59 | 2949932 Metalredneck
Metalredneck's picture

On Water St.

Mon, 11/05/2012 - 15:55 | 2949506 walküre
walküre's picture

Shame, all that good toilet paper is now useless.

Mon, 11/05/2012 - 15:38 | 2949438 BudFox2012
BudFox2012's picture

So in other words, underwater mortgage paperwork packed into derivatives are now underwater. 

Mon, 11/05/2012 - 16:09 | 2949554 Winston Churchill
Winston Churchill's picture

How did BofA know about it on the 15th.Oct.

Sent me a letter saying they had lost my promissory Note.

Just as well I have a certified copy.

Hmmm.

Phuck em.

Mon, 11/05/2012 - 15:30 | 2949422 vix is for kids
vix is for kids's picture

Score +1 for those who predicted that the nuclear power stations of the North East would survive without a significant nuclear accident, after a direct hit from the powerful-as-predicted storm Sandy.

Mon, 11/05/2012 - 15:23 | 2949400 Ilargi
Ilargi's picture

George,

 

I do not appreciate you ripping off my work and passing it off as your own.

It's really too stupid for words and far below any par.

Please correct this nonsense.

 

Raúl Ilargi Meijer
Editor-in-Chief
TheAutomaticEarth.com

 

 

Mon, 11/05/2012 - 18:04 | 2949942 EscapingProgress
EscapingProgress's picture

Actually, George's work is based on a CNN report which he cited.  You wrote an independent report based on the same CNN report.  You are due no credit for what George wrote.  Bye now.

Mon, 11/05/2012 - 15:51 | 2949484 Kitler
Kitler's picture

Same CNN quote and a partial match on FT. As for your text and comments? Nothing.

http://www.theautomaticearth.com/Finance/did-hurricane-sandy-cause-365-t...

BTW... CNN called. They want their story back.

Nonsense corrected.

 

Mon, 11/05/2012 - 15:47 | 2949475 George Washington
George Washington's picture

This is actually where I first learned about the issue:

http://maxkeiser.com/2012/11/05/dtcc-says-trillions-in-stock-certificate...

 

I started Googling from there.

Mon, 11/05/2012 - 16:26 | 2949613 Ilargi
Ilargi's picture

Yeah, that's my story at Max's site.

You can't just steal other people's articles left right and center.

It's very bad manners. And you know that. Always provide sources.

 

 

Mon, 11/05/2012 - 16:35 | 2949653 George Washington
Mon, 11/05/2012 - 16:53 | 2949731 Ilargi
Ilargi's picture

I see. Not sure I should apologize, because you don't name the guy who ripped off my piece when ripping off his.

I complained to Max about this: if finance bloggers/sites start doing this to each other, we need to wonder who it is we're fighting for or against here.

 

Ilargi

Mon, 11/05/2012 - 17:12 | 2949789 George Washington
George Washington's picture

If you posted your story before SilverDoctors posted theirs, then I'll be happy to provide a hat tip to you.

I understand your sentiment ... people rip off my pieces all the time.

Mon, 11/05/2012 - 18:04 | 2949946 Ilargi
Ilargi's picture

Thanks George

Silverdoctors had a link to my piece earlier today (saw it through Sitemeter), but it's no longer there far as I can see.

I first read about the DTCC vault Friday morning, sat on it through the weekend thinking everyone would pick it up.

But last night nobody had, so I wrote it. And then it's everywhere.

Not exactly rocket science. Silverdoctors both read and publish on maxkeiser.

That's all. No hard feelings.

 

Ilargi

Mon, 11/05/2012 - 15:18 | 2949387 surf0766
surf0766's picture

This is def a false flag

Mon, 11/05/2012 - 15:17 | 2949379 ebworthen
ebworthen's picture

"The information is not lost because it is also stored on computers."

Yeah, tell that to MF Global Clients.

Ctrl-Alt-Del!

Mon, 11/05/2012 - 15:45 | 2949465 Sofa King Confused
Sofa King Confused's picture

If you don't hold it " physical metals or stock certificates " you dont own it.  Plus what you hold is not getting lent out.

Mon, 11/05/2012 - 15:07 | 2949350 Bastiat
Bastiat's picture

Dog ate my collateral.

Mon, 11/05/2012 - 15:35 | 2949430 ParkAveFlasher
ParkAveFlasher's picture

Dogfish ate my collateral.

Mon, 11/05/2012 - 15:42 | 2949453 Bastiat
Bastiat's picture

/chuckle

Mon, 11/05/2012 - 14:54 | 2949318 Quinvarius
Quinvarius's picture

I doubt anything has been deposited in that vault since the 80's and that they have any idea at all what was in there.

Mon, 11/05/2012 - 14:51 | 2949315 Bastiat
Bastiat's picture

Rogue janitor left the vault door open . .

Mon, 11/05/2012 - 15:29 | 2949421 Winston Churchill
Winston Churchill's picture

Linda Green is a janitor ?

Mon, 11/05/2012 - 15:41 | 2949449 Bastiat
Bastiat's picture

Now she is.

Mon, 11/05/2012 - 14:46 | 2949298 NuYawkFrankie
NuYawkFrankie's picture

I'm shocked, shocked....

 

 

Mon, 11/05/2012 - 14:45 | 2949297 Dapper Dan
Dapper Dan's picture

From  Ilargi @ Automatic Earth, 

A number of things here: it's easy not to realize that if 3.6 million securities are valued at $36.5 trillion, each of these pieces of paper is on average worth over $10 million. Not exactly your average pieces of paper. Also, in what way or fashion DTCC serves as a clearing house for OTC derivatives is an interesting little riddle, but not one we can expect to get an answer to. Still, something has to drive up that average value, and stocks or bonds are not prime candidates for that role.

http://theautomaticearth.com/Finance/did-hurricane-sandy-cause-365-trillion-in-damage.html

Widely quoted, and deservedly so:

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." --- Anonymous

To which can now be added:

"...of which nobody is sure who holds title, and even if they think they're sure, the actual documents are likely to now exist only as a soggy moldy illegible mess in the basement of the DTCC".

Mon, 11/05/2012 - 14:38 | 2949267 ParkAveFlasher
ParkAveFlasher's picture

DTCC Chief Executive Michael Bodson … said the DTCC’s computer records are intact and that the corporation has “detailed inventory files of the contents of the vault.”

Unfortunately, the shoebox loaded with Spongebob thumb drives was last seen floating out to sea.

Mon, 11/05/2012 - 17:51 | 2949904 Ying-Yang
Ying-Yang's picture

said the DTCC’s computer records are intact

WTF the vault flooded? They keep their computer records in a vault? WTF does that have to do with the flooding? Fun and games just fun and games.

The question is why wouldn't their computer records be intact. The statement itself draws attention to something funny going on. Tin foil hat time.

Mon, 11/05/2012 - 18:34 | 2950032 Matt
Matt's picture

No, the paper stock certificates are in the vault, and may be destroyed due to flooding. The digital records are safe elsewhere.

It is a shame that vaults are not waterproof, someone should invent one that is. How far down is the vault? I mean, if timex can make an affordable watch that is waterproof to 100 meters, you'd think someone could make a vault storing trillions of dollars of paper that is waterproof to 10 feet.

Mon, 11/05/2012 - 19:07 | 2950140 Antifaschistische
Antifaschistische's picture

I understand the quality/security of underground storage...like deep within an Afghanistan Cave, or NORAD,

I can even see a case where that storage could be below sea level...

But to have underground storage..

.........of perishable items

.............below SEA level

.....................RIGHT next to the SEA.......just doesn't make any sense to me.   Who thinks this crap up!!

Mon, 11/05/2012 - 14:17 | 2949183 Flakmeister
Flakmeister's picture

Hey, just print more.... seems to work with fiat....

Mon, 11/05/2012 - 14:00 | 2949123 bank guy in Brussels
bank guy in Brussels's picture

DTCC or Depository Trust & Clearing Corporation, extremely powerful but essentially beyond the reach of any regulation whatsoever ... another black ops centre of the oligarchs, apparently. From one article:

« ... a nearly unknown corporation ... DTCC ... The company provides settlement for the nation’s capital market: $1.5 quadrillion in trades are settled there every year (that is, about 30X the economic output of the entire planet). For most of its history it has largely escaped regulation: state regulators are admonished that they cannot peer inside because the DTCC is federally regulated, and the DTCC has told federal regulators it escapes their regulation due to its strange ownership structure (one former federal regulator, and one former employee of the DTCC, have both told me the feds would not know where to begin if they tried to regulate it).

In short, at the heart of the world’s economy is an enormous black box that is regulated except on the days it’s not, and through which 30X the economic output of the world flows. It is my contention that much of Wall Street’s illegal activity is funneled through this strange entity.

The huge, nondescript building in downtown Manhattan that houses the DTCC is something of a Fort Knox. Long-gun toting guards watch the entrances, and journalists who have been inside tell me that entering it is tougher than getting into the Federal Reserve or any comparable institution. ... »

http://www.deepcapture.com/gary-weiss-scaramouch-psychopath/

Mon, 11/05/2012 - 14:57 | 2949277 iDealMeat
iDealMeat's picture

+1,  Yep..  Looks like all the usual dirtbags are represented.

 

http://www.dtcc.com/about/governance/board.php

 

 

Christopher Concannon

 From 1994 to 1997, Concannon was an attorney with the United States Securities and Exchange Commission in the Division of Trading and Markets where he specialized in the review and approval of the rules of the various exchanges and self-regulatory organizations, the regulation of securities underwriting and the regulation of the clearance and settlement of securities transactions in the United States.

Concannon currently serves as a director on the DTCC Board and is a member of the Risk Committee and Businesses and Products Committee. Concannon also serves as a Director of the Philadelphia Foundation. He has previously served on the following boards between 2007 and 2009: the Nasdaq Stock Market, Boston Stock Exchange, Philadelphia Stock Exchange, Nasdaq Europe Ltd., Nasdaq Clearing Corporation and Stock Clearing Corporation of Philadelphia.

 

 

DARRYLL HENDRICKS is Head of Strategy and Regulatory Reform for UBS Investment Bank. In this role, he is responsible for IB strategic plan development, preparations for investor communications, and monitoring of plan execution and business segment resource. Hendricks is also responsible for coordinating UBS IB’s efforts related to Regulatory Reform, including Basel 3 compliance and mitigation programs, “too big to fail” and recovery/resolution plans, Volcker Rule implementation, and Dodd-Frank OTC derivatives reforms, including swap dealer registration.

Previously, he was Managing Director and Global Head of Risk Methodology for UBS Investment Bank, where he was primarily responsible for leading the strategic remediation and enhancement of market and credit risk methodologies as well as the independent review of valuation models.

From 2009 to 2012, Hendricks served as the chair of the US industry task force on tri-party repo infrastructure, which developed a series of recommendations and a blueprint for changes in the operation of the US tri-party repo market that will enable the practical elimination of intraday credit associated with tri-party repo settlements.

Before joining UBS, Hendricks worked at the Federal Reserve Bank of New York for 13 years, where he focused on capital regulation and on the risk assessment of clearing and settlement infrastructure. Hendricks has a PhD from Harvard University.

ROBIN A. VINCE is Chief Operating Officer of Goldman Sachs International and global head of Operations at Goldman Sachs. Previously, he was head of Global Money Markets in Fixed Income, Currency and Commodities. He serves as co-chair of the Firmwide New Activity Committee and as a member of the Finance Committee, the Risk Committee, the European Management Committee, and the Pine Street Board of Directors. Vince joined Goldman Sachs as an analyst in 1994. He was named managing director in 2002 and partner in 2006.

Vince is a member of the Payments Risk Committee, the Federal Reserve Bank of New York’s advisory committee on payment, settlement and clearing risks. He serves as a director on the DTCC Board, Chairman of the Businesses and Products Committee and a member of the Governance Committee and Executive Committee. Vince also serves on the Board of the Children’s Museum of Manhattan.

 

Mon, 11/05/2012 - 14:39 | 2949271 ParkAveFlasher
ParkAveFlasher's picture

Can you say, "Building 7"?

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