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Central Banks' Central Bank Warns About Rehypothecation Threats

Tyler Durden's picture


Just a few years ago, central bankers dared not breathe the word rehypotehcation - after all it was the secret fabric that held the shadow banking system together, which was a critical hub to perpetuating the central bankers' plan of reflating assets and creating a wealth effect if only for the 1%, while keeping the rest content with free Obamaphones and endless promises of "trickling down" which four years into Bernanke's grand monetary experiment has yet to materialize. Then, little by little, more and more started to realize that the shadow banking system, whose fiath-based (sic) liabilities amount to somewhere between $60 and $100 trillion (of credit money) globally, is precisely the inflation buffer that has allowed central banks to engage in round after round of QE, which has sent global stocks to all time highs, while keeping the world mired in the longest economic depression since the 1930s (explained here).

Of course, the one inadvertent side effect of all this constant meddling which be definition requires the monetization of quality collateral in order to generate new fungible money, was the gradual disappearance of all such quality assets which private investors could buy, then pledge back via repo and other conduits and use proceeds for risky investments. Such as Treasurys. Which is why recently none other than the TBAC warned that the US is suddenly facing a $10+ trillion high quality collateral shortage in the next decade. As we have also explained, this is a major problem for the Fed which at current rates of QEeing, will monetize all Treasury duration exposure in roughly 5 years - at that point there will be virtually no collateral left and the Fed will be finally out of both tools and ammo. Which in turn is why the Fed is desperate to restore the "moneyness" of assorted private sector assets in the time it still has with QE, and convert them to "high quality collateral" status, or eligible for repo and money creation via conventional bank conduits.

Indeed, the TBAC admitted as much in the confidential appendix to its Q2 slide presentation to the US Treasury when it said:

Private sector generation of moneylike collateral helps policymakers over long periods by:

  • Slowly reducing the demand for money
  • Increasing financial deepening
  • Supporting financial globalization

The more restricted the private sector’s ability to create safe, liquid, and moneylike collateral, the harder the public sector must work to supply it through deficits and easy monetary policy.

We will have more to say on this in a future post when we discuss just what the real catalysts for the Fed's unwind are (hint: nothing to do with the market, and nothing to do with inflation or unemployment) and what Ben Bernanke is seeking to accomplish. It is a fascinating topic, and one which we are confident means Bernanke's replacement will be none other than... Bernanke.

But before we go there, a key thing to ponder is that in all activities involving shadow banking, and now that quality collateral, in its definition of being "accepted by all", is scarcer than ever, involve the rehypothecation of certain assets using collateral chains of assorted lengths, which in turn dilute the links of title and ownership between owner and owned, in some cases (like MF Global and Lehman) to infinity, in effect confiscating an asset and plunging it into the bottomless abyss of the shadow banking system.

Furthermore, as we reported recently, none other than Europe has started a crack down on rehypothecation. We are confident that once Deutsche Bank et al realize that this may in fact be serious - a development which would, if completed, collapse their ability to operate on shadow margin and extend their asset base, they will promptly put an end to the silliness.

However, the good news is that with every incremental public instance of the rehypothecation discussion, more are focusing their attention on just how it is that true credit money creation works in the modern world (hint: nothing at all like how the textbook monetarists, Magic Money Tree growers, and all those others who still rely on economic concepts developed in the 1980s and before think).

The most recent, and perhaps most notable, observation on the topics of asset encumbrance, collateral and rehypothecation was none other than the BIS with its just released report titled appropriately enough, "Asset encumbrance, financial reform and the demand for collateral assets." In this report, variants of the word "rehypothecate" appear no less than 24 times. More importantly, the whole point of the paper is to serve as a warning, which means that slowly but surely the world's bankers are finally willing to expose in broad daylight (ironically), the true risks permeating the real financial system located deep in the shadows, where maturity, risk and collateral transformation all take place, however without the nuisance of deposits. Whether this is so they can abuse it all over again (most likely) or out of actual altruistic (unlikely) motivates, is unclear.

However, for those still confused by what remains a very nebulous topic for most, here is what the BIS has to say on the key topic of rehypothecation and its assorted instances in modern finance.

Rehypothecation and reuse of collateral assets


Rehypothecation refers to the right of financial intermediaries to sell, pledge, invest or perform transactions with client assets they hold; and it allows prime brokers and other financial intermediaries to obtain funding using their client collateral. Collateral reuse, in turn, usually covers a broader context where securities delivered in one transaction are used to collateralise another transaction, including the ability to reuse collateral through change in (temporary) ownership. Yet the terms rehypothecation and reuse of securities are often used interchangeably; they do not have distinct legal interpretations.


Certain types of collateral rehypothecation (and reuse) can play an important role in financial market functioning, increasing collateral velocity and potentially reducing transaction and liquidity costs. Rehypothecation decreases the (net) demand for collateral and the funding liquidity requirements of traders, since a given pool of collateral assets can be reused to support more than one transaction. This lowers the cost of trading, which is beneficial for market liquidity.


Securities lending-type transactions (including collateral swaps), which have been structured as collateralised loans, would not exist without rehypothecation. In the repo market, participants would not be able to cover short positions without the ability to reuse collateral. However, repos do not directly rehypothecate collateral because they are structured as a sale and repurchase transaction.


While certain types of rehypothecation can be beneficial to market functioning, if collateral collected to protect against the risk of counterparty default has been rehypothecated, then it may not be readily available in the event of a default. This, in turn, may increase system interconnectedness and procyclicality, and could amplify market stresses. Therefore, when collateral is rehypothecated, it is important to understand under what circumstances and the extent to which the rehypothecation has occurred; or in other words, how long the collateral chain is.

And some of the more vocal warnings:

A particular aspect that has received considerable scrutiny in the policy debate on securities financing markets is the extent to which rehypothecation activities should be permitted. The recent crisis experience suggests that greater reliance on rehypothecation in financial intermediaries’ balance sheets will increase interconnectedness and make them more vulnerable to financial shocks. Rehypothecation of client assets can also delay the recovery of assets or even impose losses on beneficial owners. In addition, it can prompt intermediaries to build up leverage in good times, contributing to increased procyclicality of the financial system.

But most importantly:

Financial intermediaries should provide sufficient disclosure to clients when collateral assets posted by them are rehypothecated; rehypothecation should be allowed only for the purpose of financing the long position of clients and not for financing the own-account activities of the intermediary; and only entities subject to adequate regulation of liquidity risk should be allowed to engage in the rehypothecation of client assets.

Ironically, using rehypothecation for the purposes of financing the own-account activities of the intermediary, is precisely what happens every single day in every single, and certainly TBTF large (see JPM) bank.

Could it be that some of the forces behind the bank of central banks are starting to realize just how close to the precipice the world truly is and are now actively cautioning their private sector peers to step back from the ledge or everyone gets it?

If so, and here is a chance this is true, we expect to see one of the most epic public-private sector conflicts in financial history, because in a world rapidly devoid of collateral and quality assets against which to margin and build leveraged operations, without rehypothecation the ability to generate mindnumbing bonuses for the banker superclass becomes null and void.

And after all, preserving the cash flow associated with levering every possible asset as many times as inhumanly possible and wagering it, preferably with zero risk, in a coopted and manipulated market, is what it is all about...


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Wed, 05/29/2013 - 15:06 | 3608239 Mongo
Mongo's picture

Straight from the horses mouth...

Wed, 05/29/2013 - 15:08 | 3608247 prains
prains's picture

you mean the bunny...

Wed, 05/29/2013 - 15:14 | 3608272 Stackers
Stackers's picture

uh, MF Global ?

Wed, 05/29/2013 - 15:20 | 3608287 greased up deaf guy
greased up deaf guy's picture

THANK YOU... for not teasing us with another bait and switch (jpg hyperlinked from the zh homepage). lol

Wed, 05/29/2013 - 15:24 | 3608297 kliguy38
kliguy38's picture

Call it what it is FOCHIN' stealin'...but since you've been warned, its OK

Wed, 05/29/2013 - 15:33 | 3608325 FL_Conservative
FL_Conservative's picture

Like they give 2 shits about the chain of collateral when their plan is to be long gone.....on the beach sipping margaritas.....when TSHTF.  Repercussions?   That's the taxpayers' problem.

Wed, 05/29/2013 - 15:51 | 3608381 Manthong
Manthong's picture

Is that anything like liquidity from a  repo of a swap of collateral referenced to a  reserve of a gold receivable ?

Wed, 05/29/2013 - 16:27 | 3608462 macholatte
macholatte's picture


RE-Hypo-Hype ......

Fred lends Bill his car to go to the grocery store. On the way Bill stops off at Pay-Day Loans and borrows $1,000 using Fred's car as collateral. Pay-Day sells the loan to GS who uses the money in Fred's account to buy the loan.

A week later Bill gets killed by a crack dealer, the loan never gets repaid, Fred's car is seized and his account at GS is Corzined.  Pay-Day and GS get a .gov bailout, Fred's car is sold at auction, and Fred's account at GS is vaporized as an unintended consequence without malice which makes it OK. Pay-Day and GS make generous donations to political parties. The Fed prints some extra money to cover the costs of the transactions and makes it part of the public debt. The tax payers are screwed, the lenders are made whole and Fred has no wheels, is broke, goes on food stamps and disability.

Or did I miss something?

Wed, 05/29/2013 - 16:41 | 3608494 negative rates
negative rates's picture

Yea, when the physcial leverage goes to near zero, the rehypothecaion ponzi collapses on it's self and we wake up broke with prices rising.

Wed, 05/29/2013 - 17:42 | 3608633 prains
prains's picture


you wake up with a corn hole aching and bleeding and asking WTFH

Wed, 05/29/2013 - 17:20 | 3608586 JeffB
JeffB's picture

Well done.

Wed, 05/29/2013 - 21:15 | 3609101 Buck Johnson
Buck Johnson's picture

Exactly, buy the time the economy implodes the govt. will be taking money out of your own accounts along with gold and treasures just to stay afloat.  They won't care what the big money guys have done as long as they left before they could get their hands on the money.

Wed, 05/29/2013 - 15:57 | 3608402 bank guy in Brussels
bank guy in Brussels's picture

Bigger version of the pic of the ZeroHedge 'rabbit out of hat' girl with her pretty blue bra:

Wed, 05/29/2013 - 16:22 | 3608444 ParkAveFlasher
ParkAveFlasher's picture

ty i can haz <=3   </weiner>

Wed, 05/29/2013 - 17:33 | 3608610 Manthong
Manthong's picture

Another banking hat trick innovation..  from England?

Wed, 05/29/2013 - 15:29 | 3608274 freewolf7
freewolf7's picture

Bunnies breed like bankers rehypothecate.

Wed, 05/29/2013 - 16:37 | 3608488 auntiesocial
auntiesocial's picture

when mainstream drudgereport is reporting the dollars world reserve currency status is in jeopardy you know it is already too late. 10K gold here we come!



Wed, 05/29/2013 - 17:20 | 3608587 Burt Gummer
Burt Gummer's picture

Anyone know what Ameriprise Financial's policy on Rehypothecation is?

Wed, 05/29/2013 - 15:09 | 3608249 digitlman
digitlman's picture

"yet to metarilize"



Wed, 05/29/2013 - 15:27 | 3608308 Variance Doc
Variance Doc's picture

You can always ask for your subscription fees back if you are not completely satisfied, dumbass.

Wed, 05/29/2013 - 15:36 | 3608336 ebear
ebear's picture

Metastasize + Materialize

Def:  to become apparent only at a point when nothing can be done about it.

Wed, 05/29/2013 - 15:37 | 3608341 buzzsaw99
buzzsaw99's picture

You fargin ungrateful bastage. I'm gonna take your dwork. I'm gonna nail it to the wall. I'm gonna crush your boils in a meat grinder. I'm gonna cut off your arms. I'm gonna shove 'em up your icehole. Dirty son-a-ma-bitchez bass turd muther farking...

Wed, 05/29/2013 - 16:36 | 3608484 dynomutt
dynomutt's picture


Fargin Iceholes

Wed, 05/29/2013 - 15:42 | 3608352 Agent P
Agent P's picture


Spell Checker?

Wed, 05/29/2013 - 15:53 | 3608388 ebworthen
ebworthen's picture


Wed, 05/29/2013 - 15:10 | 3608254 LawsofPhysics
LawsofPhysics's picture

Perhaps someone should "warn them about the dangers of guillotines" with a possible demonstration...

Wed, 05/29/2013 - 15:48 | 3608373 The Master
The Master's picture

"and could amplify market stresses" = the biggest understatement of all time

Wed, 05/29/2013 - 15:10 | 3608256 TheSilverJournal
TheSilverJournal's picture

And there it was...gone.

Wed, 05/29/2013 - 15:13 | 3608267 Its_the_economy...
Its_the_economy_stupid's picture

I am getting depressed again.

Wed, 05/29/2013 - 15:14 | 3608271 TheSilverJournal
TheSilverJournal's picture

Great imbalance means great opportunity.

Wed, 05/29/2013 - 16:26 | 3608456 NotApplicable
NotApplicable's picture

As I always tell people, "Look around. You SHOULD be depressed."

Wed, 05/29/2013 - 15:14 | 3608270 buzzsaw99
buzzsaw99's picture

Corzined bitchez.

Wed, 05/29/2013 - 15:14 | 3608273 youngman
youngman's picture

I don´t think they should be able to rehypothecate at all.....its not theirs to play with...period

Wed, 05/29/2013 - 15:16 | 3608280 buzzsaw99
buzzsaw99's picture

what's theirs is theirs and what's yours is theirs

Wed, 05/29/2013 - 17:08 | 3608560 The Thunder Child
The Thunder Child's picture

dehypothicate their asses, buy gold and silver bichez!

Wed, 05/29/2013 - 15:14 | 3608277 JJ McApe
JJ McApe's picture

So the Fed has reassured that it will keep printing money. Does anyone else see the time bomb that is ticking away? I listen to the cheerleaders on CNBC and they paint a very rosy picture, I feel like I'm living in a parallel universe now and what is up is down and left is right.

Wed, 05/29/2013 - 15:51 | 3608382 ebworthen
ebworthen's picture

Alternate dimension; I fell into this one August 2001.

Things were weird then, but not totally fucked up. 

Everyone around me and the society itself lost sanity, progressively, since then.

Perhaps I just became more and more aware of the lunacy that was already there, or maybe my doppelganger pushed me here because it sucked ass.  I prefer theory II.

Wed, 05/29/2013 - 16:03 | 3608409 thelibcentury
thelibcentury's picture

I feel the same way. But then my tendency to consider every possibility, no matter how unbelievable, gives me this question:

What if we are all manic-delusionals who have created the lunacy of our society within our own addled brains, aided by mutual reinforcing behavior from our cohorts in places like ZH, and everything is actually fine and there are no real problems?



The sad thing is, if that were true it might actually make me feel a little bit better, ya know what I mean? Its the clueless, carefree kids and babies that do it to me -- I wish the sorrow and pain I feel for them in anticipation of the world that will be revealed to them was just a symptom of my own insanity.


But of course its not, and of course nothing is fine.

Wed, 05/29/2013 - 20:00 | 3608903 noless
noless's picture

They live in a fairy tale and when their illusion is broken they react violently, or into deeper levels of self delusion. Even after decades, after the things i talked about consistently come to pass, and reality is incrementally unfurled for them, they still continually dismiss me.

I'm glad i had the will to not let them drug me as a child.

I search out knowledge because the world i inhabit makes no sense.

Wed, 05/29/2013 - 16:27 | 3608461 NotApplicable
NotApplicable's picture

Stop watching CNBS, and the whole world instantly clarifies itself.

Wed, 05/29/2013 - 15:18 | 3608286 Northeaster
Northeaster's picture

Isn't one of the larger issues the collateral pledged, due to multiple pledges, mean that the contracts are full of nothing already? Rehypothicating something that has already been pledged to someone/something else might be a problem no?

Wed, 05/29/2013 - 15:21 | 3608293 prains
prains's picture

Yes, I'm pretty sure if you read the fine print on some of the contracts it will read;

we pledge our 1999 Chevy Shitstain as collateral in return for 22 trillion dollars

Wed, 05/29/2013 - 17:53 | 3608651 boooyaaaah
boooyaaaah's picture

I think its a lot like the mortage backed securities that brought the banksters to the brink

One good mortgage was sliced ( and diced) and then the pieces wer distributed and combined with many sub prime non performing mortages -- to make them look good.

Now the one good (mortgage, collateral, paying investment) is used as collateral over and over again

Same shell game 

But different marble under the shell

Funny how we can have explainec to us the train wreck coming but we are only passengers - what can we do

Wed, 05/29/2013 - 15:20 | 3608288 Taint Boil
Taint Boil's picture



Stopped reading at Obama Phone. Why not call it the Reagan Phone

Wed, 05/29/2013 - 15:35 | 3608330 Taint Boil
Taint Boil's picture



Obama Phone = Urban Myth

Reagan Phone = Is a fact (continued by Bush) 

Yeah, here we go with the junks again. Do any of the Junkers know how to use Google? Yeah, yeah you don’t like Obama ….. and I don’t like him also but what I like and dislike doesn’t change the facts and I’m curious as to why you junk a statement that is probably true. 


I’ll donate $50.00 to Zero Hedge if you can prove that the Obama phone was created under the Obama administration or by Obama. I hope you can ….

Wed, 05/29/2013 - 15:39 | 3608346 Northeaster
Northeaster's picture

Easy killer...Informed people know when the program was created, it was only sensationalized with the "Obama-Phone" woman. Of course, this was tied into the base demographic that voted for Obama which many could relate to, the opposite of course was the "1%" with Romney. Ironic though, as Obama's Commerce pick can buy Romney four times over...

Wed, 05/29/2013 - 16:30 | 3608471 NotApplicable
NotApplicable's picture

One, who fucking cares? Two, why do you insist upon being such a tool of the elite? Do you really think engaging in divide and conquer rhetoric accomplishes ANYTHING???!?!?!?

Take your fifty dollars over to HuffPo, or some other political cesspool.

Wed, 05/29/2013 - 17:38 | 3608619 SilverIsKing
SilverIsKing's picture

Who had cellphones in 1980?

Wed, 05/29/2013 - 18:04 | 3608654 Taint Boil
Taint Boil's picture



ROFL No shit - that is the point, it has nothing to do with cell phones [in 1984] – THANKS! 



Link #2

Wed, 05/29/2013 - 17:46 | 3608642 Taint Boil
Taint Boil's picture



One, who fucking cares?

I don’t care …. I could give a rat’s ass, times are good here – and you?

Two, why do you insist upon being such a tool of the elite?

What ??? LOL Taint Boil = Ron Paul 100%

….. engaging in divide and conquer rhetoric….

The “Obama phone” is the epitome of divide and conquer and I see you’re falling for it hook, line and sinker. MSM has done its job quite well I see ……. 


$50 challenge is still up and running ……………

Wed, 05/29/2013 - 18:09 | 3608674 Abi Normal
Abi Normal's picture

The cell phone distribution program did begin in 2008, the year Obama was elected president, but that is a coincidence. Let’s look more closely at the facts.

Notice that earlier we said Link-Up helps fund “installation.” What installation does a cell phone have? None. So why is installation part of Link-Up, which is under the Lifeline program umbrella? Because, the whole thing began back in 1996 when the Federal Communications Commission authorized the programs for landlinephones. At that time it provided discounts on landline phones only, for obvious reasons.

To this day the government provides discounts on landline phones for financially disadvantaged people in the United States and U.S. territories. The Link-Up portion helps with the installation and the Lifeline Assistance part helps with the monthly bills, to the tune of roughly ten dollars a month.

So, the subsidization of phones began under President Clinton, and has continued under Presidents Bush and Obama.

There fixed if for ya' me thinks you can donate your $50 to ZH now...Tyler, make sure you collect my friend!!!

Wed, 05/29/2013 - 18:28 | 3608706 Taint Boil
Taint Boil's picture



From your link:

So, the subsidization of phones began under President Clinton, and has continued under Presidents Bush and Obama.


hmmmm not buying it ....... it began under 3 presidents .... it started 3 times ???? I'll give the $50 if I am right or wrong but I want some more proof ........ your evidence is very, very weak but it’s a start …… keep them coming. Show me the official government link showing how and when it started under Obama.

Wed, 05/29/2013 - 18:53 | 3608752 Taint Boil
Taint Boil's picture



hey ummmmmmmmm the donate thing doesn't work. JFC am I the first to Donate????

Wed, 05/29/2013 - 21:48 | 3609165 WillyGroper
WillyGroper's picture

>>>>The Link-Up portion helps with the installation and the Lifeline Assistance part helps with the monthly bills, to the tune of roughly ten dollars a month.

Not. Try $1 per mo. This is $$ fleeced from the universal service fund. See ur bill. It's a tax that was originally implemented to provide rural phone service. From there it morphed into perversion. Because it's subsidized by the tax payer, those on the Lifeline plan get every vertical service availble for NOTHING. It's another gimme to corporate, just like WhaleMart & EBT, JPM. As far as I'm concerned they should get an 8 party line with nothing more than dial tone. 

Thu, 05/30/2013 - 18:42 | 3611825 Taint Boil
Taint Boil's picture



Taint Boil sends (wastes) $50 to Zero Hedge, no more Trav and the Hedgeless_Horseman  leaves … WTF is this place turning into?

Thu, 05/30/2013 - 18:49 | 3611844 Taint Boil
Taint Boil's picture



$50 challenge is still up and running ……………

Just as I thought ROFL - I rest my case LOL!!!! I still gave the 50 bucks by the way - JFC

Wed, 05/29/2013 - 17:36 | 3608607 WTFUD
WTFUD's picture

@taint boil Not speaking for everyone but i would like to give you my answer to your? why obama phone ∧ not reagan. 1. Reagan did not pretend he was a republican ( much) to be what he wasn't. 2.Obama blew in with Hopium& Change and suckered everyone with his bullshit. 3. Although i do not consider myself a Republican or Conservative i have a grudging respect for loyalty ( even amongst thieves). Obama is a liar with little Principles AND self promoting Opportunist. 4.What is the Opposite of Transparency? 5. Freedom of speech ( what a joke!). If someone is brave enough to step up to the plate and put their job, family, life on the line only for this charlatan to hound them to death in my book that's evil. 6. Believing you are above the Law and not open to criticism is twisted and not fitting to serve the free world. Could go on but i hope you get the picture of how Angry a lot of us are.
P.S. Forgo to mention killer ( judge jury and executioner ).

Wed, 05/29/2013 - 18:15 | 3608680 Taint Boil
Taint Boil's picture



Agree 1000% …. don’t think for a minute that me saying the Obama phone is an urban myth means in any way I am an Obama supporter. Just stating facts and I am baffled at the junks – just a curious observation of the mentality level here at times ……… 

Wed, 05/29/2013 - 15:28 | 3608302 dick cheneys ghost
dick cheneys ghost's picture

what a this even possible under a non FIAT based monetary system?

Wed, 05/29/2013 - 16:28 | 3608457 nope-1004
nope-1004's picture

NO, which is why we have derivatives and pledges of gold and silver, so the banksters can play their games.  ETF's were invented directly for this purpose.  Because people like Soros are just plain greedy, they play the paper game not realizing the hurt they are causing humanity by perpetuating a fake trading sector of the real asset.


Wed, 05/29/2013 - 17:06 | 3608557 dick cheneys ghost
dick cheneys ghost's picture

nope-1004.........I figured as much........thanks for the answer!!

Wed, 05/29/2013 - 17:40 | 3608622 SilverIsKing
SilverIsKing's picture

Have edible commodities such as soybeans, corn, sugar, etc been rehypothecated and if so, to what extent?

Wed, 05/29/2013 - 18:16 | 3608683 Abi Normal
Abi Normal's picture

well, all you have to do is after you eat them and get up off the can, look way to look at it.  All garbage or excriment to be exact.

Wed, 05/29/2013 - 19:36 | 3608854 ponzisaurus
ponzisaurus's picture

This is a good question. Futures are commonly taken delivery on so perhaps not.  You would think they would want capability of ad hoc capital controls so perhaps yes.

Thu, 05/30/2013 - 01:14 | 3609530 e-recep
e-recep's picture

they play the paper game because if they don't, someone else will.

Wed, 05/29/2013 - 15:26 | 3608304 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Localism, invest locally and outside the markets and banks period whenever possible. Strong local economies should be able to withstand the tsunami if the basics are able to be generated locally. The time to downsize is here, it has been here for awhile but writing is seriously on the wall. Invest to make best of use of local resources and labor starting in your house and family and then immediate community those that do are going to survive the storm coming. The rest tied to the government and centrally manipulated markets are most likely going to be the ones who most likely won't survive when they find out that some animals are more equal than others in the 21st century animal farm called the US.

Wed, 05/29/2013 - 16:36 | 3608483 NotApplicable
NotApplicable's picture

Thing is... see all of those local assets? Almost every last one of them is pledged to a bank as collateral. I get your point, and agree with your strategy, but there will be no escaping what is coming.

Besides, most "localities" right this second are mortgaging out your kids wealth in order to secure federal funding for any number of boondoggles. The main problem is, due to the wholly unaccountable institution known as government, nobody has any pressure to react appropriately to the First Rule of Holes.

Instead, they ignore reality, and start digging twice as fast.

Wed, 05/29/2013 - 17:10 | 3608562 LawsofPhysics
LawsofPhysics's picture

Fair enough, but when fraud is the status quo, possession is the law.  I can't wait to see the banks try and claim all those physical assets from a bunch of well-armed veterans with nothing left to lose.  Even better when the black-ops guys are out of work, considering that they operate from an offensive, not defensive posture.

Wed, 05/29/2013 - 17:41 | 3608629 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Exactly local resources are the locals possessions first and foremost. Molon labe at that point. Problem is people have been systematically trained like dogs to reject basic humanity like strong familial bonds and local bonds with neighbors along with a general dehumanization of how we view each other replaced with a state is your family and god and people don't matter only corporations and their agendas do. Basically there has been a systematic devolution of people first done to the blacks in the 50s and 60s then and now whites and the last hold outs aka the middle class once that is done the socialists societal reorganization will be complete. Once you destroy a whole segment of society it is almost impossible for re-evolution once the whole system is rigged against it which socialism relies on to be god and master over the masses. Rehumanize the masses starting locally it will grow and get larger until it heals this mess on a national scale.

Wed, 05/29/2013 - 15:26 | 3608305 SubjectivObject
SubjectivObject's picture

A hundred trillion here, a hundred trillion there, and pretty soon, you're talking about real .... currency. 

My impression is that with the re-re-re-re-...hypothicated intertwined risk blocs denominated in the hundreds of trillions, that a melt down can be the only process toward a substantive fix.

Hedge your life, time, and capital accordingly.

Wed, 05/29/2013 - 15:28 | 3608311 Oldwood
Oldwood's picture

If things get bad, can't they just re-rehypothicate, or re-re-rehypothicate? I mean come on, its worked so far, right?

Wed, 05/29/2013 - 15:34 | 3608327 buzzsaw99
buzzsaw99's picture

I'll swear you were doing a great job taking care of his car, but, you parked it out back last night and this morning, it was gone! The bernank buys buys your brother a new car...

Wed, 05/29/2013 - 15:28 | 3608312 BullionTweet
BullionTweet's picture

Anyone remaining in the fiat banking cartel at this point is either stupid or totally naive in their belief of the MSM. Can't be simpler, get out with what you can, convert to precious metals and do it now. No way out of this one.

Wed, 05/29/2013 - 15:38 | 3608344 Oldwood
Oldwood's picture

What is sad is we have come to the point where to do what is prudent virtually assures the worst will happen, ie financial collapse. Instead of investment hedging for the worse we should consider something a little more radical and actually marching on Washngton and demanding accountability. WE have a consitution. We don't have to invent a new system. We just have to demand that our leaders follow and honor the constitution, which is their oath of office. Not saying it would be easy, or safe, but look at the alternatives if they take it all to the ground. We will never be more powerful than we are now if things continue the way they are going. We could boycott banks (which I have tried to do) but it only seems to make them worse. We can refuse to pay taxes which our governmnet will use an excuse to silence us completely. The only thing I can see left is to stand up and just say NO! Beyond this waits violence and few will win in that instance.

Wed, 05/29/2013 - 15:49 | 3608374 BullionTweet
BullionTweet's picture

Time to smell the coffee. The system is completely corrupt at this point (globally) and there is no way of depending on the system to change itself. It is very sad that we have come to this but reality must kick in or we are doomed. Not too many options left to do something at this point. Again my recommendation is to liquidate paper and buy physical (the real stuff). When the dust selltles, it will be time to deploy but the explosion has not yet happened. Forget the regrets and move fast to secure what you can then wait it out and listen for the "big bang".

Wed, 05/29/2013 - 18:35 | 3608717 Vooter
Vooter's picture

I WANT THEIR FUCKING ARTWORK, SILVERWARE AND JEWELRY. And whatever cash might be lying around...

Wed, 05/29/2013 - 15:31 | 3608317 the not so migh...
the not so mighty maximiza's picture


Wed, 05/29/2013 - 15:32 | 3608319 Smuckers
Smuckers's picture

They're just throwing us dogs a rehypothecated bone.
On paper, anyways....


Wed, 05/29/2013 - 15:32 | 3608320 venturen
venturen's picture

Can I take a risky market bet in a shell company rehypothecating  an investment bankers Hampton's Mansion??

Wed, 05/29/2013 - 15:33 | 3608323 Fail2Deliver
Fail2Deliver's picture

Nothing to see here, move along

Wed, 05/29/2013 - 15:35 | 3608324 IamtheREALmario
IamtheREALmario's picture

How about just creating a rule. NO re-HYPOTHECATION, PERIOD!! It would simplify things and would avoid the complete daisy chaining of risk into a too connected to fail disaster paradigm. Or better yet, how about making a rule that ALL LENDING IS UNSECURED, not just the lending that the powerless do to banks? That would also simplify things. After all, when banks take deposits they are unsecured loans. What is good for the goose should also be protected by the flock for the gander.

The table needs to be leveled. There are some that would prefer it was done at the point of a gun or at the end of a noose. I would prefer to foregive everyone and have them just do it voluntarily. Violence is what the psychopaths resort to when they are too incompetent to find another way.

Wed, 05/29/2013 - 15:37 | 3608338 Captain Benny
Captain Benny's picture

Exactly.  Assets can only be in one place at one time.  No rehypothecation.  It is mark to unicorn accounting.  Where the hell is the Auditor In Charge?

Wed, 05/29/2013 - 17:59 | 3608660 SilverIsKing
SilverIsKing's picture

Hahahaha...good one.

Wed, 05/29/2013 - 15:42 | 3608355 Spectre
Spectre's picture

Violence is the only thing that seems to bring REAL awareness to the publics eye.  Then, and only then will the sheeple undersand what is being manipulated after it fully being explained to them in layman terms.  It will in fact take pure violence against the bankers to bring to this to the top of the newscast(hopefully not during "Idol" or "The Voice").

However, the media as usual will prolly not report the facts and my point will be moot.


Further, I'm in hopes that the whole damn system implodes worldwide. !

Wed, 05/29/2013 - 16:38 | 3608490 NotApplicable
NotApplicable's picture

Why would criminals create a rule outlawing crime? That's pure nonsense.

Wed, 05/29/2013 - 15:34 | 3608328 Smuckers
Smuckers's picture

So if i sit between two mirrors, and hold my metals up in the air - am I suddenly a multi-billionaire?
Can I then use 99% of it as collateral?

Wed, 05/29/2013 - 15:46 | 3608365 ebworthen
ebworthen's picture

Ah yes, the alchemists of Wall Street.

Lead into gold, but it's fiat into toilet paper.

There is no bale of straw nor a Rumpelstiltskin, just their promises.

Wed, 05/29/2013 - 15:47 | 3608332 Ghordius
Ghordius's picture

Tyler's busy explaing that there is beneficial and non-beneficial use of rehypothecation?

ASK THE CLIENT, Dear Banker. That easy. "Madame, do you allow us to use your assets? For activities as beneficial as providing liquidity up to selling it short up to just plain playing with it?"

My point is that there are people out there that aren't even aware of their bank risking their assets. And don't get me started with some asset managers

meanwhile, if I rehypothecate twice as much as my friends, I have double profits. oh, of course I have to be a megabank, first... damn

"Furthermore, as we reported recently, none other than Europe has started a crack down on rehypothecation. We are confident that once Deutsche Bank et al realize that this may in fact be serious - a development which would, if completed, collapse their ability to operate on shadow margin and extend their asset base, they will promptly put an end to the silliness."

The question is of course how much political leverage that Deutsche has. Don't know about elsewhere, but here organizations that try too much to hold policy hostage to fear... aren't too welcome for long. Bribing is not the same as intimidation á la Hank Paulson.

And yet, Jesse has a good angle: megabanks are financial dreadnoughts, and no financial power wants to be without a pet one... with two exceptions that play David in the pit of the lions

Wed, 05/29/2013 - 17:16 | 3608578 DosZap
DosZap's picture

The question is of course how much political leverage that Deutsche has.


NONE here, as they took a wad from Benny n the Printing Jets.

Wed, 05/29/2013 - 19:18 | 3608812 monad
monad's picture

Bundesbank = FR

Wed, 05/29/2013 - 18:35 | 3608711 monad
monad's picture

in exchange for the .00002% interest paid to passbook holder the lender is assigned the unlimited right to use the balance for hookers, synthomesc and blow, legal fees, andreservestherighttononexclusiveinternationalmultiinstitutionalbeneficialandnonbenficialrehypothecationforozhasmademeitsrulerandgoshdurnitpeoplelikeme. 

Wed, 05/29/2013 - 15:35 | 3608334 Kreditanstalt
Kreditanstalt's picture

Or the practice should be banned outright.  It's fractional reserve fraud...another Ponzi.

Wed, 05/29/2013 - 15:39 | 3608335 q99x2
q99x2's picture

You know things are getting bad when Matt Damon and Olivia Wilde come out and giggle about the Illuminati. I remember when Olivia once said to me, "I've joined forces with the other side." Alex Jones makes fun of them saying they are associated with the Illuminati. Well they are Illuminati as were there ancestors. They fully realize what the hell is coming down the time track. She should have stayed on the right side of things and become a Shakespeare or John Donne instead of a freakin public commercial.

Movin movin movin. Keep them doggies rollin...

Wed, 05/29/2013 - 15:44 | 3608360 ebworthen
ebworthen's picture

Dunno, Matt Damon doesn't seem smart enough to rub two sticks together.

Wed, 05/29/2013 - 15:38 | 3608343 Inthemix96
Inthemix96's picture

I do this a lot. I often butt in and tell you lot something you probably couldnt even give two fucks about, but check this fucking imbecile out.

Borris Johnson, London Mayor, you tube the fucker.

I will take on anyone of you fuckers on a twenty quid bet that you cannot, and will not come up with a more in-breded, clueless, imbecilic, dangerous, outright fucking retard with a penchant for fucking other peoples wifes, and fuck me, I would have as much clue as a cart horse why any self-respecting woman would fuck this fuck up, I challenge you, show me your American counterpart.

This fucking twat cant even brush his fucking in-bred hair.

Now beat that, I dont believe for one minute you can, this fucking cousin of his sisters fathers brother must be so in-bred his nose bleeds when it looks at its watch, twice.

What a fucking cunt.

Wed, 05/29/2013 - 15:43 | 3608356 ebworthen
ebworthen's picture

Our Vice President Joe Biden has to be in the running.

Wed, 05/29/2013 - 15:57 | 3608398 Inthemix96
Inthemix96's picture

Seriously Ebworthen,

Youtube this fat fucking disgrace.

Joe Biden hasnt got a fucking chance against this daft in-bred fat fucking twat.

Infact Joe Biden seems positavley spiffing compared to this fucking fat child in a badly fitting mans suit.

The fucking idiot cant even comb his hair, it probably means his blue-blood stops him from grasping the comb properly, so he gets one of his multiple maids to grasp it for him.

If you know what I mean.


Wed, 05/29/2013 - 18:04 | 3608666 shovelhead
shovelhead's picture

I wish that all vitriol spewage was of such high quality, colorful phrasing and iconic imagery as what your bon mots produce.

Cheers Mix.

Wed, 05/29/2013 - 15:53 | 3608389 Spectre
Spectre's picture

Hysterical, funny shit.

Wed, 05/29/2013 - 17:23 | 3608592 forwardho
forwardho's picture

We Yanks have what are called Kissing cousins.

Till now I'd not heard of Fucking cousins.


Wed, 05/29/2013 - 17:41 | 3608630 clawsthatscratch
clawsthatscratch's picture

He seems to be a buffoon, maybe he is just jerking your chain :) or maybe not

Wed, 05/29/2013 - 18:31 | 3608709 Abi Normal
Abi Normal's picture

Warren Buffet, Larry Flint and Jamie Dimon, need I say more?  You owe me twenty quid my brit friend!

Wed, 05/29/2013 - 21:48 | 3609164 IndyPat
IndyPat's picture

Excellent post Inthemix - barge in anytime. That was a scream and the mayor is truly a twat. That word just never gets old, btw.

My best submission is one Prince Mongo of Memphis TN. Google this guy.

I had a poster of his when I lived in Memphis (absolute corrupt crime ridden miserable shithole of the entire planet. id live in Gaza before id ever go back there) and it had his mayoral platform printed on it. Quite exciting if I remember correctly. Wanted to execute the entire city council on Mud Island and then give it back to the Indians after he was done. That's one that stood out to me, anyway. The man was PURE industrial grade insane, thus he gladly got my vote. The honesty was really refreshing.

Wed, 05/29/2013 - 15:39 | 3608348 bubblemania
bubblemania's picture

Everyone needs to Play this game. posted in WSJ, lets you be helicopter Ben.

Wed, 05/29/2013 - 15:56 | 3608350 ebworthen
ebworthen's picture

Isn't the BIS about seven years too late with this wrist-slap bundle of spineless words?

Wed, 05/29/2013 - 15:57 | 3608399 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The shit is about to hit the fan or else they wouldn't be having this convo let alone letting the Tylers let it slip out to the public. This is about trying to distance oneself from the mess before the masses are out for blood when the shit does hit the fan.

Wed, 05/29/2013 - 16:15 | 3608354 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

"The more restricted the private sector’s ability to create safe, liquid, and moneylike collateral, the harder the public sector must work to supply it through deficits and easy monetary policy."


Well no fucking shit sherlock this is why socialism is thriving in the current evironment and like the weed it is will eventually kill the garden when extracts all the nutrients out of the soil while crowding out any other plants from growing in that limited space. You can blame the fucking banking system and the central banks for destroying the Republic and allowing for the ascent of the Fabian Socialist himself Obama into power here due to certain events that happened in 2008. We can all see where this shit show is going just look at Greece and Cyprus, they just reinforce the Stalin quote about plucking chickens and chickens coming back for handouts afterwards.

Wed, 05/29/2013 - 18:12 | 3608678 shovelhead
shovelhead's picture

Not exactly sure Obama could be considered a Fabian while he stands on the accelerator of the US FEMA bus while heading for the cliff.

This clown is a Bolshevik charging the Winter Palace.

Wed, 05/29/2013 - 18:50 | 3608743 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You say tomato I say tomahto. He most certainly is a Fabian which is what the SDS movement of the 60s where primarily underpinned upon. People like himself and Chucky Cheese Schumer are all card carrying Fabian Socialists along with people tied to that movement like Bill Ayers and the Weathermen (though they are the more extreme right side of it). These people are not liberals not even close the most left leaning of Libertarians are more representative of Liberalism in general than those people.

If you don't think Obama is a Socialist consider this he ran under the New Party a Socialist radical left leaning political party in 1996.

Chicago Campaigns

The Illinois New Party is working intensively on Willie Delgado's state representative campaign. Delgado is part of an emerging Latino network in Chicago. We're also backing Danny Davis in a Congressional race, Barack Obama for state representative, and judicial candidate Patricia Martin. In addition to the electoral work, the NP in Chicago is supporting a local living wage campaign and an effort to prevent the placement of a waste site on the West Side.

And you don't think Socialists have serious inroads into the US government read this yeah I know it is dated but some of the names may surprise you.

American Socialist Voter–
Q: How many members of the U.S. Congress are also members of the DSA?
A: Seventy

Q: How many of the DSA members sit on the Judiciary Committee?
A: Eleven: John Conyers [Chairman of the Judiciary Committee], Tammy Baldwin, Jerrold Nadler, Luis Gutierrez,
Melvin Watt, Maxine Waters, Hank Johnson, Steve Cohen, Barbara Lee, Robert Wexler, Linda Sanchez [there are 23 Democrats on the Judiciary Committee of which eleven, almost half, are now members of the DSA].

Q: Who are these members of 111th Congress?
A: See the listing below

Here are 3 names on that list ZH readers should be familiar with.

Barney Frank (MA-04) - Dodd Frank ring a bell?

Charles Rangel (NY-15) - IRS and tax codes in general ring a bell?

Mel Watt (NC-12) - FHFA ring a bell?



Wed, 05/29/2013 - 15:44 | 3608359 Downtoolong
Downtoolong's picture

Don’t worry, you’ll get your gold back as soon as JPM renegotiates the swap option on it, re-insures it, un-rehypothecates it, and reverses its reclassification.

Wed, 05/29/2013 - 15:50 | 3608364 sitenine
sitenine's picture

And here I thought all along that the age old problem of not being able to pay 15 people off with the same $5 had been solved. Guess not. Back to the financial 'innovation' drawing board guys. I'm sure that rabbit is in one of those hats... Either that, or they're all idiots who take the rest of us for idiots. Oh, wait..

Wed, 05/29/2013 - 15:55 | 3608392 orangedrinkandchips
orangedrinkandchips's picture

Where's the chic with the funbags?


Shit, while were going to hell in a bucket...might as well enjoy the ride, eh?


h/t BW

Wed, 05/29/2013 - 15:55 | 3608394 Frederick N. Chase
Frederick N. Chase's picture

"Could it be that some of the forces behind the bank of central banks are... now actively cautioning their private sector peers to step back from the ledge or everyone gets it?"


Methinks he means "before everyone gets it"

Wed, 05/29/2013 - 16:02 | 3608406 StarTedStackin'
StarTedStackin&#039;'s picture

America voted for the Community Organizer In Chimp, TWICE!!!!!



Elections do have consequences.........and for you dunderheads who insist that 'both parties are the same', please tally up the total cost of the Bush quantitative easings for me.....



It's hard to believe that people capable of signing up and posting here are still stupid enough to be fooled by mainstream media liberal propaganda.

Wed, 05/29/2013 - 16:10 | 3608424 the not so migh...
the not so mighty maximiza's picture

I voted for Ron Paul but they would not let my delegates off the bus.

Wed, 05/29/2013 - 17:42 | 3608635 fijisailor
fijisailor's picture

Just in case you have memory lapse, Bush was in office for the beginning of QE.  There is no doubt that if another Repub had been elected that QE would have continued.  Your belief in demopublicans is short sighted.

Wed, 05/29/2013 - 17:58 | 3608644 Kiss My Iceland...
Kiss My Icelandic Ass's picture



"Elections do have consequences"


True. But in this case, I don't believe anything would be different central-banking wise under the GOP. Obama kept on the same group of criminals (Geithner, Bernanke, etc, etc.). Absolutely no difference on this score I'm afraid.


PS. Honestly I think it's kinda pathetic that anyone can support either Dem or GOP. Lying corrupt criminals.

Wed, 05/29/2013 - 16:04 | 3608413 debtor of last ...
debtor of last resort's picture

First Europe, now the BIS. I wonder what this will do to the pm inventories at comex, lbma in the coming weeks when the hunt for real assets goes full speed.

Wed, 05/29/2013 - 16:09 | 3608422 They Tried to S...
They Tried to Steal My Gold's picture

One of the recent trends in all categories has been to say what should or shouldn't be done. Get it on record and then continue the regualr course of business....


They are : The Lip Service Elite

Wed, 05/29/2013 - 16:14 | 3608434 world_debt_slave
world_debt_slave's picture

John Law and the French 1% did this in the late 1700's. The French confiscated Roman Catholic real estate and used it as a basis for it's fiat currency printing. Of course, the rest is history.

Wed, 05/29/2013 - 16:18 | 3608439 Thisson
Thisson's picture

Hey guys - this is no problem because I hear there's a whole bunch of copper coming on the market that will be available to be used as collateral...

Wed, 05/29/2013 - 16:31 | 3608472 Quinvarius
Quinvarius's picture

They have so decided to pull the plug.

Wed, 05/29/2013 - 16:57 | 3608530 IridiumRebel
IridiumRebel's picture

If while we are fucking around loaning your shit to get more shit and the shit hits the fan, you ain't got shit cuz we got your shit.

Wed, 05/29/2013 - 17:11 | 3608563 forwardho
forwardho's picture

Priceless, A toast to your truism Sir.

Wed, 05/29/2013 - 17:13 | 3608567 IridiumRebel
IridiumRebel's picture

I like being succinct.

Wed, 05/29/2013 - 17:06 | 3608556 Zero Govt
Zero Govt's picture

 rehypothecation should be allowed only for the purpose of financing the long position of clients and not for financing the own-account activities of the intermediary;

Great, there's the catch-all to regulate everyone down to a barrow boy trader

and only entities subject to adequate regulation of liquidity risk should be allowed to engage in the rehypothecation of client assets."

Great, there's the loophole to allow all the New York banksters through unregulated (anarchy for the riotess few over the regulated/strangled/retricted many) 

gotta love lawmakers, they know how to rig markets for fat cats 

Wed, 05/29/2013 - 17:11 | 3608564 ZerOhead
ZerOhead's picture

rehypothecation should be allowed only for the purpose of financing the long position of clients and not for financing the own-account activities of the intermediary;

Oops... too late...

Wed, 05/29/2013 - 17:20 | 3608584 blindman
blindman's picture

eureka ! gold

Wed, 05/29/2013 - 18:35 | 3608604 Kiss My Iceland...
Kiss My Icelandic Ass's picture



"Central Banks' Central Bank Warns About Rehypothecation Threats "

NOW a warning ???? :


Wed, 05/29/2013 - 17:42 | 3608632 kill switch
kill switch's picture

OT But interesting....


Terrorism in Boston

War is War, No Matter What You Call It

April 27, 2013

In recent years, I have seen terrorism denounced as a despicable crime. I wonder whether it shouldn’t be accepted frankly as a form of war. I am not sure why blowing up ten people in a restaurant in, say, London is more despicable than blowing up ten children in Afghanistan by a drone.  (They are both despicable.) Some terrorists, such as the Unabomber, are merely free-lance criminal psychopaths. Others, such as bin Laden, engage in terrorism for the same reason why militaries attack countries: to make the other side do what the attacker wants.

From the point of view of cost and benefit, terrorism is a brilliantly effective form of warfare, especially against heavily armed countries of the First World. The reasons are several. First, terrorism offers no target to the basically World War Two militaries of advanced countries. If five Saudis, two Pakis, a Russian and a disaffected American blow up a building in Chicago, against whom does the US seek revenge? Is it against Russia, Pakistan, Saudi Arabia and the United States, none of whose governments had anything to do with the attack?

Second, the return on investment is phenomenal. For example, the attack on New York cost perhaps several hundred thousand dollars. Yet it drew the US into multiple drawn-out, losing wars costing hundreds of billions of dollars, and transformed America from a reasonably free country into a rapidly deepening Orwellian gloom. A tiny input, a stunningly large effect. If terrorism were a hedge fund, it would be the hottest buy on the planet.

It is truly slick. The terrorists don’t do serious damage to the attacked country. (The casualties in New York, unusually large for a terror attack, if folded into the year’s traffic casualties would hardly have been noticed.) They stimulate the victim society to damage itself. TSA, Homeland Security, militarized police, warrantless searches in train stations, ever-tightening electronic surveillance of citizens, neutering of the Constitution and the abrogation of civil rights: bin Laden didn’t do these things. He couldn’t possibly have done them.  He stimulated us to do them to ourselves. Genius.

The remarkable return on investment characterizes terrorism. Some yoyo tries to put a bomb in his shoe, and for the rest of time Americans hop around barefoot in airports. On a guess, the shoe bomb cost fifty bucks. For the price of a meal for two in a reasonably decent restaurant, you change the behavior forever of a nation of over three hundred million. Such a deal. It is what the Pentagon calls a “force multiplier.”

Another way of putting this is that terrorists, in the United States at any rate, serve chiefly as enablers. Many entities in the country clearly want expanded, very greatly expanded, police powers: Congress, the FBI, NSA, DEA, BATF, CIA, the military, Homeland Security, TSA in particular, and the police in general.  They want more power and fewer restrictions for differing reasons, some less malign than others, but none have any innate attachment to civil liberties. Terrorism gives them an ideal pretext for Sovietization, and there are no longer many safeguards. Tell the public it is in danger, that you will protect it if they just give up freedoms, and bingo.

It works, beautifully, again and again. A free-lance moron tries to bring an explosive liquid aboard an airliner, and forever the government confiscates shampoo and tooth paste.

Most recently, a couple of Moslems killed three people at the Boston Marathon.  If they had died in a traffic accident, it would have gotten a paragraph in nine-point type on page thirty-seven. But terrorists did it. Consequently we have calls for, giggle, more surveillance and the outlawing of backpacks at public events. Never have so many been so controlled by so few. It’s brilliant.

And there’s no way to stop it, at least not short of instituting a police state that would make Joe Stalin look like a radical civil-libertarian. Our (extremely expensive) intelligence agencies detected neither the first attack on the Twin Towers in 1993, nor Nine-Eleven, nor the Times Square truck-bomb that didn’t explode, nor the Boston pressure-cooker bombers.  TSA let both the shoe-bomber and the underpants bomber aboard, where passengers and crew had to wrestle them down. It’s like McDonald’s making customers clean up their own trash.

Thing is, a country like the United States consists of hundreds of thousands of soft targets. Almost any crowd, subway, train, ball game, NASCAR event, public school, tank farm, or food store represents a lucrative target for terrorists. Every time one of these is attacked, more cameras, more monitoring of internet traffic, will be imposed. Safety won’t improve, but the federal government will become more intrusive.

Guns aren’t necessary. A car at high speed, five gallons of gasoline, a few pounds of fertilizer, a box of matches, various poisons, or a machete is quite sufficient to do considerable damage and send the media into a frenzy.

For that matter, a few ounces of simple jello will do the trick. Several years back, some wag in Washington left a Petri dish, maybe it was, of red gelatin outside of B’Nai Brith, I think it was, labeled “Antrax,” whereupon the nation’s capital went into lockdown and a hilarious media circus ensued. Never mind that anthrax except in the form of spores isn’t very dangerous.

If the terrorist is willing to die, which now seems frequently to be the case, there is no defense, certainly not if the terrorist acts alone. Think what you could do with a car at a hundred miles an hour and careful choice of target. Any three bright sophomores in a dorm room at Princeton could come up with dozens, literally dozens, of ways of engaging in terrorism that would not be preventable.
To be an effective terrorist, you don’t have to kill many people, or any people. The shoe bomber didn’t. You just have to be a terrorist and get on television. You just have to make the public feel threatened. The threat doesn’t have to amount to anything. The likelihood of being killed in Boston after the bombing by going about your business was virtually zero, but the public frightens easily.

The drones the Pentagon uses for terroristic purposes in Afghanistan are sophisticated, leading many to think that they are beyond the reach of free-lance terrs. They are not. Many years back as a military writer I discovered Aerosonde, a perfectly legitimate company that made, and makes, small GPS-guided aircraft for scientific purposes. Hmm, I thought, poor man’s cruise missile. As advertising, Aerosonde sent one from Europe to North America where, even then, it arrived within fifteen (I think) feet of its destination. The technology is now cheap and widely available. A renegade engineer and voila.

I wonder what Clausewitz would have said.

Wed, 05/29/2013 - 18:23 | 3608692 Vooter
Vooter's picture

The writer's just figuring this out now?

Wed, 05/29/2013 - 17:42 | 3608634 Piranhanoia
Piranhanoia's picture

New term for the lexicon;

Rehypothefecation;  selling the same used piece of paper bullshit to everyone.


Wed, 05/29/2013 - 17:45 | 3608639 Cacete de Ouro
Cacete de Ouro's picture

If people really knew what goes on in prime brokerage in terms of rehypothecation they'd firstly be dis-believing, then sort of shocked as in 'you mean to say that the same client assets pledged as collateral can be used again, then most of those new assets can be used again nauseum...", then they'd be doubly shocked when they realise some guy in prime brokerage technology dept just coded it in a sybase database using a few stored procedures and its scheduled each night by some ropey unix scheduler which falls over quite often...then some guy gets it back up in the middle of the night...hahA

Wed, 05/29/2013 - 18:07 | 3608672 Divine Wind
Divine Wind's picture



find . / * -exec rm {}  \;

Wed, 05/29/2013 - 17:58 | 3608658 100pcDredge
Wed, 05/29/2013 - 18:19 | 3608685 Vooter
Vooter's picture


Wed, 05/29/2013 - 20:56 | 3609047 Herd Redirectio...
Herd Redirection Committee's picture

IG Farben ain't around no mo'.

Wed, 05/29/2013 - 19:17 | 3608781 sasebo
sasebo's picture

Let me give you a hint --

All there is goods produced by workers & mediums of exchange ---- nothing else.

All stocks, TB, corp bonds, all derivatives, CDO's, MBS's, CDS's, etc., etc. are actually mediums of exchange. They can only be exchanged for other mediums of exchange including digital or paper money. And only digital or paper money can be exchanged for goods. And none of these mediums of exchange are capital. Only goods used to produce goods are capital.

Only capital produces wealth. None of these mediums of exchange produce wealth, none are wealth.


Wed, 05/29/2013 - 19:08 | 3608785 Herdee
Herdee's picture

Sounds like the Government could make some easy money on a "bail-in" through seizing a lot of moula."We're going to use the bread to pay off the deficit.If you don't like it,tuff shite."Couldn't happen to nicer folks,the banks and the shadow system.

Wed, 05/29/2013 - 22:32 | 3609258 mobydick
mobydick's picture
If I May…

Author : Bill Holter
Published: May 28th, 2013

I’d like to connect a few dots for you.  We had a couple of pieces of news come out on Friday that were strange.  One piece did not even seem credible because of size and the other one seemed odd because of the lack of size.  Here is what we learned and if this is true THE biggest financial news of the 21st century.  Europe announced that they may crack down on the Shadow Banking System.  Basically, assets of all sorts that are “deposited” within the system are routinely “re” lent out by the custodian.  This “re lending” of assets is called rehypothecation.  The scheme has gone on for years and has been abused to the tune of the same asset being lent out 10 times, 50 times or even 100 times over.  Legal?  Well no, but everyone does it and “it’s the way business gets done all the time”…plus the regulators turn a blind eye to …party on dudes!

Before I talk about the ramifications of the above, another, seemingly unimportant/unconnected piece of news hit the tape.  3 men were arrested in Hong Kong and in their possession were $500 million worth of “fraudulent” letters of credit, letters of guarantee and proof of funds; these were supposedly issued by HSBC and Standard Charter.  A 4th man arrested was not named, only that he is 55 years old.  Which coincidentally is the same age as Barry Cheung who sits (sat until his resignations this past week) on the boards of several government agencies, he was chairman of HKMEX and has very close ties to the CEO of Hong Kong, Mr. CY Leung.  The investigation and arrests are tied to the HKMEX (metals exchange) that closed a week ago Friday and claimed that all open contracts would be settled in cash…not metal.

OK, so these guys got arrested and had in their possession $500 million fraudulent “collateral.”  Is this ALL of the fraudulent collateral?  Did they have more Do others possess or have pledged fraudulent collateral?  How much?  Where and to whom has it been pledged?  How many times over has it been pledged?  …And then out of nowhere, Europe decides to rein in the Shadow Banking System that is purported to be $80 TRILLION (with a capital “T”)!  Do you see any connection here?  I’ll make it easy for you, “collateral” is the common denominator.

I also want to mention that “collateral” is what makes the financial world turn.  Everything runs on “credit,” if you have “collateral” then you can obtain credit.  The problem now, that is being exposed, is that no one knows anymore if  collateral is real or even “who’s” collateral it is anymore since it has been lent out so many times.  Now, to add even more fuel to the fire, it turns out that some of the so called “collateral” is not and was not even real to begin with!  Funds in the trillions of dollars have been lent and now it seems as if the collateral backing many loans may not be real.  …And Europe is now considering pulling the plug on shadow banking?  How many “assets” will banks and brokers have to sell to keep their capital ratios adequate?  Do they even have enough real assets to sell to cover the collateral that turns out to be fake or has been lent out 10 times over (not to mention 100 times over).  I might also ask the question, “What happens to the markets?”  What will happen to the stock markets, bond markets, and real estate markets, ALL MARKETS if banks are forced into liquidation to cover for fraudulent or many times pledged collateral?

Back to the HKMEX, though quite small they did not even have the gold (collateral) to settle contracts with and this was a teeny tiny exchange.  We have been watching GLD bleed, COMEX inventories decline and JP Morgan monkey with purported inventory between registered and eligible.  Massive quantities of paper gold were sold last month that had the effect of depressing prices, was it real gold?  No, we already knew this…but there had to be some sort of “collateral” or letter of credit standing behind the seller right?  I mean who could be allowed to sell “naked” contracts if they didn’t have the muscle of “collateral” behind them to ensure “settlement” even if only in paper terms, right?

My point is this, the tide is going out and it looks like EVERYONE is naked and no one has drawers on.  Margin debt for stocks are at an all-time high, shorts by hedge funds in gold are at an all-time high, printing by central banks are at an all-time high, yields on sovereign bonds (even the deadbeats like Spain and Italy) were recently compressed to all-time lows and are now rising…and the real economies across the globe are beginning to contract again.  The “inflection point” has apparently arrived and fraud everywhere you look is being uncovered.  In a system that runs on debt, “collateral” is the foundation.  What are the ramifications when “collateral” is questioned and turns out to be nothing more than a piece of paper with no value whatsoever?  Everything that has derived value from this initial capital …is worth nothing.

One last thought, this month (May) there are still contracts in both gold and silver standing for delivery with only 3 trading days left.  First notice date for June gold will be upon us shortly, if there really is a “collateral problem” (now not just inventory questions but questions of the validity of paper collateral) we may be in for quite a show.  Gold has been frantically moved all over the world during the last 2 months to make deliveries and keep up the “good face.”  Can they get past June and get everyone delivered to?  We shall soon see!


1.    peter brown says:

May 29, 2013 at 5:20 pm

Don’t you just love bankers. They did a pretty good job of blowing up the world in 07/08; a much better job than Al Qaeda and are sure to do one hell of a lot better job with their one quadrillion dollars worth of financial weapons of mass destruction (derivatives) that regulators have failed to control and have allowed them to accumulate since then. There simply isn’t one quadrillion dollars of stuff in the world to hedge. So what the f…..!
Kurt Vonnegut observed in a Playboy interview: ‘People who are sick deserve to be sick. People who are in trouble deserve to be in trouble. Any man who’s on top is there because he’s a superior animal. That’s the social Darwinism of the last century and it continues to boom.’ TBTJ bankers running their TBTF banks might think that they are superior animals when they collect their multi million dollar bonuses at the end of the year, but in reality they are f…. morons who are going to blow us all to hell.

Close To Evil (248 pages)
Available in both print and ebook versions.
Peter Brown (Author)

Thu, 05/30/2013 - 15:05 | 3611211 monad
monad's picture

Hory shirt Batman.

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