And Now, A Present: "Are The Brokers Broken?" - A Reprise
Often times we are asked "why does Zero Hedge prefer to provide information in piecemeal increments and isolated snapshots (of irregularity) rather than write comprehensive articles (or even a book) that explain, from beginning to end why everything is broken - the end?" There are two answers - a short and a long one. The short answer is that finance, more so than any other field, changes so rapidly that the nuances are always and constantly on the margin, which in turn is stable only for the period of time that it is observed, and then it becomes part of "technical analysis." (Indeed, the Schrodinger wave function collapse is just as alive and well in finance as it is in the quantum arena). As such, we adhere to the paradigm describing the distinction between giving a man a fish and teaching a man to fish: we believe that it is far more useful to demonstrate all that ways in which the market (and global economy) works, or rather doesn't, than engage in extended exercises of vanity, which serve as much to stroke the author's ego, and demonstrate one's knowledge of SAT words, as they do to elucidate the matter at hand. By sharing our own views of events as they transpire in real time, be they right or wrong, we hope to provide our readers with the "connect the dots" patchwork required to evaluate relevant financial events as they occur in real time, instead of describing them in the in vitro vacuum of moody brooding. (As for a book, we are more than confident enough "independent" bloggers out there will succumb to the very system their protest against, and pen a few hundred pages on the goal-seeked topic of their choosing - the last thing the vast upcoming book pyre needs is our own intellectual self-pleasuring). The long answer is far longer, and, ironically, deserves a post of its own. But this is neither the time nor the place. What then is the purpose of this post is to break away from our tradition, but also not to recreate the wheel, as many others find delight in doing. Instead, as a special present to our readers, we share the seminal analysis by Citigroup's Matt King from September 5, 2008, titled "Are The Brokers Broken?" which in one place explains, better than anyone else has ever done, why the system is terminally broken, and why the best anyone can hope for is to keep kicking the can down the road until it all comes crashing down.
The report, which came out ten days before the Lehman collapse, was according to some, one the primary catalysts for the collapse of Lehman and the subsequent near collapse of the entire house of cards, as it explained better than anything to that point (and arguably since), just how hollow and broken the one all important component of modern finance - the multi-trillion shadow banking system is.
Sure enough, once the majority of analysts and traders out there, who for the most part are simple automatons who only push buttons all day and can barely see beyond the 8th screen on their Bloomberg terminal, comprehended the irreparable nature of the systemic break in terms even they would understand, the panic commenced, and resulted in a full blown run on every form of liquidity which also happens to be synonymous with quote unquote bank: yes, Lehman, on the simple visible side, but far more importantly, on money markets, that primary conduit (along with repos) of the shadow banking system. It was this, far more than the Lehman collapse (whose end they had greenlighted), that stunned the powers that be, who did not anticipate any of the aftershocks that would start cascading through the US shadow banking system which according to our estimates is about $15 trillion most recently (well above total traditional liabilities which are still below $14 trillion) , while according to others when one adds the rehypothecation "value" of various commingled assets, could be up to $4-6 trillion larger.
So while we all partake in the spirit of goodwill to man and festive joy (however brief), if for no other reason than because "we should", our present to our readers is that most important gift - knowledge, and the understanding of the truth behind the headlines which the traditional media will never provide, for fear of the all out panic that would ensue if the general public, just like the specialized financial industry, in the days after September 5, 2008, were to understand just how futile the actions of the Fed and the global banking cartel are when presented with all the facts.
In summary: the following report was 100% correct when it first came out and predicted the Lehman, and all other collapses; it is even more correct now, as nothing has changed, only the stakes have now gotten that much ('infinitely' some would say since every central bank is now all in on preserving the fake reality that is artificial central planning) greater. Unfortunately, because nobody listened and nobody learned from the events in late 2008, the next time around there will be no redo.
To understand why, read on (pdf).
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Thank You.
Nice blast from the past.. thanks.
“now leaves regulators worried, given the scale of repo’s importance.”
Maybe the regulators aren't worried this time around because they are all on the payroll.
I have a suggestion for the name of the next policy maneuver.
I propose it be called the Progressive Overnight Notational Zirp Interchange.
This is what I find interesting about news reportage and analysis in general.
It now seems to be common knowledge that AIG and MFG both failed due to excessive leverage, specifically in their London units where it is apparently legal to hypothecate the same collateral a hundred or more times over, to different parties. Or so MAx Kieser and Stacy told me.
What the heck is the point in any of these long winded discussions and papers and arguements?
There is a fractional collateralization scam being played out in London. Kill that loophole perhaps? First? That is huge. It has caused two humongous, system threatening shocks.
Are the brokers broke. No they are not, they are over-hypothecated.
ori
/fractal-animal-hypnotic/
Which actually means they are broke * 100.
All I want for Christmas is free market capitalism.
http://azizonomics.com/2011/12/25/all-i-want-for-christmas/
To Lowprofile: Hate to disappoint you, but brokers are still buying $250k Ferrari's by the truckloads!
I wonder why, you can't eat Ferraris.
I'm sure they are still charging commisions but if they are indeed losing money how much longer can they keep their clients. I believe we saw this scenario played out several times in 2008 as well.
Problems explained / Simplistic view
This rather brilliantly cuts thru all the political doublespeak we get.
This puts it into a much better perspective .
This shows how long daddy government can still fund the banks fucked up behavior:
* U.S. Tax revenue: $2,170,000,000,000
* Fed budget: $3,820,000,000,000
* New debt: $ 1,650,000,000,000
* National debt: $14,271,000,000,000
* Recent budget cuts: $ 38,500,000,000
Let's now remove 8 zeros and pretend it's a household budget:
* Annual family income: $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total budget cuts: $385
Sudden debt, Rick Santelli basically agree with your numbers. If someone needs a video of it, click here to Watch Rick Santelli Make Government Math Easy.
Intrest on debt 142710.00 @ .00025%=$35.0
Lobster for dinner
Yeah, but I'm still the boss and have a kick ass health plan compared to my peasants.
Wierd, our brokers over here are the ones buying us a friday lunch of wahtever we want (ordered in, of course) week in week out, just so that the next time someones looking for a fill on xy equity or credit product, we do it through Tullett as opposed to BGC as opposed to Cantor as opposed to THE LIST GOES ON. These brokers have nermous lawsuits against each other already, just because they try and win clients back since a lunch doesnt exactly keep a trader satisfied for long...
So no, i dont actually think brokers are buying Ferraris by the truckload.
No, it means the ponzi will continue as long as there is not a run on PMs and food commodities stay reasonably priced.
Commodity prices are key to this ponzi as is not waking the sheeple
"stay"?
With the amount of money printed I'd have to say very reasonable.
You're not living in one of the countries to which inflation is "exported", hmm?
How about - 33% foodstuffs price inflation in one year? VERY REASONABLE? WTF? Technically, this is something in-between "typical fiat rip-off inlation" and "hyperinflation" (and together with static wages, in-between business as usual, and hyper-stagflation).
When does stuff stop being "very reasonable" to you - when it goes BOOM!?!?
Those edible iPads are coming down in price a bit.
ORI,
The point of these 'long winded discussions', is that they are exceptionally helpful for those of us who are interested in the actual inner-workings of shadow banking. The hyper re-hypothecation scam has been a revelation into the horribly flawed logic with which this cotton candy 'financial innovation' fiasco.
Since much of the resources have now been fully backed into the financial sector in London, the rest of the UK has been marginalized as has been evident for the past thirty years or so. Cameron has to stand behind the collapsing banking oligarchs no matter what. Good-bye UK.
I feel you ORI. After replying angrily to a poster about his demands of proof of manipulation of the PMs markets and you replied to my post offering empathy over my frustrations, it got me thinking about the anger in my reply and it made me realize that some of us have known or understood "The Game" for some time. What I have to remember is that the awakening has only just started and that there are literally billions of folk who don't have the message yet. It will be a long road and I just have to put aside my frustrations and hope that articles like this get the attention of one more sheep.
Are the brokers broke? The global reply to that is; if the world's monetary system is predicated on credit or debt or promises to settle accounts, rehypothecated promises, leveraged promises, and that account was opened on credit, and the credit was accepted without the means to settle (just like the $US since 1971), then the account holder is bankrupt from the start. How will the entire world settle a promise that has nothing backing the promise? It literally can't and we were warned by many.
It is obvious that the system is a sham but you can only see the sham if you accept the system as it really is and not how it has been portrayed. That takes a quantum leap.
Bingo.
The force is strong with this post.
There is no spoon.
This is my first exposure to this article. I must say, the language within would have been indiscernible to me just a few months ago. Reading ZH among others is a means for laypersons like me to educate ourselves.
I'm truly grateful for the re-run. It also helps to remind me that even within these corporations there are good people willing to call it like they see it.
I suppose that is what Tyler(s) is/are to begin with.
As grateful as I am for this site, part of me wants to take the blue pill.
Seeing a glimpse of truth is frightening.
In essence, Shakespeare was right: "Neither a borrower, nor a lender be."
Quite correct.
With the exception of our coin on which no interest is due, there is no money!
There's limits on how many times you can rehypothecate something in the U.S. - the difference is in London you can do it virtually an unlimited number of times.
Rehypothecation is not "necessarily" a bad thing as its used in finance all the time to provide things like leverage accounts (you deposit $1000, but get to play with $3000). But there has to be a limit on this, and unlimited rehypothecation is an obvious and clear problem, especially when it comes to physical assets used as collateral by multiple parties.
For example your house is used as collateral by YOU, and then rehypothecated by the bank since it's on their balance sheet as "possibly" being theirs, so they use it as collateral as well. This is where it all starts becoming a cluster fuck as there's only a limited number of physical assets, but 10 "potential" claimaints to that asset.
Excellent. Thanks ZH.
It would be great to see something similar on 2 other current topics -- derivatives and hypothecation at brokers. Then mere mortals might actually understand the broker business.
Man! You just couldn't resist, could you? Let just one day be filled with intoxicating Hope.. however fucked up the world may be...
there is some hope out there,,,,,mcdonalds stock has a great trend line and walmart appears like it just broke out,,,,these two retailers appear to have a fantastic future right now
Yup, WALMART does have a great future ....... in other countries. I'm deliberately avoiding WALMART like the plague. It's obvious they don't need my money; after all, CHINA awaits. This country has been WALMARTIZED . Let someone else support that company ...... i'm out. what little i have left goes straight into local business or physical metal & foodstuffs.
you said it.
Too late for that. The big retailers have taken out most of the locals. It's about time people started learning that. Their own greed to save a few fiat cents resulted in the walmatization of USSA.
OTOH, it was entirely predictable for stupid TV hypnotized sheep to go where they were herded.
Two words: flea market. Avoid local sales taxes, regs, and registration, and get ready for your black market future. We have ICE agents running around at ours, big brother is watching.......
Lynnybee, I'm with you. I think we're on the cutting edge of a movement that will gain traction with more and more people.
You nailed it, Lynnybee. Let me advise that people begin now to develop those relationships with local retailers. When TSHTF they might be highly selective with whom the choose to do busniess. It would be most wise for you to be one of them. The future of economies is not global, it's local and way smaller than you can guess.
Each $ spent at a big box store yeilds about $2 in economic activity for the community. Each $ that "goes local" (ie - is recirculated as local purchases for local goods and services yeilds $7 in economic activity for the community.
By doing repeated, habitual bargain hunting at places like Walmart we have been spending ourselves poor.
We need to understand how we have, by our minor, daily purchasing habits, ruined this country...
...and then change that mind set and rebuild our communities.
Each of us can do that, now. We must in order to win back our economic freedom.
It's a comforting thought to know though that the big international US companies are getting screwed right now with their money earned overseas sitting there in Euros. They desperately want it back here tax-free, of course, which ain't happening so far even though Jeff Imelt suddenly became Obama's BFF.
Until you can't afford the gas to get there.
Maybe thats why the Dollar Stores are becoming more popular (I don't shop at them or own shares). This only shifts the cause of the problem from Wal-Mart to a different source, local businesses are still screwed.
Huh?!
I hope that the public is educated to the point that they understand the crime of debt-based money, that the whole thing collapses literally overnight, and then a lightning-fast reform is implemented, with a functioning, constructive system put in place.
What the Hell were you hoping for?
rajat...The fuc@#$% Hope was elected about 3yr ago. Many/most of us detest that word now. Thanks, and Merry Christmas to ya!
Yes it is very detestable. The one has brought about the collapse of American Power in the world.
Spot on Tyler. The underground world of intelligence thanks you for your contributions and continued awesomeness. Thank you also for the foresight to remain annoymous and focus on "connecting the dots". Rock on through 2012 ZeroHedge!
http://www.calibratedconfidence.com/
'As for a book, we are more than confident enough "independent" bloggers out there will succumb to the very system their protest against, and pen a few hundred pages on the goal-seeked topic of their choosing - the last thing the vast upcoming book pyre needs is our own intellectual self-pleasuring'
Bra-vo.
This is just such a nice, clear explanation of the mechanism of European QE.
http://seekingalpha.com/article/315636-how-gold-silver-and-platinum-will-respond-to-ecb-s-money-printing
The Fed vs The ECB - Presenting "The Correlation Of 2012" And What It Means For Gold
O/T, not sure if this has been confirmed...
Julian Assange is dead (kidnapped and killed)http://www.unfictional.com/julian-assange-is-dead-kidnapped-and-killed
If true, we're in for a grim last week of 2011 and beyond...
I like this one (Detlev Schlichter, Paper Money Collapse):
http://papermoneycollapse.com/2011/12/the-nightmare-after-christmas/
Don't call 'em 'BROKErs' for nuthin...
Are the brokers broken? How can I read on? This is what I see:
http://oi43.tinypic.com/t0mb90.jpg
Nothing. Broken. No link. Room for improvement.
Probably due to that ad blocker, which in addition to preventing us from generating revenue, is also helping you stay uninformed.
I click a few ad links daily just for your traffic
I do too, and not for any other site.
Tx for reminder
almost solvent's comment should have 500 greens
The attempt to make the internet unbearable through ads chasing you endlessly is becoming an issue. This series of tubes is going down soon.
The I phone saved google - so many fat finger clicks
Whatever an ad blocker is I'm fairly certain I don't have it. Thank you ZH for the opportunity to learn that which I have never been exposed to. It's been a long struggle, but I am determined to gain a vague understanding of the financial system. God bless
The following solution to annoying advertisements does just as well as AdBlocker, without screwing up site content:
http://www.mvps.org/winhelp2002/hosts2.htm
It does this by forcing ad sites IP addresses to be replaced with 127.0.0.1, which is the localhost address of anyone's PC.
I advocate that yer viewers donate some FRNs to the site -- I do so myself.
Tyler; can I pay you with a credit note?
That was meant as sarc, but I'm going to ask every shop owner I deal with if they'll accept credit when I pay for items in cash, just as an experiment. If they don't accept credit, how will I pay them?
Suggest you get yourself a R710 Dell Server along with Compellent Storage to ensure you are informed. Now back to news ZH's
WTF. Posted this, then it disappeared. Somebody deleting posts?
OT
http://www.reddit.com/r/politics/comments/np4x6/uncut_ron_paul_interview_cnn_lies_and_cuts_over/
Here to help out...
http://www.youtube.com/watch?v=95orump9k_g&feature=related
Christmas present bah humbug.
Ooooh....reading that's hard on the eyes.
Wake me up when Warren Buffet....er....I mean, Bank of Amerika needs another bailout
Thanks TD for all the info and enlightenment.
As an example of how truly f*cked up this whole thing is - the Administration refuses to prosecute criminal wrongdoing for the fear that if the public knew what was going on, they would stop investing:
http://www.rollingstone.com/politics/blogs/taibblog/obama-and-geithner-government-enron-style-20111220
Wow - and here I was thinking that legal enforcement CREATED confidence. Never in my lifetime would I ever have thought that someone would decline to enforce laws because it could DESTROY confidence.
I was somewhat skeptical of Obama because after all he is a politician and has to play the game somehow. But this is worse, far worse. Now I've lost all respect for him.
Merry Christmas and a Happy New Year to all.
The Obamatron administration, puting the CON in confidence since 1/23/2009...
Give a man a fish, and he will have food for a day, but teach a man to fish, and he will sit in a boat and drink beer all day.
Amen brother. At least until the ice runs out. Warm beer is the curse of the high seas.
Ah... just get another stringer and dangle the sixer in the lake - cold enough.
lol - BASS ALE!
As a Desert Kid working around the ranch I learned to drink beer at damned near any temperature. Prefer room temp as cool enough, though.
I skip the fishing entirely and just head down to the Allegheny with a six pack.
keep kicking the can down the road until it all comes crashing down.
////////////////////////////////////////////
Better version:
keep kicking the can down the road until there is no more road left.
Press the focus on the road and lead to ignore all the possible ways of kicking the can as they are only diversion material.
Keep kicking the can down the road so the can kickers can grab what they can before it all blows up.
I haven't read this yet, but before I do I want to say that though I would enjoy the feeling of vindication seeing "the system"* collapse so that the world could get back to "normal"**, in the past few weeks*** I've come to believe that can-kicking may be the best we can hope for.
Thank you in advance for this article, no matter what it says. Your intro makes it seem an apprpriate and timely Christmas present and no matter how furious and sick makes me, I'll enjoy knowing whatever information it offers.
Thanks zerohedge; love all of you to pieces who toil and comment here. Really. If it weren't for the information I find here and the emotional release it gives me to scream and spit at my computer screen, I'd probably have done something crazy by now and be in jail. I appreciate all articles and all comments; they are a lifeline to a semblance of sanity.
*the bankster/wall street heist system
**is there a normal? was there ever a normal? will there ever again be a normal? (Please don't remind me that chaos is normal -- I know that but I think that means universal chaos, like the universe itself, not the bankster/wall street heist kind. The latter is what I'm asking about ever being "normal" again. Like with Glass-Steagall back in place.)
***watching the EU-carnival racket games, and then MF Global, then the Fed audit info, and then Bernank finally bankrupting the US for BOE; and then rehypothecation and its implications, and then the ongoing swindle we call "elections"... I'm getting ulcers.
My sentiments too. To add emphasis I sent Tyler $20. I hope everyone who reads this does also.
Makes me dizzy...but this kind of stuff should also be on our radar:
An autistic child was put into a drawstring bag at school.
"God, they do not have my son in that bag …”
That’s what Sandra Baker, of Harrodsburg, Ky., said she thought when she walked down a hall toward a big green bag, with a teacher’s aide sitting beside it, at her son’s school, on Dec. 14.
“Mama, is that you?” a voice coming from the bag said.
Here's what the school said:
“The employees of the Mercer County Public Schools are qualified professionals who treat students with respect and dignity while providing a safe and nurturing learning environment,” Davis said in the statement.
http://abcnews.go.com/blogs/headlines/2011/12/parents-angry-after-school...
Then there's Nurses Fired for Taping Patient's Mouth Shut
Artalejo's daughter, Brittany Bilson, told the television station that her mother's teeth were chattering and she was moaning and shaking. Bilson said the nurses told her mother to shut up, taped her mouth closed and joked they would be fired if they were caught.
Here's what the hospital said:
"But as a hospital we are fully committed to providing quality and compassionate care. The allegations that were brought forth were completely against that commitment."
http://hosted.ap.org/dynamic/stories/U/US_PATIENTS_MOUTH_TAPED?SITE=AP&S...
Morals and PR are a lame substitute, for that universal something that morals and PR are supposed to convey.
....just like "responsibility" is a lame substitute for "self-honesty".
Seems like PR and "Mission Statements" are a lame substitute for responsibility and moral behavior. Seems like some employees should be summarily fired, and then arrested for simple assault.
Bring back the Goodfellas; at least then there was honor, and lawyers were buried in the desert. Brokers? you kept you word or were broken in half and fed your eyeballs from vices....rare.
"making a killing in the market: shoot your broker." that's the coffee mug from a guy who was on the sell side for 20 years. I don't think the broker side is going anywhere with cloud computing, nat gas and solar power still readying themselves to completely change the way we live our lives. The buy side (the banks) have been bailed out for these technologies to be brought to bear by the private marketplace. Whatever the result on the War on Terror (which is the bulk of Federal Spending and the reason for the massive size of the USA's debt and deficit) the ability to make money beyond the dreams of avarice is alive and well. Love the sentiment presented here of course.
Greetings and Salutations from the new kid on the block....
Spoken like a true over-Ivory-Towered academic. I'd like to introduce him to the unseen side of my woodshed and get him some dirt under his fingernails, holes in his breeches, and calouses on his hands--before I kick the ever-lovin' cr*p out of him and send him back home to hide under mommy's skirt.
Ben S. Bernanke...America's newest day laborer.
Why we love you. Maybe it is truth that is the ultimate commodity? Humans are so utterly starved of truth. We waste our precious little bit of time in a sea of lies and know that bullshit is rape. We deserve a better place to begin from.
We are HUNGRY. It's a good and proper hunger though. People in general are good. People in charge are bad. All we really ask is that we be left alone to experience our journey free of your perverted itinery. We don't want to rule the world, YOU DO.
We don't propose to control you, You propose to control us.
We say politely, NO.
We will not always be polite, it is our preference to be polite, it is our nature to be polite.
I do pray that you respect our desire to remain polite.
Love you ZH.
History repeats itself, the least we can learn from pasts mistakes.
http://goo.gl/MV1nP
The scientific method makes a mockery of any of the accepted practices in above paper. It sounds like fraud in the inducement is known to every party before the fact, and all conspire with this knowledge. I am really shaken there are so many people that do this for a living when it really just accelerates our all dying. I hope one day we abandon all this crap and people that demonstrate sociopathic tendencies are prevented from doing that which they desire. What a small price to pay, considering.
Maybe long term investors should ask for their stock certificates.
Ensuring that all your accounts are cash rather than margin is a start but after MF Global even that isn't enough.
Brokers have reason to fear this, as it threatens the major source of their incomes, and will reduce trading to boot. They can't let you buy 5000 shares for $7.95 or whatever without being able to generate substantial income from their possession of the assets in street name.
My old muni bearer bond certificates were beautiful and I miss them.
I've asked for years to be able to hold my California GO bonds directly with the State of California (as at http://www.treasurydirect.gov ) so I hold them with a custodian in a segregated trust accoun for 30bps per year. There must be some reason why refuse, probably there is some benefit to brokers to possess these securities in book form.
Could it be that Paper & Ink (and the Printers that love them) are expensive?