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The Denials Begin: Interactive Brokers Is First To Claim It Has Not Engaged In Commingling Rehypothecation
Now that the rehypothecation bogeyman has been let loose, and the question of just how many paper (and apparently physical) assets have been double, triple, and n-counted (where n can be a number up to "infinity") by the infinitely daisy-chained modern global financial system in which one's liability is someone else's asset....apparently up to infinity times, the next logical step was for the firms named in the original Reuters article to step up and begin denials they had anything to do with anything. Sure enough, below is the first (of many) such response, by Interactive Brokers, claiming it has been greatly misunderstood and unlike MF Global, it has done nothing wrong at all. Of note is that IB was simply one of many brokers mentioned in the Reuters piece, where we read that "Engaging in hyper-hypothecation have been Goldman Sachs ($28.17 billion re-hypothecated in 2011), Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging), Oppenheimer Holdings ($15.3 million), Credit Suisse (CHF 332 billion), Knight Capital Group ($1.17 billion),Interactive Brokers ($14.5 billion), Wells Fargo ($19.6 billion), JP Morgan($546.2 billion) and Morgan Stanley ($410 billion)." Sure enough, we predicted a firm would have to promptly step up and "deny all charges." To wit: "Oh Jefferies, Jefferies, Jefferies. Barely did you manage to escape the gauntlet of accusation of untenable gross (if not net) sovereign exposure, that you will soon, potentially as early as tomorrow, have to defend your zany rehypothecation practices." As it turns out Jefferies, and all the other mentioned banks tried to avoid this festering can of worms by completely ignoring the topic... until Interactive Brokers' response now demands that every single named bank has to do the same and come out with an outright explanation of why it has billions in hyper-hypothecation, or else not journalists and bloggers, but the market itself will suddenly start asking questions. Something tells us it will not be nearly as easy enough for the others to deny all charges... Incidentally, if this indeed becomes "the next big thing", what the potential collapse of (re) hypothection means is that PBs will be unable to lend out shares anymore, in effect collapsing stock shorting as there is one giant short stock recall/forced buy in. Ironicaly the unwind of the biggest market fraud could result in the entire market pulling one last "Volkswagen"style hurrah, before all hell breaks loose.
From Interactive Brokers
Mr [REDACTED],
Below the response we have put forth regarding the Thomson Reuters article:
Recently, much has been written about the safety of customer assets held by brokers and we believe that customers are justified in their concerns. And so, we are writing to help clarify your understanding of how brokers are permitted to operate and, in particular, how Interactive Brokers protects its customers assets while servicing their needs to trade on margin.
To start, and so as not to leave any confusion as to the position of IB vis-à-vis the Thomson Reuters news article, IB DOES NOT, in any way:
1. Circumvent U.S. securities or commodities rules at the expense of our customers;
2. Invest customers’ segregated funds in foreign sovereign debt or utilize in-house repurchase agreements;
3. Commingle or utilize customer segregated assets for proprietary operations;
4. Enter into agreements which are designed to take advantage of supposedly unrestricted U.K. re-hypothecatio n rules; or
5. Engage in transactions deemed as “hyper-hypo thecation”.
More specifically, regarding hypothecation and the level of such activity at IB: - The hypothecation and re-hypothecation of customer assets is a standard and essential practice, which U.S. brokers employ in the course of financing customer activity. The rights to do so are longstanding, have been explicitly provided by regulation and one should not be surprised to see boilerplate consent language in each broker’s customer agreement acknowledging this.
For example, a customer who incurs a margin debit by virtue of the fact that they have purchased securities with only partly their own money, thereby relying upon the broker to lend them the funds to pay the balance at settlement, subjects a portion (up to 140% of the amount borrowed, also referred to as the margin debit) of those securities to a lien on behalf of the broker. The lien is also known as hypothecation. The broker, in turn, may pledge or re-hypothecate the securities upon which they have a lien to replace the cash.
In the case of IB, this re-hypothecatio n typically takes place in the form of a stock loan. In simple terms, IB borrows money from a third party, using the customer’s margin stock as collateral, and it lends those funds to the customer to finance the customer’s purchase. -
Similarly, a customer who carries a futures position must place a margin deposit with IB. IB may pledge the customer’s cash deposit to a futures clearing house in support of the margin required on that position.
While IB is not in a position to comment on the practices of others and whether they comply or fail to comply with these regulations, or do so in a manner which introduces unwarranted risk to the firm and its customers, we can state that we comply with all regulations and utilize investment policies that tend to be more conservative than those permitted under the regulations.
The Thomson Reuters news article alleged that IB, among other brokers, engaged in a practice that the author categorizes as “hyper-hypo thecation” (apparently a term used to describe a process in which a broker alters the risk of one financial instrument into the exposure of multiple other instruments and perhaps multiple counterparties through a daisy-chain series of pledges) at an amount of $14.5 billion.
While we are not sure of the author’s source for this number, we would refer interested parties to footnote 10 (“Collateral ”) on page 17 of our June 30, 2011 financial statement, which is posted on the IB website (http://www.interactive brokers.com/d...Unaud_Finls .pdf) and reads as follows:
“At June 30, 2011, the fair value of securities received as collateral, where the Company is permitted to sell or repledge the securities was $16,817,859,287, consisting of $13,022,386,422 from customers, $2,886,934,605 from securities purchased under agreements to resell and $908,538,260 from securities borrowed. The fair value of these securities that had been sold or repledged was $4,526,153,369, consisting of $2,583,920,633 deposited in a separate bank account for the exclusive benefit of customers in accordance with SEC Rule 15c3-3, $761,740,278 securities loaned, $877,478,486 securities borrowed that had been pledged to cover customer short sales and $303,013,972 securities that had been pledged as collateral with clearing organizations.”
A closer examination of this $16.8 billion balance reveals the following:
1.$13.0 billion represents the amount IB is authorized to pledge (largely based upon 140% of customer debit balances), of which only $0.8 billion has been repledged, largely through stock lending.
2.$2.9 billion represents the investment of customer’s cash balances in reverse repurchase agreements where the underlying collateral is U.S. treasury securities. These transactions are conducted with third parties and guaranteed through a central counterparty clearing house (FICC). $2.6 billion of this collateral, technically a repledge (i.e., part of the $4.5 billion “sold or repledged”), is not re-hypothecated and it remains in the possession of IB and held at a custody bank in a segregated Reserve Safekeeping Account for the exclusive benefit of customers. The remaining $0.3 billion represents collateral pledged to clearing organizations.
3.$0.9 billion represents short sale transactions whereby the sales proceeds have been pledged as collateral to fully secure the borrowed securities. These transactions are classified as securities sold (i.e., part of the $4.5 billion “sold or repledged”).
Based upon this information, which reflects prudently risk-managed broker financing transactions, we believe a fair-minded author would have drawn a different conclusion regarding IB and hyper-hypotheca tion given a minimum level of investigation and contact.
Regards,
IB
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They're making Bernonkadonk clones as fast as they print FRNs.
why are you entertining running out of oil. that is nt the discussion. peak is.
Peak oil is correct. If you are simply looking at some additional production from shale oil you are avoiding the key concept of peak oil. The entire Western economic system is based on cheap, abudant oil which is required to fuel ever increasing economic production, which is needed to repay the ever increasing debt. At some point you can not just produce "more," there is a finite limit. Global daily oil consumption is about 86 million barrels per day. For the western economies to grow their way out of this debt crises via manufacturing total daily consumption will have to continue to increase exponentially. The fact that oil companies have to drill offshore in 10,000 feet of water, that they have to develop new technologies to extract some additional lower quality oil from shale at great cost demonstrates the basic concept of peak oil - at some point, production can not simply be increased to meet the demand. To increase demand any further more expensive technologies will have to be employed to extract lower quality oil, which will drive the price up. The energy returned/invested ratio will keep declining until the profit to cost ratio is just small enough that the companies stops production. The oil companies are in it for the money, they have no obligation to you to supply you with oil. Its just about making a profit. When the profit margin is not enough for their liking the field is economically dead, no matter how much oil is left. Then, that volume of oil is taken out of the market and the overall supply decreases and the price increases again. When the price is high enough, the economy will stall and there will no longer be the expansion needed to fund the growth cycle.
Collapse bitches.
Peak Textiles threaten Prosperity
In this Year of Our Lord 1311, Textile Production is the primary driver of Economic Growth. It is plain to see that, in order to sustain our Ever-Increasing Population, Economic Activity must likewise ever increase.
Yet this Observation leads, by the Simplest Logic, to the Inescapable Conclusion that, were the Population of Europe to double or treble, the Landscape must be fairly beset by Forests of Looms, all operating Night and Day: a clear Impossibility.
It is equally plain to see, therefore, that Human Activity has now reached the Highest Pinnacle of its Development, and can heretofore only Decline.
The only thing Peak about oil is the bullshit that surrounds it. Part of my production goes directly into drilling for oil. We are a long, long way from the economic peak of oil.
The EROI ratio needs to be measured in money not energy units.
Peak Oil- the best marketing tool the energy cartel ever invented. Look to who directly and indirectly funds the environmental "movement". Not to be misconstrued with your bowels....
so the fact that world production has been flat for five years is not evidence enough how?
Peak oil? Yes, maybe.
My point is there's something a little funny about the logic that goes "Our economy has always depended on an abundance of cheap oil. It should therefore be obvious to the most casual observer that the end of cheap oil must imply the end of economic growth."
Not.
Another troll who can't read. Up to this point, the economy has been running on cheap ENERGY, that is simply fact. Oil is certainly part of that equation but there are other things like natural gas and coal. Another fact is that cracking of natural gas and oil gives us the commodity chemicals we need for our current quality of life. Therefore relatively small changes in price have a large affect. Again, simple fact.
Regarding your growth comment. Oil is not the ONLY resource required for growth fucknut, but thanks for playing and demonstrating your ignorance.
There's no such thing as peak oil......just peak Under $100/barrel oil. Pay up boys and girls.
statesidereport
STFU you frickin idiot
The EROI ratio needs to be measured in money not energy units.
*head explodes*
money is irrelevant because you can print all you want. Tell this fucknut to go print up some more fossil fuels.
Well, since all American bills are the same size and have the same composition, the denomination is irrelevant. $100, $50, $20, $10, $5 or $1, they all have the same amount of stored energy in them. Thus, I strongly recommend you burn $1 bills to get the best EROI per $.
duplicate.
money squid, your observation that oil companies have no obligation to to supply us with oil will be generalized when the collapse occurs. capitalist ideology does not distinguish between people's needs and desires, and it does not acknowledge that the two should be met by different economic mechanisms. "needs" here refers to physical needs: water, warmth and shelter, food, clothing, legitimate health care, and perhaps other things.
the ideologues talk only about supply and demand, with supply being provided spontaneously by entrepreneurs and by existing larger businesses in response to the opportunity for financial profit. when the collapse comes, people will begin to realize that needs which are not optional should not be met on an optional basis. they will realize that needs "need" to be met, and the system that meets them has to be robust.
of course there's a lot of hostility to this kind of thinking, much of which has been cultivated by the propaganda system under the direction of a small number of elites, but the result of this process has been that many people have been seduced by the notion that, as margaret thatcher put it, "there's no such thing as society". after the collapse, we're going to find out that, in fact, there is.
Jlee2027... It is impossible to try and debate everyone on the Peak Oil Subject. It is even impossible to get 10 peak oil forecasters to give a same time frame. That being said:
THE MATH PROVES SHALE OIL IS NOT GOING TO SAVE US
Why? If your car gets 30 mpg and you need 5 gallons to get to and from work everyday, it does not matter if your car gets 60 mpg if you can only get 1 gallon of gas each day. This is the same with SHALE OIL EROI of 5/1.
Our Suburban Economy needs and EROI ratio of at least 10-15/1 to sustain itself (WITH NO GROWTH MIND YOU). Shale oil EROI of 5/1 does not pay the bills so to speak. We can go around all day long Fracking Wells and producing shale oil at an EROI of 5/1 and it will not help us sustain our standard of living. It is that simple.
I don't know why people can't see it. I believe its due to Cognitive Dissonance at its finest.
It may be that some people can't see it, because the it is not there to be seen.
Can you see this? :
1. "Our suburban economy" != "the entire western economic system"
2. "there is no more cheap oil" != "there is no more cheap energy"
3. "not being able to drive" != "our suburban economy is doomed"
For example, (to #3) for the last 3 years I have lived much farther from my work than I used to. Yet in all that time, I have not yet consumed as much energy as I did in a single day of driving to my previous job. I 'commute' on the internet.
Does that affect your calculations?
( By the way -- in my post above the word "heretofore" should be "henceforth". Crap. Translating from the Middle English, you know... )
What about fresh CLEAN water? What about Ammonia? What about numerous other elements that need to be in the right oxidation state and in abundance for growth? Glad to see another internet commuter as this helps, but good luck eating that computer.
MORE people staying home also means LESS commerce fucknut, hence lower to NO growth. If you say you have things delivered, well, then you are just burning more energy.
For sure. Good luck tele-commuting when there isn't any electricity to power the routers and switches out in those remote areas!!
I agree - lack of (easily obtainable) food will really start to define the real crisis for the masses. Not exactly sure how that will play out. First a big mega war with unprecedented casualties? After it all settles in about 10-20 years plantation/agrarian worker (slave) model re-emergence? Communal farming? In any case, back to basics in some form or fashion. Not sure what will happen to SUVs, air travel, McDonalds, food stamps, iThings, WalMart, Starbucks and all the other icons that define Western society.
Are you talking about fertilizer for a garden? Need some N-P-K? Easy enough to brew at home. In fact you are brewing it right now and it is sterile. Human p-e-e is N-P-K. Mix it about 8:1 or 9:1 and pour it on the soil beside the plant.
Plant some legumes and rotate your crops.
You're welcome.
Sure, because people can't move closer to their place of employment.
I drive 14 miles each workday, including all of my stops for groceries.
Peak oilers assume that current conditions will never change, as if changing price doesn't cause people to make economical decisions. If oil becomes more expensive, then it becomes more economical to raise food crops locally. If transportation costs rise, people will be driven toward city life (simultaneously freeing up prime farmland for local crop production). Etc etc.
Even if no replacement for oil were to arise, we already have technologies that will limit the cost rise of portable fuel and electricity. Never mind the new technology that is coming on line from the investment in research that flourished with the 2008 oil spike.
in the future we all live in one huge building. awesome
Well if shtf, I don't imagine the city boy's calling farmer's and rancher's red neck's on a daily basis lol. Slick talking banker's might have to go to work finally if there not in someone's compost pile already.
Wasn't it JR Simplot that started out feeding wild horses to pig's when he couldn't afford to buy feed for the hog's? I think it was...........
What? We were well on the way before the automobile revolution sent us spiralling into the suburbs. Nothing wrong with city living when you have a free market. Of course, city living is hell when you have socialists/fascists in charge.
But of course, Trav would say it's da blak ppls fault. But he's a fucking idiot, so who cares?
in many cases they are prevented from moving closer due to black crime in the cities and the destruction and blight that they bring everywhere they are.
Fortunately, forward-looking cities are gentrifying to make them safe again
Yeah, because black people just murder anyone they see on site, no matter the situation.
What the fuck is wrong with you, you fucking idiot?
Peak oilers assume
Peak oilers don't assume anything. Peak oil, as a CONCEPT, has a simple definition:
When oil production rates stop climbing, we've reached "peak oil."
Oil production rates stopped climbing in '06. If they start climbing again, then obviously that was not "peak oil," but rather just a temporary plateau.
That's all there is to it. Peak oil means ONLY that production rates have stopped climbing.
Price is not a factor. Quantity of oil in the Earth is not a factor. How much oil we use daily is not a factor. Technology is not a factor UNTIL it changes production rate.
Because...the only factor that defines "peak oil" is production rate.
I continue to be amazed how many experts there are on "peak oil" that have not read the original papers written back in the '50s. I mean, jeebus. The idea came from somewhere, and the idea has been understood by many people in the past.
the reason they can't get it? Downing Effect
Autarchy bitches!
or as close as possible...
"Self-government; a condition of economic self-sufficiency or national independence."
No transition to a less fascistic system will be smooth...Au contraire mes miserables amis.
A quick reminder to those who dream of global feudalism.
ANY "one-world" system you could "imagine" would have to be, of necessity, authoritarian, tyrannical and despotic.
Democracy is the best governence solution, but only up to a certain scale. (a scale we've surpassed in the U.S.) Now, imagine a single global democracy for a moment....yeah, Bankers run it....
Democracy is the best governence solution ...
If democracy is the best governence solution, why did America's founding fathers fight so hard to avoid creating a democracy and established a Republic instead?
So they could retain their wealth and power?
All political systems are flawed and each, given the right circumstances, can be effective and follow the will of the people. However, some form of democratic system has the greatest likelihood to maintain governance that respects the will of the people. Ultimately. do we go full anarcho sydicalist (re: Denis the peasant) or do we impose a more centralized governing structure with checks and balances. The one thing about any democratic government (or republican) is that it requires an informed and impassioned electorate to maintain its health and sustainability.
What we have now is apathy and ignorance which is fertile ground for authoritarianism.
because at the time the wise and scholarly were a minisucle minority
compared to the hick, gruff, and brash farmers, settlers, and trappers
which comprised the majority of the colonies. supervision was necessary.
True LawOfPhys. But peak oil is the main reason why production will come home. Locally produced because international shipping becomes cost prohibitive. That's a long way off -- when increased shipping expense overtakes the asian wage advantage.
As resources dwindle, overall production declines and becomes more and more local.
Vamp....I don't make my assumptions lightly. The math has been done already by very smart minds. We should have made our transition two decades ago when we still had cheap oil. Green Energy is a farce. Don't get me wrong... I think its a great thing to do on a local basis, but it will not save our SUBURBAN LEECH AND SPEND ECONOMY.
The Great US INTERSTATE HIGHWAY SYSTEM was built on an EROI RATIO of energy (energy returned on invested) of 25-30. Today the US domestic energy EROI is below 10/1. Shale Oil is 5/1 and Tar Sands comes in at a lousy 2-4/1. These may offer more supply but at a severe cost. Basically we can't keep living our lifestyle on that ratio.
Modern Farming EROI is 1/10...a huge net energy loser. The reason why we have been able to keep this sort of system going is due to the high EROI of oil. Now that it is dropping below 10/1, everything costs more money or more energy. Farmers get hit the hardest because the Financial System wants the profits for itself, and not the farmers.
Manufacturing will not come back to the US as a whole... on a local basis, yes it will. Now, all we can do is watch the GRAND COLLAPSE SHOW in front of us. How we transition to a new world remains to be seen. I imagine it will come with great deal of pain and suffering.
I agree with everything you have written except I think we are going into a severe deflation for somewhere between 3-10 years before hyperinflation kicks in. The central banks are in a liquidity trap and there is no way that they will be able to keep their effective credit creation up with the collapsing Ponzi.
you have had massive deflation since '05. that is 6 years. happy?
el Gallinazo... The Deflation augument is a strong one. I am not that egotisical to say we cannot have deflation. That being said, deflation can only occur in a STRONG CURRENCY (which we dont have). Because so many analysts are saying THIS WEEK WE ARE HAVING DEFLATION...or if we don't get a bailout, WE WILL HAVE DEFLATION, does not mean it's deflation. The definition has been destroyed in MSM.
We will have Delveraging-Deflation of things you OWN...and inflation cum hyperinflation of things you use. I don't see the 3-10 year timeframe as you believe. I think things fall apart much faster than that. I don't see this lasting another 6-12 months.
MF Global collapse has put a severe hole in the Derivatives Monster who is devouring everything in its sight. Some sources are saying the LOST MONEY from all the clients has gone to try and fill the gap in this derivative's house of cards. The reason we have so much money printing or digital printing is due to the exponential nature of the collapse of the DERIVATIVES MONSTER.
In my opinion, this cannot go on for years. Just like the Housing Bust, it does reach a peak and then collapses. The crap-liar loans allowed the housing bubble to continue a year or so longer, but in the end it came down.
Again, 2008 was the COLLAPSE of the Financial System... and when we finally hit STAGE 2, the Commerical Collapse there cannot be deflation. I cannot explain it better, so we just have to wait and witness it first hand.
I wish I had better news....
Compared to the Euro the $ is looking pretty strong.
You missed his point entirely.
We have a 34 foot sailboat on Green Bay and we just love watching the big powerboats flying by. We sit back and go "1 dollar, 2 dollar 3 dollar". Gas is ver expensive on the water.
Next year it will be "10 dollars 20 dollars 30 dollars."
You beat us to Sister Bay by 4 hours but the real difference is when we get there we can still afford dinner.
Looking at a beneteu 42 and a sailing cat JPM. Really want a sailing cat but they are proud of those boats. I watch them go by and say 4, 8, 12, dolars as those boats go by! My firends boat get 10 gallon an hour and another gobbles wait for it 28 gallon as he hauls butt at 30 knots!
How true about affording supper!!
Eeeeeeek! But, but, but, ABIOTIC OIL! ABIOTIC OIL! THE OIL WELLS FILL THEMSELVES UP AGAIN WHEN THEY'RE EMPTY! AND WHILE THE OIL'S WAITING FOR US TO UNCAP ALL THE NEWLY FILLED UP OIL WELLS, IT REFINES ITSELF INTO FINISHED PRODUCTS! PEAK OIL IS A MYTH!
Whew, I feel better now.
You must be a fanboi of that moron who "invented the internet" and who has your retirement safely in a "lockbox".
my unicorn pisses oil
Mr. LH,
Good one.
Now, how many of these we need, and where can we recruit them?
What are you measuring as the 'energy returned' from farming?
EROEI for agriculture usually is defined as food calories out / total energy inputs, including deisel for tractors and transportation energy cost.
OK, thanks. But how do gallons of diesel divide into calories? Or the depreciation of a tractor divide into calories? Is there a conversion to local currency on input and output first? Perhaps this is using national statistics of X oil used for farming produces Y wheat and Z corn?
Convert Kilocalories to BTUs
http://www.convertunits.com/from/kcal/to/Btu+%5Bthermochemical%5D
It's not a fixed ratio. The energy density of diesel fuel is about 128,700 BTU/US gallon, but the amount of energy expended for a particular crop varies. The market destination plays a large role as well since transportation also uses diesel. In general, it's difficult to calculate the precise EROEI for a given crop, and I think most figures are averages of fairly large operations with significant economies of scale.
The main thrust of the eat local movement is that transportation costs are a huge part of most of the food that we eat, and that an easy way to reduce energy consumption is simply to eat locally-produced foods.
Ok you go first...your wages have just been cut by two thirds. Let's start building!
first we start farming
You're skipping a place...The progression is:
soldier-farmer-merchant-poet-life coach-Wal-Mart greeter-soldier-farmer...etc
Sure, we can manufacture here again. But the workers will make $5/hr and you can forget about benefits, etc. Our ridiculous standard if living and the wages, etc that fueled it sent those jobs abroad. The reality check is coming, been coming for 30-40 years now.
There is a chance that things will become so dicey in Europe, possibly Asia too, that manufacturing industries will relocate to the United States. It's possible that they'd feel more secure here than in even broker Nations. USA, best of the worst!!
You mean something other than oil and arms?
Many other countries are working fast to get out of the Arms and Oil trade and into something that will sell (hard goods that can be invested, traded and tracked) once people say bugger off to annihilation. It just does not pay to invest in something people are no longer willing to buy. The defections in the upper echelons of wealth are stunning since February '11 many have simply sought to find safer ground. in the end it is not about wealth its about not having a place to keep your shit because you can not find any place to put it with out having it go poof.
They (insert whom ever you like here) burn things, hack things and simply refuse to buy financial products that have no point of origin. Point of origin is the key here with why the scheme is imploding. they are not even grasping at straws it is just pretend. 'It' was not there in the first place. Kind of like where did the WTC complex actually go? Just the twin towers was a million tons of steel and nothing but a hole where they used to be. You see that is the problem with all of it. There is no scrap and everybody knows it. How can all that paper (knee deep) just sit there and not burn while cars and metal just glow like sparklers?
The reason the game is up is because every body knows that the rape was psychological and we are now comming out of shock and saying uhhh I think I dont want to play this game any more. Change over...... Manufacture what? all that USA has manufactured in the last 20 years is consent to be reamed and ripped off. People got degrees in how to justify a system that is for the most part insane.
Indeed. I see lots of "tradiational" academic fucknut responses regarding liquidity and there being a problem with liquidity if financial paper-pushing fucknuts can not leverage paper to the moon.
These folks need to go back and learn the difference between liquidity and solvency. Being solvent means you have assets or collateral that people actually want or need to survive. Modern eCONimics has confused people into thinking all kinds of paper bullshit is an "asset". These fucknuts fail to realize that you can not call something nobddy wants an "asset".
Yes, the truth hurts and I suspect you (and I) will receive numerous negative comments.
but you can call the seller of fictitious assets an ass before you take your chips and go play at a different table.
No, I think you're spot on, but only touch on part of the problem. The US is not the only guilty party, but we do have the distinction of doing this best. Educate your kids for the inevitable need to ramp the manufacturing economy back up again.
Right, because resources to do so are infinite. Good luck.
Resources and Energy are a function of the imagination.
The first step is to limit banks to their original job- intermediation between savers and investors.
The second step is to bust up the fake banks- too big to fail is too big to exist, in a market economy.
When you have to go to the Fed or the Treasury, you should be required to bring a coin, an axe and a chopping block.
"Resources and Energy are a function of the imagination."
Right, keep telling yourself that if it helps you sleep at night. I like your list, BUT the first thing that should be done is to PROSECUTE the fucking fraud already.
This post is right on. Unfortunately for us all the system that has been built with its "just in time delivery" distribution systems includes our FOOD. This system drives the requirement for energy security, which is the root of all U.S. foreign policy and wars. Any interruption in the distribution systems here in the U.S. that last more than a week will cause starvation in the areas effected. A few years ago, we had a snow storm that closed some passes here in Oregon. Not all of them but a major one near Portland was closed to trucks. Food disappeared off of supermarket shelves after only a few days even though there were alternative truck routes. Imagine what would have happened had there been a panic that caused people to buy up and hoard food. Fortunately, the pass reopened after four days and the trucks arrived.
We live in a very complex system that was developed to maximize profits and not robustness. No one understands the possible failure modes of this system. Some people think that buying some gold, bullets, and MRE's will make such an event survivable. I would say to such people that you have not thought this out; you are fooling yourselves. It is a fantasy, a stoner fantasy, that such a thing is survivable on your own. Only communities that work together will survive and these communities need to start organizing now.
Make a list in your head of who you trust and what your first few major steps are after collapse is probably the key. You are correct that cans of beans and bullets will not save you if an armoured division comes down your street and goes door to door looking for men between the ages of 18 and 65. The prospects of this crash are absolutely frightening, that being said it will obviously be better to have food, wood an axe than having an iPod and a Starbucks card.
Remember if it breaks down and you're surviving and have your head above water, look out for others close by in your neighbourhood who you trust your prospects could suddenly change if you're on your own.
If you aren't prepared yet, then you better be good at making fast friends.
agree with both of you.
Along the same lines, back in 2008, there was a minor disruption to the gas supplies to some cities in the southeast, including Atlanta. This minor disruption resulted in a very uncomfortable couple of weeks in the affected areas. Many gas stations were completely out of gas most of the time, and when a gas truck arrived to fill the tanks, it was immediately followed by a line of cars at the station. Behaviors changed rather quickly. Immediately after filling my tank, I was keeping an eye out for stations that had prices on the road signs. If no numbers were displayed, it meant the station was out of gas. When the needle on the tank started getting close to half a tank, I started looking for stations with gas. Others were doing the same. A minor form of stockpiling, even as we knew the crisis would be resolved soon. People with half a tank of gas were waiting in lines for an hour or more to top off their tanks. Tempers occassionally flared in these lines. I saw one fist fight that broke out after one guy accused another of trying to cut in line. It made me think about scarcity of gas and food in a real crisis with no end in sight. Shit would get ugly fast.
in the U.S. that last more than a week will cause starvation in the areas effected.
Good post, but this is a bit much. In the worst possible scenario, it takes 30-50 days to starve. In a more realistic scenario, it would take YEARS. It just never happens that people's access to food goes from "complete access and perfectly fed" to "no calories at all available" overnight.
I don't think anything you said is wrong aside from timeframe.
people fled to the suburbs to get away from crime and blight caused by a group that strangled the inner cities to death. Decay follows this group everywhere.
It's not as if people WANTED to be a million miles away from everything...it was just a hell of a lot safer out there. Yes, coddling this group of locusts as they migrate and destroy has caused top-to-bottom systemic misallocation of resources.
these people were putt there by lbj and they were put next to radoactive waste dumps that people with money did not want to live next to
Get ready, more people will be relocated shortly.
we did bring who you speak of over here in the hulls of boats under less than ideal circumstances.
oh yeah life is much better where they came from. Turnkey 1st world countries like Rhodesia and RSA being destroyed in less than one generation, reverting to the natural state of the rest of the continent.
They brought Irish over in ships that weren't seaworthy. Sharks learnt to swim behind them for the periodic free meals.
http://www.youtube.com/watch?v=7FY7RWJAtJQ
Bullish.
I attempted to explain rehypothecation to the grocery clerk when I passed him off a $1 as a $100 and said that if we were to trace it back to my comingled accounts correctly it was a legit transaction. Ya think the clerk b smarter than international governments and bankers?
Maybe he's coached by a crafty comingling whore at home that does her "background checks" better thank UnKle Sam Bernank Bummer Timmy et. al? I'd hire her if I weren't afraid she'd rob me blind too ;p
"Hi, I'd like to buy my groceries on margin."
"Ok, but we'll need to lend out your car as collateral. Hopefully, nothing happens to it while it's in someone else's possession; I hope your insurance covers that."
nah...read more closely.
You buy the groceries on margin, you don't get to take them home. The store then RE-LENDS (this is hyopthecation) the groceries you bought on margin to someone else and gets the cash back. They then take the cash which was spun from thin air and play roulette with it; in the case of MFG, that was in-house repo transactions to finance the firm's internal margin position on EU sovereign bonds. As shit got worse, MFG was forced to start intra-repoing segregated physical accounts such as actual bars of gold.
So, what the fuck do you or anyone else own in this situation?
I called banking an evil many years ago because it is the speculation using OTHERS' money as collateral. They get to gamble with your chips. And we have shit like the FDIC and TARP to socialize the losses when they lose. But they keep all the winnings.
When you people go out and meet the even dumber friends you all have, who don't "get it," use this analogy. Bankers are gambling with OUR CHIPS. When they win, they keep the winnings. When they lose, they pass the hat to everyone in the casino to make the stack whole again. Even cretins can grasp this.
How about I shit the groceries out and then the store can repackage them as rehypothecation? Now that's creative CDS kinda shit, literally.
Another Timberwolf "crap" deal.
U'odda work at Goldman.
:)
Having a crafty bitch to keep you warm at night and track the financial markets as a lark is a good thing. She makes transactions that are a hard-on over the long term but she will make a modest profit off of giving you change from her wallet for a big bill ;-)
We don't need no water, let the motherfuckers burn.... burn,motherfuckers..... burn!
the short isn't as big as some hope and practically non existent:) the long bet is much more hyper hypothecated :)))) ask yourself who is on what side and what JPM MS and GS are betting those 500 400 and 28 billions on.... obviously not on the short side.
they are short silver, which is why when they lift their short to cover they will get blown out on any left positions
well, good luck with short silver positions to them. btw, who do you mean by "they"? In above post long bet is going way beyond metals and mostly in currency, other commodities and equity markets. my research shows that silver will shot up briefly in a month or so after new year."They" whoever they are are are extremely rare and not a major players and shortly going to be blown out of their shorts....
this post doesn't make sense to me can you write more clearly
i immediately thought about this when i heard a advertisement for charles schwab....ha ha ha
Whats so new about it?
Banks have the 'Right' to lend out 10 Dollars for every Dollar they own (and of course get interest on 9 Dollars they never had in the first place) for years.
Johnny B Good
Banks have the 'Right' to lend out 10 Dollars for every Dollar they own (and of course get interest on 9 Dollars they never had in the first place) for years.
Gets a lot better n that JBG, they reloan on each dollar 10-1.................of the original 10.
Johnny B Good
Banks have the 'Right' to lend out 10 Dollars for every Dollar they own (and of course get interest on 9 Dollars they never had in the first place) for years.
Gets a lot better n that JBG, they reloan on each dollar 10-1.................of the original 10.
I believe Billy Sol Esates first showed us the way with ammonia tanks.
he was lbj's good buddy........
Sure glad that's all fucking clear as dogshit.
Thanks much for the letter, Mr. SmileyFace, VP of Propaganda at IB.
So, essentially a Ponzi Scheme with onesself at the very end of the Daisy Chain.
This is just horrible, I knew that everyone was essentially doing the same thing and now we know.
This is hilarious. Weasel word lawyer speak at its finest.
To start, and so as not to leave any confusion as to the position of IB vis-à-vis the Thomson Reuters news article, IB DOES NOT, in any way:
1. Circumvent U.S. securities or commodities rules at the expense of our customers;
(Because there are no laws regarding how much we can re-hypothecate. The SEC is a proven toothless tiger.)
2. Invest customers’ segregated funds in foreign sovereign debt or utilize in-house repurchase agreements;
(The segregated funds might are spent on equities, commodities, CDOs, CDSs and US treasuries. No foreign sovereign there...)
3. Commingle or utilize customer segregated assets for proprietary operations;
(We call the operations something else. That wasnt a proprietary operation. It was an open source, common industry practice!)
4. Enter into agreements which are designed to take advantage of supposedly unrestricted U.K. re-hypothecation rules; or
(They werent designed to take advantage, it was just a lucky coincidence.)
5. Engage in transactions deemed as “hyper-hypo thecation”.
(We deem the transactions "super-hypothecation" or "extra-hypothecation" or "ultra-hypothecation", which are totally different to hyper-hypothecation.)
I smell a loss of confidence in about 10, 9, 8.....
Agreed. Script is worth the paper it's written on, and soon the world will know. One of the best ways to eliminate future obligations is to eliminate script. Pensions, retirement accounts, all the wealth people thought they were accumulating. Gone.
This is one way to prevent deflation in tangibles. Either you take your money out of the corrupt system and buy something real, or you lose it. Unfortunately, rehypothecation teaches us that the purchases need to be based on wealth, not borrowing. That empowers the ruling class. This is a race to the assets for those who have paper, not those who finance.
the wealth, it was never there, just a placeholder, an iou
The problem is the way these banks and politicians stretch the count from 7 tooooooooooooooooooooooooooooooooooooooooooooooo t-minus 3.....................................................................................................................................................2.............
.....................
In the case of IB, this re-hypothecatio n typically takes place in the form of a stock loan. In simple terms, IB borrows money from a third party, using the customer’s margin stock as collateral, and it lends those funds to the customer to finance the customer’s purchase. -
Someone with smarts on this explain this clusterfoxtrot lingo.
IB,borrows money from Party A,using customer B's margin stock as collat,and then it lends customer B's customer B's Funds to finance B's purchase?.
I think I am having a flashback.
I know what fellatio is but what is re-hypothecatio?
if i was a trader and i saw this happen at mf global, i would have already closed my accounts at any broker immediately....
whatever that is i can assure you we don't do it!
Rehypothecation masturbation.....a bunch of banksters sitting in a room figuring out ways to screw their customers.
it seems that rehypo is the new hype
still trying to figure out how to rehypothecate my bank account,
Start by De-hypothecating your brokerage account.
Hold stock in your name not the brokers name.
at this point I wouldn't hold shit in street or my own name.
LOL...you don't get it, do you? You really don't know, do ya?
Mfin it ain't gonna matter if these are PHYSICAL GOLD BARS in this brokerage; when the shit hits the fan, ALL OF THEM will intra-repo those assets to cover the FIRM's positions.
They WILL GAMBLE WITH YOUR CHIPS, ok?
No need for large words no one really understands. Can't we just call it theft?
Interlocking fragility, see Taleb. Expect to see more of this word as it will be on everyones lips when the derivatives unwind accelerates. As Tyler has pointed out, rehypothecation is the ultimate tool for MAD.
Didn't learn a thing from LTCM. Allegedly, LTCM's back office was really good so they knew what securities they had lent out and to whom and on what terms. That didn't stop the chaos in the broader market when the short positions suddenly had to unwind.
Eric Rosenfield said that paired trades quickly came apart. They didn't net. Of course.
Correct.
Black-Scholes has unleashed a massive wave of uncollaterlized nonsense upon us all. Taleb was right when he said Scholes should be in an old home playing sudoku.
You're right about LTCM but it goes farther than that even.
I"ve read the financial MAD was supposedly put in place to prevent war; If you fall, we all fall. Ha! Someone is going to say screw it and lob a bomb, anyway.
+1 Tada!
Commingled rehypothecation: Industry standard vernacular to dazzle the public with technical sounding crap. It simply means stealing from your own grouped clients to back your own trades.
In the UK there is NO LIMIT on the amount a client's assets can be rehypothecated. In the US, where they are so much more responsible, it is capped at 140% (Yeah right) of a client's debit balance, unless specified in a prior contract. All of this is off the balance sheet so who the fuck knows?
None of this addresses the real issue! My understanding is that in a bankruptcy, even the individual account holders NON-comingled funds, are subject to confiscation to satisfy "loans" taken by the brokerage or clearing house for margin or hypothecation purposes, as these obligations are first in line for repayment.
It's the pecking order that is the problem. The lethal nature of Hypothecation and re-re-re-re-rehypothecation comes into play when fudicaries disregard sound risk management principals. Everyone placing money with a fudiciary understands there is risk, however what few realize is their rank order for repayment; they are not first in line.
The most appropriate analogy is having a mortgage and savings account with XYZBANK that goes bankrupt and the creditors seizing your home along with your savings to satisfy XYZ's obligations to them.
this is only what you understand now.
Beware of those face down cards before you play your next monster.
The big fish have purchased traps that will put them ahead of you in a liquidation.
The whole system only works because of large words that nobody understands, that in essence mean theft.
Maybe we should publish a new dictionary: "English - Theft, Theft - English"
SHEEPFUKKER - Exactly.
BTW - can I borrow $10,000 for my bender in Vegas next week?
I swear I'll only gamble with the $2,000 in interest I'll owe you.
I'm thinking of betting double 6's on craps all night, whada ya' say?
Broker bank run coming.
It's been happening for about a year now. Where you been?
Spreadin' like the most unpleasant STD...
Oh dear.
What could they possibly mean?
"I would recommend you panic"
Interesting rebuttal. I see they mention the 140% limit imposed in the U.S.
Question: do they have a UK office?
an even more interesting question is, do they engage in trades with counter-parties with UK offices, the rest is academic as they say.
The website says their office for UK clients is in Switzerland but I'm willing to bet they have a London office yes, if anybody can confirm for sure...
The sentence is very careful to omit a denial. (imo)
Check.
Interactive Brokers (U.K.) Limited is authorised and regulated by the Financial Services Authority. FSA register entry number 208159 (http://www.fsa.gov.uk/register/). Office: One Carey Lane, Fifth floor, London EC2 V8AE.
ahh yes, London postcode EC2. . . that would be England's special place, "the City":
http://en.wikipedia.org/wiki/City_of_London#Criticism
I think more importantly, which of those brokers listed engages in prop trading, which is the whole reason MFG stole customer's money (to make good on a margin call from a bad bet).
Can't comment on all of them, as I'm not familiar with them, but...
Pretty sure IB doesn't (almost certain they make all their money from fees).
...And I'm pretty sure JPM and MS do.
I respectfully disagree LowProfile, the prop trading and euro debt thing was a smokescreen, blame rogue prop traders rather than admit they took the firm down intentionally to get its assets. It was either them or a major bank.
Some more info.
SEMI-OFFICIAL COMMENT ON INTERACTIVE BROKERS HERE http://www.elitetrader.com/vb/showthread.php?s=9f2d410cecea844001c54b64c...
"Wow - pretty serious accusations here but how many of you really understand what hypothecation is? This is all about margin and stock loan. Remove the ability to hypothecate and you might as well suck out a massive amount of liquidity from the system.
First, let me get this out of the way. The accusations or assumptions that IB client money is used to fund Timber Hill are completely false. The companies are separate.
Client money is segregated. However, if you utilize margin and are long shares, IB can lend some of those shares out to others. These are not risky loans as there are limits on how much can be lent and they can be recalled at anytime and marked to market real time. Those are the rules, they are fair, not risky and add a ton of liquidity into the system.
The comments and fears presented here are a classic over-reaction to margin lending. Do not put IB or other firms on the same plate as MF. IB has a very strict policy when it comes to margin and deficits (ie. real time liquidations) and a very conservative risk management and investment policy. Many clients scream that they want more margin and that the stock loan list isn't long enough and now many of you are calling the kettle black. Before believing everything you read, do your homework and then decide if the practice is risky. Some banks are silly when it comes to greed and what they lend out. Others are not. IB has a long history of being conservative and risk adverse. Our large capital base and handling of client credit should also provide additional comfort. Many of the comments and assumptions on this thread are baseless.
Let's not over-react and create fear where their should be none - and I say this in regards to the comments on the other firms mentioned in this thread as well.
I need to put in a days work now so do not expect any replies for quite some time from me. I agree this is something that needs further clarification so you can be better educated on the subject as well as placate the unfounded fears expressed here. However, this this discussion should be for the industry and not single out IB."
"Remove the ability to hypothecate and you might as well suck out a massive amount of liquidity from the system."
And you my friend need to re-learn the difference between liquidity and solvency. People who are solvent have collateral assets that other people actually want. Wake the fuck up, if other people don't want it, it isn't an asset. The point being that banking and money that is backed by no real assets leads to the misallocation of capital and war. Again, wake the fuck up.
I hope you realize that was a quote from an IB rep, and that people realize hypothecation seems to also include extending margin (eliminating margin would by definition most definitely suck out a lot of liquidity).
"eliminating margin would by definition most definitely suck out a lot of liquidity".
Restating something does not make it any less irrelevant. Got productive assets (revenue streams) and physical assets? You fucking better.
Not sure we're even talking about the same thing anymore.
Also please note http://www.zerohedge.com/news/denials-begin-interactive-brokers-first-cl...
Perhaps. I work in the real world and my margins keep shrinking. So in that sense, liquidity that I could have used for something else is shrinking. However, shrink it enough and I will demand more from my revenues, regardless of whether or not my customers can afford it. Having survived this long and knowing full well that my competition went bankrupt long ago, makes my employees and I only feel better as we have physical assets and inventory people need to survive. Don't worry, you will see plenty of "liquidity" when hyperinflation sets in and just like Russia in the 90's all that liquidity won't do shit to improve anyone's quality of life. Again, solvency is the problem, the earth is not solvent, period. Hedge accordingly, that is all you can do at this point anyway.
Margins are shrinking, especially in small business. Governments are stealing hand-over-fist. And we have monopolies everywhere- does anyone think guys like Buffet ever created/built a business or invested in a competitive market ? Never.
The competitive marketplace that built America, needs to be revived. Where are our 21st Century Trust Busters ?
"Where are our 21st Century Trust Busters ?"
Owned by the bank? Just guessing.
WTF ARE YOU PEOPLE STUPID...OF COURSE ENDING HYPO- WOULD 'SUCK LIQUIDITY'....THAT IS WHY THEY DID HYPO.....!
jesus christ..'if we stop letting the banks screws us it will end everything...no shit sherlock. YOU LOSE EITHER WAY...THE GAME IS RIGGED..HAHAHAHAHAHAHA!
What is it you want us to relax about? The fact that every asset is pledged XxX times, with conflicting claims of ownership by dozens or hundreds of parties? That IB is different than MF or Jeffy? Why would anyone believe that if you are trying to defend a policy that has been exposed as common, for decades, and has pledged, sold, received, booked, transfered and leveraged everything that isn't nailed down in the world? What am I saying, you sold everything that is nailed down, has a foundation, a family living in it, the building they work in, the city they live in. You sold all of that 10 or 20 times to any and every sucker not willing to do due diligence by researching something that no record of exists in a legal format. When that market blew up and you didn't get caught, you had to blow up the world to keep the money moving to play ponzi.
Maybe you realized you made a deal where the boss never got around to signing anything and you are the goat. Just a guess, but a days work is going to be different for you soon. You write as though this is first person knowledge to you. Do you work at IB to be able to make all these assurances of fact? Maybe you are trying to contact your bookie to sell all the crap you own a hypothetical piece of, maybe you are packing your bags to leave town.
That the little clones of the corpses are trying to assure ZH readers is scary. This must be it. Everybody get under their desks and kiss their ass goodbye, bitchez.
I concur, many a paper-pushing fucknut saying "all is well".
Unfounded my ass. Just because a completely compromised legal/political system has made it all "legal" and "normal" doesn't mean it's "right" or at all "safe".
You might have an argument if the re-hypothyecation stopped at margin operations. It doesn't. Just because IB *might* be less egregious in their abuse of the system doesn't make it ok.
Shit is shit, whether measured by the kilo or the tonne.
LowProfile
However, this this discussion should be for the industry and not single out IB."
I know he did not ,re-read what was written...............there was a caveat towards IB.
Of note is that IB was simply one of many brokers mentioned in the Reuters piece,
DID it for you
Oooh, IB has a strict policy! And MF Global had a regulation against comingling! What a joke.
When will the SEC claw-back the money from JPM and MS? Rhetorical question. It will never happen. Claw-backs do not apply to them
Good points.
To clarify; my purpose in asking if they have a UK office is, if they do, then do they follow their U.S. policies/regs over there as well?
My careful read of their rebuttal (and, yes, it's a cynical view) is that they are describing how they do things in the U.S. If they only have a U.S. operation, running under U.S. regs, well, fine and good.
Google it:
Interactive Brokers (U.K.) Limited is authorised and regulated by the Financial Services Authority. FSA register entry number 208159 (http://www.fsa.gov.uk/register/). Office: One Carey Lane, Fifth floor, London EC2 V8AE.
Dr. Kananga .
Pls, do not be so naive,(or hopeful).
Enter into agreements which are designed to take advantage of supposedly unrestricted U.K. re-hypothecatio n rules; or
Where there's now a Fire, there was once smoke......... this tells us ALL of them are doing the same damed thing.
Bank it.If there's a way to make a buck, you can bet your ass, they are NECK deep in it.
Just haven't been caught till now.
This is the tip of a GLOBAL ICEBERG.
Ah, not being naive or hopeful (I do freely admit ignorance however--which is why I am here, to learn from the horde.)
My point of inquiry was to see if their statement was internally consistent with the facts they presented--and perhaps they are. However, I also suspected they left something out of their narrative (UK subs, etc.) which the convo here seems to bear out.
Always remember this my friends: the first rule of the magician is keep the audience focused on one hand, and one hand only. This allows the other hand to perform the trick without the added trouble of trying to conceal it.
Interactive Brokers Group and its affiliated companies are members of the following exchanges and clearing houses:
Interactive Brokers LLC...
...pasting along from their various 'subsidiary companies'...Timber Hill LLC, Timber Hill Europe AG, we get to...
Interactive Brokers (U.K.) Limited
Interactive Brokers Corp.
and so on...from his link: Exchange, ECN and Clearing House Memberships
considering the # of crooked lawyers and accountants they must employ, rest assured that their customers and stockholders will not be awakened from the sleep of the sheep. anywayZ, they did a decent rebuttal here, but for the fact that even @ 140%, if we view this as a string-of-beads-type daisy chain, if/when the strring gives~~~beads all over the fuking place [like a few years ago when we had to "do something"] and it can get tres difficile to even tell them apart, mush less to know which, if any, are still useful w/out the string
which is to say the problemo as presented by the reuters nannies is sytemic, so your point is well taken but don't let trav catch you being this laZy, doc...
we'd never hear the end of it, BiCheZ!!!
Excellent.
I though the following sounded a little wordy and unneeded:
"While IB is not in a position to comment on the practices of others and whether they comply or fail to comply with these regulations, or do so in a manner which introduces unwarranted risk to the firm and its customers, we can state that we comply with all regulations and utilize investment policies that tend to be more conservative than those permitted under the regulations."
Why not just say "We comply with all regulations and utilize investment policies that tend to be more conservative than those permitted under the regulations."
Perhaps they had to say "No Comment" on the behavior of 'others' (which may include subs) without making it sound so... ...unpleasant.