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Guest Post: The Sentinel Case - Another Nail In The Coffin Of 'Market Confidence'

Tyler Durden's picture




 

Submitted by Pater Tenebrarum of Acting-Man blog,

Good Faith Purchase of Stolen Goods

Traditional legal principles are seemingly pretty clear and straightforward on how a good faith acquisition of stolen goods is to be treated: the buyer, even though he is not criminally liable, can not acquire title to stolen property. Title remains with the original owner and the buyer who has acquired such property in good faith only has recourse to the party that sold the goods to him.

While this principle is not applied in all jurisdictions – in some places the good faith purchaser has been favored (for instance in Sweden until 2003, when the law was changed) – it has been an integral part of the Western legal tradition since antiquity. Therefore, even though we are not lawyers, we can state with some confidence that it is recognized by most Western courts.

In J.E. Penner's 2001 edition of Mozley and Whiteley's Law Dictionary, 12th Ed., Butterworths, London, we find the following quote on page 280:

 

“If a chattel is stolen, the thief acquires no title, and in accordance with the maxim nemo dat quod non habet (one cannot give what one does not have), cannot give good title to a buyer from him, even if the buyer is innocent of knowledge that the property was stolen”

 

 

The principle of 'nemo dat quod non habet' indeed stems from Roman law, so this particular feature of property rights represents what we like to refer to as a 'traditional legal principle' – a feature of the law that has been with us for a very long time and has been contested or altered only rarely.

However, certain exceptions to the rule do exist and they vary from country to country. Bona fide purchase rules are recognized in many countries in parallel with the 'nemo dat' principle, often in conjunction with a statute of limitation.

There is usually also a differentiation between stolen and 'misappropriated' goods. The difference between stolen and misappropriated goods is the following: if A is the original owner and B is a thief who sells the goods to C after having committed theft, then B never had title to the goods and they are considered stolen.

However, a case is imaginable in which B did in fact have title or the legal right to dispose of the goods concerned, for instance by dint of being a trustee for A.

In this case, the goods are considered 'misappropriated' if B sells them to C against A's wishes.

In Germany, a good faith buyer of mishandled goods does acquire title to the property, but if the original owner claims them back within ten years, the good faith buyer's title is forfeited. In France a similar rule applies, except the statute of limitation is shorter – it is only three years. Also, the original owner has to pay a redemption fee to the bona fide purchaser, if the goods were purchased at an auction, on an open market, or a similar setting.

In Anglo-Saxon law, the 'nemo dat' principle is applied very strictly. In the UK, a slight exception is made with regards to goods bought at 'market overt', this is to say a market where the sale of such goods is conducted openly (this is similar to the French rule on goods bought at auction or similar settings).

In the US, similar to the UK, the original owner of a stolen good is always considered to have better title. There are vigorous debates over the economic incentives created by favoring original owners over good faith buyers, but the fact remains that Anglo-Saxon law is strongly favoring the property rights of the original owner of a stolen good.

 

The Sentinel Case

The failed futures brokerage Sentinel Management Group lost the money of its clients in when it went into bankruptcy in 2007. According to the SEC, the firm misappropriated the funds belonging to its clients.

Since then, creditors of the company have been fighting over who has title to certain assets. On the one side are the customers of Sentinel, whose funds and accounts were supposed to have been segregated from the company's assets. On the other side there is New York Mellon Bank, which lent Sentinel $312 million that were secured with collateral mainly consisting of said – allegedly 'segregated' – customer funds.

Reuters informs us now that the unexpected outcome of the Sentinel case means bad tidings for the clients of MF Global, who find themselves in a very similar bind. Below are a few excerpts from the Reuters article – apparently the 'nemo dat' principle does not apply to banks:

 

“A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of

 

money lost in the 2007 failure of the suburban Chicago-based futures broker.

 

The appeals court affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.

 

Futures brokers are required to keep customers' funds in dedicated accounts to protect them from being used for anything other than client business. However, Thursday's ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.

 

"I don't think that's what the Commodity Futures Trading Commission had in mind" with its requirement that brokers keep customer money separate from their own, he said. "It does not bode well for the protection of customer funds."

 

Worse, Grede said, is that the ruling suggests that a brokerage that allows customer money to be mixed with its own is not necessarily committing fraud.

 

That may raise the bar for proving that MF Global Holdings Ltd, under then-CEO Jon Corzine, misused customer funds as it scrambled to meet margin calls to back bets on European debt in the brokerage's final days. A $1.6 billion customer shortfall remains.

 

[...]

 

"I'm sure Mr. Corzine's attorneys will get ahold of this ruling and use it for all it's worth," Grede said.

 

[…]

 

The appeals court said that "perhaps the bank should have known that Sentinel violated segregation requirements" but agreed with the district court's earlier ruling that "such a lack of care does not rise to the level of the egregious misconduct" needed to reprioritize a claim.

 

"That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud' its customers," U.S. Circuit Judge John D. Tinder wrote in the ruling.”

 

(emphasis added)

Obviously we are not acquainted with all the details of the case, but there are a few obvious inferences we can draw from the above.

 

1.    What has already come to light in the context of the MF Global case has been confirmed by this case: the so-called 'segregation' of customer funds always was and remains a legal fiction. Segregation of customer funds simply does not exist. Brokers can do with their clients funds whatever they like, just as long as it is not 'intentional fraud'.

2.     If customer funds are misappropriated and used as collateral for loans intended for the brokerage's own business dealings, then the 'nemo dat' principle can be safely ignored by the court. Banks that received what were essentially misappropriated goods as collateral do not have to return them to their original owners as long as they are deemed to have acted in good faith. A bank is not forced to exercise care to the extent of ensuring that funds offered as collateral belong to the broker and are not part of the 'segregated' accounts of customers.

3.    If customers of futures brokers actually want to protect their 'segregated' funds, they apparently must hire private detectives to run a constant surveillance mission on the brokers holding their funds. The door is now wide open to fraud – with clients evidently forfeiting title to their 'segregated' funds as soon as they are used as collateral for a bank loan, there is nothing to stop anyone from stealing such funds.

4.    The fact that the court ruled “That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud' its customers" is simply breathtaking. According to the SEC, Sentinel quite deliberately defrauded its customers.

 

Here is an excerpt from a Barron's article that appeared at the time Sentinel was wound up:

 

“According to people with knowledge of the matter, the SEC and NFA found Sentinel's records a mess. Regulators couldn't seem to get a straight answer to their most basic questions. The job became all the more difficult when Sentinel summarily fired its chief trader and portfolio manager, Charles Mosley, later that week for alleged "misconduct" and then filed for Chapter 11 bankruptcy.

 

On Aug. 20, the SEC filed a civil action against Sentinel in Federal District Court in Chicago, charging it with fraud, misappropriation and misuse of client money. The agency asserted that Sentinel's daily accounts were "misleading" and that some $600 million of customer money was missing. Moreover, according to the SEC complaint, "at least $460 million" in customer securities had been transferred to a "house account," many of them serving improperly as collateral for loans extended to Sentinel Management Group.

Thus, the SEC dolefully concluded, using the credit crunch to justify the freeze was "false and misleading." It was tantamount to setting a fire to mask a burglary.

[…]

But the real blood will be spilled by the hedge funds, commodity traders and wealthy individuals who had about $800 million in Sentinel's Seg-III account. This account, regulators say, was looted to boost Sentinel's house account. The money was pledged as collateral for loans to Sentinel. Driscoll says that Seg-III holders will be lucky to get even half their money. As of two weeks ago, investigators had found only $92 million of the $800 million.

Where are the missing funds? That's what regulators and Sentinel's recently appointed bankruptcy trustee are trying to determine. Sentinel's 42-year-old CEO, Eric Bloom, citing his lawyer's advice, wouldn't discuss the case with a Barron's reporter who went to his home.”

 

(emphasis added)

Where indeed are the missing funds? Apparently they have 'vaporized', MF Global style. How could the court possibly conclude that Sentinel was not acting in bad faith and did not intend to defraud its customers? If $460 million in customer funds were 'transferred to a house account' where they were 'serving improperly as collateral for loans extended to Sentinel Management Group', that clearly means they were stolen, respectively 'misappropriated'.

Whether or not Bank New York Mellon had a duty to ascertain the legal status of the pledged collateral, whatever happened to 'nemo dat'? How can stolen goods suddenly be appropriated by the bank that received them in the course of a fraudulent scheme?

Legal questions aside, one thing is already certain: customers of futures brokerages can no longer have faith that their assets are in any way segregated or protected. Whatever residual hope there was left that things may still come right after the MF Global case is surely completely destroyed by the outcome of the Sentinel case.

This is yet another chink in the 'confidence armor' that has propped up the financial system to date. Let us not forget, the fractionally reserved banking system itself is also at variance with traditional legal principles: it routinely appropriates the funds belonging to its depositors for its own business purposes – quite legally as it were.

In reality, the banks can simply not pay all, or even a fraction, of the outstanding depositor claims that are allegedly payable 'on demand'. It is presumably only a very small step for people to realize that the 'vaporization' of customer funds in futures brokerage accounts could happen on a much greater, system-wide scale, if and when push truly comes to shove. This realization itself could well hasten the system's demise.

 

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Wed, 08/15/2012 - 14:24 | 2707494 SilverDoctors
SilverDoctors's picture

Tylers have been strangely silent on this MASSIVE precedent!

Wed, 08/15/2012 - 14:24 | 2707500 SWRichmond
SWRichmond's picture

Agree.  High time for this one.  Ann Barnhardt has been all over this.

Wed, 08/15/2012 - 14:28 | 2707504 SilverDoctors
SilverDoctors's picture

I actually spoke with Ann Barnhardt last night on this, she went on an EPIC RANT! ‘What we’re seeing is the complete disintegration of the financial system before our very eyes! It’s Soviet!‘
‘You have got to get your money out of the financial system! Not just the futures markets, but the entire thing! Stocks, 401k, IRA. GET YOUR MONEY OUT OR ELSE IT IS ALL GOING TO BE STOLEN FROM YOU! IT’S ALL A PONZI!!!

http://www.silverdoctors.com/ann-barnhardt-get-your-money-out-of-the-fin...

Wed, 08/15/2012 - 14:38 | 2707545 forexskin
forexskin's picture

this is the ringer:

If customer funds are misappropriated and used as collateral for loans intended for the brokerage's own business dealings, then the 'nemo dat' principle can be safely ignored by the court. Banks that received what were essentially misappropriated goods as collateral do not have to return them to their original owners as long as they are deemed to have acted in good faith.

= (customer) money laundering.

once the loan money is in hand, it can be used for anything, rules about fraudulent use of customer funds be damned. since the customer funds chain of title is broken once pledged as collatoral, that loan becomes free money. just a quick shuffle with the pledge of collatoral, some loan docs, and.... its gone.

why ever worry about return of customer funds again?

Wed, 08/15/2012 - 14:43 | 2707569 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

Also, Fuck You Jon Corzine!!!

 

P.S. It's worth saying twice...

Wed, 08/15/2012 - 14:47 | 2707588 resurger
resurger's picture

A million Times +1

Wed, 08/15/2012 - 18:30 | 2708507 gmrpeabody
gmrpeabody's picture

Maybe the PTB just don't want futures trading....

Maybe they don't want price discovery....

Whatever the goal, they are going to kill the industry.

Wed, 08/15/2012 - 14:48 | 2707591 boogerbently
boogerbently's picture

 'Banks that received what were essentially misappropriated goods as collateral do not have to return them to their original owners as long as they are deemed to have acted in good faith'.

Isn't that the traditional definition of a "fence"?

It's the new "business model".

Govt. sanctioned theft. Basically, it's OUR FAULT for trusting them. LOL

Wed, 08/15/2012 - 15:06 | 2707698 NotApplicable
NotApplicable's picture

I likes this line, "How could the court possibly conclude that Sentinel was not acting in bad faith and did not intend to defraud its customers?"

Because the judge wants to live to see the sun rise another day, and will be rewarded handsomely for his service to the mafia.

Wed, 08/15/2012 - 14:50 | 2707599 cougar_w
cougar_w's picture

why ever worry about return of customer funds again?

I get the sense they have figured this one out. And the SCOTUS will back up any ruling that concentrates power and money.

America became a fraud from one sea to the other. Stand by now for a lot of creative hijinx. Everything will become a "customer account held as collateral" even your shirt down at the dry cleaners.

Wed, 08/15/2012 - 14:53 | 2707608 boogerbently
boogerbently's picture

The "reciever" of the misappropriated funds is excused, but that isn't to say the party that "misappropriated" the funds is.

Although, they haven't done anything to punish THEM either.

Wed, 08/15/2012 - 15:16 | 2707754 forexskin
forexskin's picture

we'll be waiting for a while before we see an indictment of one of 'the chosen'.

Wed, 08/15/2012 - 15:19 | 2707770 cougar_w
cougar_w's picture

The party in the first part is the evaporating party. They take all liability with them.

The model now is for institutions that are going away to ensure the financial survival of their principals by judiciously rehypothecating their client funds to cooperative third-parties. Then, they evaporate taking all the blame for any wrong-doing down the memory hole with them.

It is money laundering. On a vast scale.

I can easily see $1T moving away from clients in this manner over 18 months, if you include 401K accounts and deposits.

It is now all set to go away, every dime. The smart move is quickly into cash and tangible goods, the first out is the smartest, and the Devil will certainly claim the hindmost.

Wed, 08/15/2012 - 16:21 | 2708079 Cognitive Dissonance
Cognitive Dissonance's picture

"Then, they evaporate taking all the blame for any wrong-doing down the memory hole with them."

You know......they were JUST here a minute ago. Where could they have gone?

Looks like it's time to appoint a search committee. Jamie, could you make some suggestions for committee membership?

Wed, 08/15/2012 - 18:37 | 2708529 gmrpeabody
gmrpeabody's picture

This scale of a job calls for the U.S. Attorney General Eric Holder... err..., oh, wait!

Wed, 08/15/2012 - 14:44 | 2707575 cougar_w
cougar_w's picture

I heard her rant in like fashion elsewhere. She's really adamant.

I am afraid she is correct.

These are the moves on an end-game. The last moves on an end-game go unchallenged. When this game ends, whoever has the goods keeps them. Ann said it; possession is 9/10ths of law. Them as has, keeps.

My wife insists on keeping our money in banks. My paycheck is automatically deposited in a bank. So far I've not resisted much. She thinks our 401K has value, I tell her it will evaporate some day, or we'll be left holding IOUs for the balance. I used to feel embarrassed having such ill-ease, but not so much any more.

The hand writing is on the wall, and this is going down hard. There will be no recourse.

When they take it all there will be no recovery. There will be a shocked national silence followed by a long loud wail of anguished disbelief.

Wed, 08/15/2012 - 14:49 | 2707597 boogerbently
boogerbently's picture

You're right....except for the IOU part.

Wed, 08/15/2012 - 14:54 | 2707616 Cognitive Dissonance
Cognitive Dissonance's picture

I am fairly certain "they" will hand out IOU's.........if only to get buy-in for the next fiat Ponzi iteration.

All aboard the crazy train.

Wed, 08/15/2012 - 15:10 | 2707724 cougar_w
cougar_w's picture

Banks are paying 0.2% on deposits. I know my wife would lobby hard to take any government-backed IOU that returned over 2%. Even if inflation were running 3%.

It's very difficult to argue against these trends. In the end I suspect it will not matter either way. All the money is set to evaporate into the hidden places of the world.

Wed, 08/15/2012 - 15:22 | 2707791 Cognitive Dissonance
Cognitive Dissonance's picture

I'm extremely lucky. Mrs. Cog was urging me this morning to take some more money OUT of the bank.

<sigh>

I love Mrs. Cog. :>)

Wed, 08/15/2012 - 18:42 | 2708541 gmrpeabody
gmrpeabody's picture

Lucky man...

Wed, 08/15/2012 - 15:04 | 2707683 NotApplicable
NotApplicable's picture

Nah, there will always be IOUs. That way, theft can ALWAYS be denied.

"No, really, I'll pay you back, promise!"

You just won't be able to do anything with them.

Wed, 08/15/2012 - 15:13 | 2707739 Cognitive Dissonance
Cognitive Dissonance's picture

TBTF Banker to Muppet client - "I'd rather owe it to you than cheat you out of it."

Wed, 08/15/2012 - 15:22 | 2707786 cougar_w
cougar_w's picture

God help us, for we are undone.

Wed, 08/15/2012 - 23:34 | 2709201 sadmamapatriot
sadmamapatriot's picture

You are going to have to man up and lay down the law with your wife there, buck. It is your responsibility to take care of your family and saying "but wifey didn't want to" is not going to cut it. I got out, I mean all out, as soon as MF Global went down.

 

Thu, 08/16/2012 - 03:52 | 2709448 StychoKiller
StychoKiller's picture

Perhaps yer wife should read this article and the comments it generated...

Wed, 08/15/2012 - 14:49 | 2707598 Cognitive Dissonance
Cognitive Dissonance's picture

"4. The fact that the court ruled “That Sentinel failed to keep client funds properly segregated is not, on its own, sufficient to rule as a matter of law that Sentinel acted ‘with actual intent to hinder, delay, or defraud' its customers" is simply breathtaking. According to the SEC, Sentinel quite deliberately defrauded its customers."

Did we really expect the courts/legal system to turn back the fraud?

Really?

False hope binds chains us to impossible and unbearable situations. We are all now part of a massive Stockholm Syndrome experiment.  

http://en.wikipedia.org/wiki/Stockholm_syndrome

Paging Patty Hearst, please pick up the nearest white phone.

http://en.wikipedia.org/wiki/Patty_Hearst

Wed, 08/15/2012 - 15:13 | 2707734 cougar_w
cougar_w's picture

Double-plus on that. The massive scale of the ongoing capture of our free will is simply stunning.

Wed, 08/15/2012 - 15:13 | 2707736 boogerbently
boogerbently's picture

Sentinel was charged in 2007. When was this decision rendered?

Wed, 08/15/2012 - 15:19 | 2707766 Cognitive Dissonance
Cognitive Dissonance's picture

The other day.

The slow wheels of justice take a long time to grind your bones into their bread.

Wed, 08/15/2012 - 15:46 | 2707936 Cognitive Dissonance
Cognitive Dissonance's picture

Thank you fuu. I was wondering where I could find that.

Need to wall paper the bathroom for Mrs. Cog.

Wed, 08/15/2012 - 14:55 | 2707621 boogerbently
boogerbently's picture

This will NOT help get money "off the sidelines."

Wed, 08/15/2012 - 14:56 | 2707622 Gringo Viejo
Gringo Viejo's picture

Yes Ann has, kudos to her. And an additional shoutout to Gerald Celente who has aptly noted that in today's criminal environment.."if your money's not in your pocket, it's not YOUR mony."

Wed, 08/15/2012 - 15:07 | 2707705 NotApplicable
NotApplicable's picture

Thing is, that's always been true. We just get reminded of how true from time to time.

Wed, 08/15/2012 - 15:37 | 2707880 GoldenTool
GoldenTool's picture

That's exactly it.  It isn't our money.  It belongs to someone else.  You have no control...

 

"All your base are belong to us."

Wed, 08/15/2012 - 23:42 | 2709219 MrSteve
MrSteve's picture

the usual diversionary handout is a zero coupon bond, redeemable somewhere over the rainbow, say thirty years from now- but your money is "all" there. Just wonderful, isn't it?

Wed, 08/15/2012 - 15:12 | 2707732 CheapBastard
CheapBastard's picture

'nemo dat' is only for the Little People.

Wed, 08/15/2012 - 20:05 | 2708757 nofluer
nofluer's picture

"Precedent"? Ummm... seems to me to be a logical outgrowth of the Clinton et al repeal of the remainder of Glass-Steagall You know... the part that said that customer money and firm money were to be kept SEPARATE? The part that said that the firm could NOT co-mingle funds, and could NOT play with said customer money?

Wed, 08/15/2012 - 14:26 | 2707502 buzzsaw99
buzzsaw99's picture

Jon Corzine (can't touch this)

My, my, my thieving hits me so hard
Makes me say "Oh my Lord"
Thank you for blessing me
With a mind to steal and get out of jail free card
It feels good, when you know you're down
A super dope homeboy from the Squidtown
And I'm known as such
And this is a beat the rap, uh, you can't touch

I told you homeboy (You can't touch this)
Yeah, that's how we living and you know (You can't touch this)
Look at my eyes, man (You can't touch this)
Yo, let me bust the funky lyrics (You can't touch this)

Wed, 08/15/2012 - 15:19 | 2707738 slewie the pi-rat
slewie the pi-rat's picture

nice buZ_Z_saw!

why isn't tyler on this someone asked?

he posted the fuking article didn't he!  L0L!!!

reigning republicunt vulture "capitalist" paulSinger may be involved and he's keeping tyler on a pretty tight leash for the neoCon causa bukllshitski?  so theTeaParty "gets fooled again" by theNew_Boss?

tyler, like the "markets" has been screwed down tight by the mofo banksters?

once they get their hooks into ya it's fun isn't it tyler?  gonna buy yerself a nice bently like oj?  like sac's? 

nothing new here, rilly:  boilerplate lawyers "socializing" losses while pretending to care abt "rights,  freedoms, preperty-property, 'persons' and the rule of law"

here cum da judge, tyler:  Arlo Guthrie Percy's Song - YouTube

Wed, 08/15/2012 - 14:44 | 2707513 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

Fuck You Jon Corzine!

 

P.S. It's worth saying twice...

Wed, 08/15/2012 - 20:06 | 2708759 FeralSerf
FeralSerf's picture

Tragically, it is Jon Corzine that has said "Fuck you!" to all of us and has gotten away with it so far.

Wed, 08/15/2012 - 22:00 | 2709007 LMAOLORI
LMAOLORI's picture

 

 

"FeralSerf Tragically, it is Jon Corzine that has said "Fuck you!" to all of us and has gotten away with it so far."

Those darn Fat Cat Bankers

 

OBAMA ADMINISTRATION SUED FOR RECORDS ABOUT BANKRUPT MF GLOBAL HOLDINGS LTD.

CONVICTED: Bush 1300+, Clinton 1000+, Obama 0.0 (+/-)

Is Freeh looking out for MF Global customers?

While Giddens has since returned about 80 percent of that cash, he said customers still face a $1.6 billion shortfall because MF Global improperly commingled customer and MF Global's money.

Letter From Satan: Dear Brother Corzine

Legality of MF Global Asset Transfer to JP Morgan Questioned

snip

Commodity Customer Coalition founder James Koutoulas is requesting that MF Global bankruptcy Judge Martin Glenn investigate three potential legal issues that are said to have occurred in transferring of MF Global assets.  The key issues include the fact that JP Morgan was able to purchase MF Global bonds at a discount without any open bidding process and the assets were apparently sold without disclosure to or approval from the U.S. bankruptcy court or trustees.  The third issue centers on JP Morgan seeking special favors from the Federal Reserve to receive priority treatment over investor segregated fund accounts.

The first such non-transparent movement of assets occurred when JP Morgan is said to have purchased MF Global’s Sovereign Debt at a significant discount without an open bidding process, paying $0.89 and later selling that debt to investor George Soros for $0.95.  No one is going to complain about JP Morgan generating profit.  However, purchasing assets of a bankrupt firm without an open bidding process or disclosure to the bankruptcy court and trustees is where JP Morgan may be in trouble, according to Mr. Koutoulas.  This sale could be subject to clawback provisions, legal experts speculate.  (On December 9, 2011 The Wall Street Journal reported the fact that bonds were moved to KPMG London office, which was the bankruptcy administrator, but at the time the article did not discuss sale details or approval through the bankruptcy process.  See “Corzine’s Loss May Be Soros’s Gain” by Gregory Zuckerman and Dana Cimilluca.)

more

http://www.hedgeworld.com/blog/?p=3945

Wed, 08/15/2012 - 14:32 | 2707522 Joebloinvestor
Joebloinvestor's picture

What a fucking mess.

Theft is theft unless it involves a brokerage or bank I guess.

Wed, 08/15/2012 - 15:08 | 2707714 NotApplicable
NotApplicable's picture

I believe the term you're looking for is "agent of the state."

Wed, 08/15/2012 - 14:32 | 2707525 Seize Mars
Seize Mars's picture

Bribes, coercion

Wed, 08/15/2012 - 14:33 | 2707527 ptoemmes
ptoemmes's picture

A hoped for silver lining in all of this - sort of implied in the top post - is that "depositors" may realize that their "protected deposits" are - well - not.  

Withdraw them, shut down this predatory industry.  

Maybe the market can work once in a while.  

On the other hand they could all be muppets...

Wed, 08/15/2012 - 15:00 | 2707655 lightning
lightning's picture

Unfortunately, they are muppets.  As Ann B noted in her rant, people tell her, "Well, my accounts are safe because they are FDIC insured."  Muppets don't get it.

Wed, 08/15/2012 - 18:35 | 2708522 calgal
calgal's picture

Epic Must see rant by Ann Barnhardt:

http://m.youtube.com/watch?v=GwKGNO59pqA

(referring to the markets) "if you can't understand what Get The Hell Out! means, there's nothing more I can do for you..."

Wed, 08/15/2012 - 15:14 | 2707741 NotApplicable
NotApplicable's picture

I don't hold out much hope for the muppets, given the number of people on this very board who think they are smarter than that, yet still participate in the fraud each and every day.

What's funny is they'll still get taxed for the gains on their soon-to-be-stolen accounts.

Then there's the FACT that equities are all owned by the DTCC, unless you're one of the eight people who've actually taken Jim Sinclair's advice.

Wed, 08/15/2012 - 16:24 | 2708090 cranky-old-geezer
cranky-old-geezer's picture

 

 

I don't hold out much hope for the muppets, given the number of people on this very board who think they are smarter than that, yet still participate in the fraud each and every day.

Yes, even many here on ZH who still refuse to believe they could lose everything in that brokerage account. 

The "it wouldn't happen to me" bull-headedness is alive and well here just like everwhere else.

Whatever.   Let 'em lose it. 

...including their 401k eventually.  It's a brokerage account too.

Wed, 08/15/2012 - 18:34 | 2708519 WillyGroper
WillyGroper's picture

Yea NA real funny. Amazed again.

Wed, 08/15/2012 - 14:32 | 2707528 JR
JR's picture

The fact is the oligarchs and the cartel use everything they can to seize power and wealth; they use the talk of war and actual war to spike oil and the military industry. They use drought and weather reports to spike commodities; they use QE speculation to spike equity prices; they use and manipulate government statistical reports to robo buy or sell against the retail investors. And their co-conspirators, Bloomberg, WSJ, Reuters, etc., carry the messages.

At least in Russia, after Vladimir Putin became president in 2000, he started making examples of high-profile oligarchs such as Boris Berezovsky.

"Oligarchs are deeply hated in Russia and with reason," says Mike Emery. "When the Soviet empire collapsed after the Berlin Wall came down in 1989 a number of men, most of whom were Jews, made their moves, bought assets from the new government at knock down prices and got very rich, very fast. It has been claimed that they defrauded Russia of 85% of its assets. Berezovsky was one of those oligarchs."

Writes Stefan Hedlund in Russia's "Market" Economy (1999):

"A prominent example (of oligarch cronyism in Russia) is that of insider dealings in the process of privatization, which, for example, allowed the transfer of major oil companies into private hands at extremely low prices. Another is the introduction of a system of 'authorized banks,' whereby a few select commercial banks were allowed to handle the government’s accounts. Such rights could be abused: for example, by delaying the processing of payments received. Under conditions of high inflation, the real value eventually passed on to the final destination would be greatly diminished. There have also been serious allegations of insider dealings by the cronies in Russian government securities.

"The overall consequences for the Russian economy were negative to the extreme. The influence of the so-called crony capitalists over the process of privatization led to such a warped system of property rights that some analysts seriously argued in favor of selective renationalization, to be followed by a second round of 'honest' privatization.

"Even more important, by allowing the crony capitalists to take over oil industry for a pittance, the Russian government freely gave up the right to extract rent from the country’s natural resource base. This represented a massive shift of future income streams out of the government’s coffers and into private pockets, with severe implications for the future ability of the state to maintain the provision of public goods."

"Crony capitalists often belong to ethnic minority groups whose activities have been historically concentrated within the business or financial sector…"-- International Encyclopedia of the Social Science

Wed, 08/15/2012 - 14:38 | 2707546 Alea Iactaest
Alea Iactaest's picture

What a relief to know there are no more high profile oligarchs in Russia.

Seriously, WTF? It was just a shake down to let everyone know there was a new sheriff in town.

Wed, 08/15/2012 - 15:03 | 2707680 JR
JR's picture

These are the kind of oligarchs Putin is dealing with in Russia and doing, IMO, a better job than the US.  This from Bloomberg in 2010:

 Oleg Deripaska, the Russian billionaire who once joked he’d hand over his smelters should the state ask for them, is finding his loyalty tested amid the country’s worst economic crisis in a decade.

Prime Minister Vladimir Putin publicly rebuked him in June 2009, according to Bloomberg, for wage arrears and said the state will take over factories when owners fail to keep them open. The threat came to curb Deripaska’s plans to idle unprofitable operations and cut jobs at aluminum producer United Co. Rusal and automaker OAO GAZ just as his companies were trying to renegotiate more than $20 billion of debt with lenders including Barclays Plc and BNP Paribas SA…

“You made thousands of people hostages of your ambitions, lack of professionalism and perhaps simply greed,” Putin was shown by state television telling the owners. Deripaska was then filmed signing a raw materials contract for half the price the plant previously paid, allowing production to restart. Deripaska’s investment company Basic Element paid more than 41 million rubles ($1.3 million) in wage arrears later that day.

On June 8, 2009, 88 million rubles of wage and redundancy arrears was paid out after a hunger strike by workers at the Deripaska- controlled pulp plant in Baikalsky, Siberia…

Russia’s wealthiest businessmen have been called on before to make additional economic contributions. Roman Abramovich, the billionaire Chelsea Football Club owner and a former partner of Deripaska in the aluminum business, agreed to take over in 2000 as governor of the far-eastern Chukotka region and pay tax there to bolster the local economy. He stepped down in 2008… (end)

When you google Deripaska’s background you get his connections with other other billionaire bankers: Blavatnik, Goodwin, Rothschild…  This from aangirfan.blogspot.com posted January 25, 2009:

Leonid Valentinovich Blavatnik is a Russian-American-Jewish billionaire.

After the fall of communism he was able to buy up companies in Russia very cheaply.

In 2007, the Forbes 400 reckoned he was worth $7.2 billion.

In 1986 he founded Access Industries, a New York-based international industrial group.

Access Industries formed LyondellBasell Industries.

On 6 January 2009, the U.S. operations of LyondellBasell Industries filed for bankruptcy.

Royal Bank of Scotland (RBS) is owed $3.47 billion by LyondellBasell Industries.

(RBS to write off £1bn loan to Russian oligarch )

Of the £2.5 billion loaned to Leonid Blavatnik, the bank has suggested that it may write-off as much as £1 billion.

Blavatnik originally borrowed the money from the Dutch bank ABN Amro. The Royal Bank of Scotland led a consortium takeover of ABN Amro, in 2007.

2.  Another who got money from the Royal Bank of Scotland is the Jewish billionaire Oleg Deripaska.

Where did the banks' money go?

"Among the highest-profile deals was a £2.8 billion loan offered by a group of Western banks - including RBS - to a company owned by Oleg Deripaska, the Russian tycoon, which was used to buy the Russian metals firm Norilsk Nickel…

I could go on…

http://aangirfan.blogspot.com/2009/01/jewish-billionaires-and-jewish-bankers.html

http://www.bloomberg.com/apps/news?pid=20601109&sid=aeegOCad7JNQ

Wed, 08/15/2012 - 20:19 | 2708784 nofluer
nofluer's picture

Place marker here... what you're referring to is the "Austerity" mentioned in Naomi Klein's book, "Shock Doctrine" wherein the "Chicago Boys" pretty much raped various countries of their wealth with the help of the IMF?

Wed, 08/15/2012 - 14:35 | 2707542 JustObserving
JustObserving's picture

" customers of futures brokerages can no longer have faith that their assets are in any way segregated or protected."

Why would anyone trade in US markets under these conditions?  Besides, you have the CME increasing silver margins 5 times in 8 days last year.  It is suicidal to invest in US markets.

Wed, 08/15/2012 - 14:37 | 2707547 mrktwtch2
mrktwtch2's picture

maybe the aliens will give up on this experiment (humans) and just vaporize the planet with a nice solar flare..

Wed, 08/15/2012 - 14:41 | 2707560 resurger
resurger's picture

Segregated Accounts = Margin Call Collateral

Period

nice article.

 

 

Wed, 08/15/2012 - 14:42 | 2707566 Omen IV
Omen IV's picture

what can you say - other than cash or physical possession of metals

Wed, 08/15/2012 - 15:04 | 2707685 philosophers bone
philosophers bone's picture

And be careful what you call "cash".  Money market fund redemption restriction timebomb is ticking......

Wed, 08/15/2012 - 21:38 | 2708962 LMAOLORI
LMAOLORI's picture

 

"philosophers bone And be careful what you call "cash".  Money market fund redemption restriction timebomb is ticking..."

 

Good advice

snip

MARK Aug. 29 on your calendar. It’s the day all of us could end up on the hook for a big future bailout.

"The Securities and Exchange Commission is expected to vote that day on a proposal that would limit taxpayers’ exposure to the $2.6 trillion world of money market mutual funds. The plan would reduce the odds of having to rescue teetering funds when the next financial crisis comes — and it will.

Money market funds are a huge cog in the nation’s financial machinery. Many people think that these funds are as safe as federally insured bank deposits. In most cases, they aren’t. But then, in the dark days of 2008, a run on one fund, Reserve Primary, reverberated in the industry.

Investors fled, and the Treasury stepped in. It earmarked $50 billion to protect money market funds and to prevent them from “breaking the buck,” or having their shares fall below the sacrosanct $1 net asset value. Of course, if the government rides to the rescue once, the thinking goes, it will surely do so again."

in full

Breaking a Buck, Maybe, but Not Taxpayers’ Backs

Money Market Funds Can Lose Money, Just NotYour Money

RPT-Fed's Dudley urges reform for money market funds

Treasury's Secretive $2.4 Trillion Mutual Fund Guarantee

Wed, 08/15/2012 - 14:53 | 2707610 ONO47
ONO47's picture

This is what a company with any integrity would do and did after MF Global

BCM Has Ceased Operations (Part 1)
Posted by Ann Barnhardt - November 17, AD 2011 10:27 AM MST
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets -- because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

The futures markets are very highly-leveraged and thus require an exceptionally firm base upon which to function. That base was the sacrosanct segregation of customer funds from clearing firm capital, with additional emergency financial backing provided by the exchanges themselves. Up until a few weeks ago, that base existed, and had worked flawlessly. Firms came and went, with some imploding in spectacular fashion. Whenever a firm failure happened, the customer funds were intact and the exchanges would step in to backstop everything and keep customers 100% liquid -- even as their clearing firm collapsed and was quickly replaced by another firm within the system.

Everything changed just a few short weeks ago. A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let's not sugar-coat this or make this crime seem "complex" and "abstract" by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG's leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade -- and there simply isn't that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Continued . . . .

 

BCM Has Ceased Operations (Part 2)
Posted by Ann Barnhardt - November 17, AD 2011 10:26 AM MST
. . . . Continued

Perhaps the most ominous dynamic that I have yet heard of in regards to this mess is that of the risk of potential CLAWBACK actions. For those who do not know, "clawback" is the process by which a bankruptcy trustee is legally permitted to re-seize assets that left a bankrupt entity in the time period immediately preceding the entity's collapse. So, using the MF Global customers as an example, any funds that were withdrawn from MFG accounts in the run-up to the collapse, either because of suspicions the customer may have had about MFG from, say, watching the company's bond yields rise sharply, or from purely organic day-to-day withdrawls, the bankruptcy trustee COULD initiate action to "clawback" those funds. As a hedge broker, this makes my blood run cold. Generally, as the markets move in favor of a hedge position and equity builds in a client's account, that excess equity is sent back to the customer who then uses that equity to offset cash market transactions OR to pay down a revolving line of credit. Even the possibility that a customer could be penalized and additionally raped AGAIN via a clawback action after already having their customer funds stolen is simply villainous. While there has been no open indication of clawback actions being initiated by the MF Global trustee, I have been told that it is a possibility.

And so, to the very unpleasant crux of the matter. The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Remember, derivatives contracts are NOT NECESSARY in the commodities markets. The cash commodity itself is the underlying reality and is not dependent on the futures or options markets. Many people seem to have gotten that backwards over the past decades. From Abel the animal husbandman up until the year 1964, there were no cattle futures contracts at all, and no options contracts until 1984, and yet the cash cattle markets got along just fine.

Finally, I will not, under any circumstance, consider reforming and re-opening Barnhardt Capital Management, or any other iteration of a brokerage business, until Barack Obama has been removed from office AND the government of the United States has been sufficiently reformed and repopulated so as to engender my total and complete confidence in the government, its adherence to and enforcement of the rule of law, and in its competent and just regulatory oversight of any commodities markets that may reform. So long as the government remains criminal, it would serve no purpose whatsoever to attempt to rebuild the futures industry or my firm, because in a lawless environment, the same thievery and fraud would simply happen again, and the criminals would go unpunished, sheltered by the criminal oligarchy.

To my clients, who literally TO THE MAN agreed with my assessment of the situation, and were relieved to be exiting the markets, and many whom I now suspect stayed in the markets as long as they did only out of personal loyalty to me, I can only say thank you for the honor and pleasure of serving you over these last years, with some of my clients having been with me for over twelve years. I will continue to blog at Barnhardt.biz, which will be subtly re-skinned soon, and will continue my cattle marketing consultation business. I will still be here in the office, answering my phones, with the same phone numbers. Alas, my retirement came a few years earlier than I had anticipated, but there was no possible way to continue given the inevitability of the collapse of the global financial markets, the overthrow of our government, and the resulting collapse in the rule of law.

As for me, I can only echo the words of David:

"This is the Lord's doing; and it is wonderful in our eyes."

With Best Regards- Ann Barnhardt

Wed, 08/15/2012 - 15:22 | 2707789 web bot
web bot's picture

amazing...

We are one the cusp of something not very nice that is coming.

Wed, 08/15/2012 - 15:39 | 2707896 Cognitive Dissonance
Cognitive Dissonance's picture

Perhaps that's the reason the gvt is loading up on .40 cal

Wed, 08/15/2012 - 20:20 | 2708789 FeralSerf
FeralSerf's picture

Since so much .40 ammunition has been made, it might be a good idea to buy a .40 S&W just for the ammo availablilty.  There's sure to be plenty of "surplus" available if the SHTF.

Military calibres of weapons are illegal in Mexico for this reason.  You can get a hunting license there, but you can't use .308 or .223 AFAIK.

Wed, 08/15/2012 - 14:53 | 2707611 sixsigma cygnus...
sixsigma cygnusatratus's picture

If someone had stolen lots of money from some bank, say JPM, and used it to buy something from a credit union, would the same laws still apply?  I wonder...

Wed, 08/15/2012 - 14:57 | 2707633 boogerbently
boogerbently's picture

I assume you mean you......NO.

You'd be sitting in jail while they sold your home and car to repay their losses.

Wed, 08/15/2012 - 15:13 | 2707740 sixsigma cygnus...
sixsigma cygnusatratus's picture

I don't see how this ruling would encourage people to deposit their funds in ANY financial institution.  In fact, it would encourage quite the contrary.

Wed, 08/15/2012 - 15:17 | 2707759 NotApplicable
NotApplicable's picture

It's too late to matter. ZIRP will completely destroy the financial world. What we're witnessing now is a fight for the real assets that back it, in an effort to survive another day.

Wed, 08/15/2012 - 15:21 | 2707783 sixsigma cygnus...
sixsigma cygnusatratus's picture

Couldn't the FDIC also jump in and claim "Your money wasn't stolen, it was inadvertently loaned to a businessman who spent it all on booze and hookers.  Therefore, FDIC insurance does not cover that."

Wed, 08/15/2012 - 15:26 | 2707817 NotApplicable
NotApplicable's picture

In due time.

Wed, 08/15/2012 - 15:29 | 2707831 cougar_w
cougar_w's picture

Not under those specific terms.

However.

To the spirit of your conjecture, I think it would be fairly easy for them to say at some point, "Look here, all you people knew your bank was insolvent but they were paying good interest on deposits and you wanted the return and kept money in them hoping for a bailout, and doing so you became capital investors instead of depositors. Since you are investors you go to the end of the line for recovery."

It is all a stretch, but that is close to the logic they would employ. To cover themselves Congress can quietly pass a few obscure laws that change some very obscure wording in other obscure laws, and have the whole thing enshrined in policy in under a week.

Wed, 08/15/2012 - 15:44 | 2707914 Cognitive Dissonance
Cognitive Dissonance's picture

Yup....sounds close to me.

"Dude, you KNEW it was all a scam. And if you didn't.....well you should have. So we're going to consider you a willing participant."

As a consolation prize here are 6 shares of stock in the coming TBTF2 bank of your choice. Lock up period is only 2 years....long after all the insiders have exited stage right.

What ya gonna do about it punk?

Wed, 08/15/2012 - 17:19 | 2708291 Money 4 Nothing
Money 4 Nothing's picture

Bingo! FDIC would be broke already.

Wed, 08/15/2012 - 15:26 | 2707816 slewie the pi-rat
slewie the pi-rat's picture

welcome to zH asswipe!

'people' would first hafta

a) :> know <: and
b) :> care <:  now, wouldn't they?

the bread is free and the circus acts are fabulous!  what cld possibly go wrong?

Wed, 08/15/2012 - 18:10 | 2708304 slewie the pi-rat
slewie the pi-rat's picture

somebody junked me for a warm, traditional zH welcome to the noob...

now that is just bad form, BicheZ!  L0L!!!  anyhow, at least s/he's not a troll "against socialism [so vote for _____]"!  ...is s/he...? 

Wed, 08/15/2012 - 22:32 | 2709088 forexskin
forexskin's picture

all good slew.

Wed, 08/15/2012 - 14:55 | 2707623 Bunga Bunga
Bunga Bunga's picture

Don't worry, it's not the end, they will never run out of money to be "invested".

http://www.dailykos.com/story/2012/08/14/1119752/-Paul-Ryan-Using-Koch-B...

 

Wed, 08/15/2012 - 15:41 | 2707902 Buckaroo Banzai
Buckaroo Banzai's picture

Will the libtards ever stop yakking about their favorite bogeymen, the Koch brothers???

Meanwhile, George Soros, the "Black Hand", looms like Grim Death On Steroids and they can't be bothered to notice.

Wed, 08/15/2012 - 18:38 | 2708534 WillyGroper
WillyGroper's picture

Do you really see a difference between them?

Wed, 08/15/2012 - 19:03 | 2708600 Bunga Bunga
Bunga Bunga's picture

That's not the point.

 

 

Wed, 08/15/2012 - 14:58 | 2707637 Atlantis Consigliore
Wed, 08/15/2012 - 15:04 | 2707682 supermaxedout
supermaxedout's picture

The US is not anymore a civilzed counrty. A place where not even such a basic law as " nemo dat quod non habet (one cannot give what one does not have) " is respected, is an outlaw place. In the US there reigns the "law of the fist" and the ordinary people are terrified seeing their country go down the sewer.

Things like this and other fraud and crimes are going to increase more and more and over time its the normality.  The inhabitants of the US especially the youth is getting the message and soon the whole society is befallen by this primitive gangsterism. Yeah the mayor players in this giant fraud are primitive gangsters not even worth a shot of gunpowder.  They are pulling down everything  and only destruction and horror is what is finally left.  

Nobody can stop this. This thing ends one day by itself like the breakdown of the Soviet Union.  Nothing can be done by reforms, its much to late for such things. It needs first a collapse of the old system before something new and hopefully better gets a chance. Like a giant tree overshadowing everything in its range so that nothing can grow new. But once an old tree falls down then its dominace ends abruptly. 

Wed, 08/15/2012 - 15:07 | 2707701 css1971
css1971's picture

um... This has been the case in the UK for almost exactly 200 years. You give money to a bank and basically any financial institution, it's their money to do with as they please.

Carr vs Carr. 1811

http://www.cobdencentre.org/tag/carr-v-carr-1811/

You signed a contract, gave them your money, it's now their money, they give you an account, credit card, debit card, access to trading facilities, whatever. You don't have your money... You have an agreement with them, and an entry in their books. Not money. How is this difficult?

Now, if you were putting your money in a safe deposit box or it explicitly stated they couldn't touch the money at all then that's another matter entirely but I'd bet any agreements signed allow them to pretty much do as they please, even with "segregated funds" for "administrative" or somesuch reasons.

Wed, 08/15/2012 - 15:48 | 2707935 Buckaroo Banzai
Buckaroo Banzai's picture

With respect to Demand Deposits at a bank, yes, you are correct. Once your money has been deposited, the bank is now free to use those funds for their own purposes.

HOWEVER... segregated funds at a brokerage firm were treated differently under the law until now. The word "segregated" was key. They were your funds and the brokerage firm could NOT use them for their own purposes, and had to keep them separate from the brokerage's own funds. THAT is the new development in the law. "Segregated" no longer means segregated.

Wed, 08/15/2012 - 15:09 | 2707716 Bartanist
Bartanist's picture

Just struggling here with how any of these companies can pledge something they do not own as collateral?!? Isn't the purpose of collateral to be something that a company pledges to give to the lender in the event of a default? How can they pledge something that is not theirs?

On another note, the other day I heard Gensler on Bloomberg. He said that under the Bush Jr. administration (like either in 2005 or 2007) the banks had a law passed that made it LEGAL for a company such as MF Global to loan customer segregated assest to other parts of the organization. Personally, this makes absolutely no sense to me ... because then they are not actually segregated. But this makes it possibly to understand how Corzine could get off if he lent segregated customer assets the the other part of the business because then it would be considered technically "legal" ... because the law itself is a fraud.

Wed, 08/15/2012 - 15:22 | 2707790 NotApplicable
NotApplicable's picture

Written law is always the justification for fraud, as opposed to natural law, where there is little to no room for bickering, as it's based on peoples' moral and ethical considerations, instead of "legal" ones.

 

Wed, 08/15/2012 - 15:10 | 2707721 markar
markar's picture

So according to Barnhardt we should cash out our IRAs and 401Ks before it's too late.Where the hell does one put $500K if it's not even safe in a bank? Try opening up bank account as a US citizen outside the reach of the US financial system.

Wed, 08/15/2012 - 15:25 | 2707812 NotApplicable
NotApplicable's picture

Why would anyone put $500k anywhere? You trade it for under-valued tangible assets while you still can.

On a long enough timeline, the purchasing power of a dollar approaches zero.

Wed, 08/15/2012 - 15:42 | 2707907 JR
JR's picture

And where do you go if you don't cash out your 401(k) and take the penalties? You’re trapped in most cases, with no exits. Writes Johnny Silver Bear…

“For years I have complained that my wife's 401K was subject to criminal constraints in that she could only go long on the issues she was involved with. Her company mandated (all companies mandate by law) that she could only invest, and go long, in XYZ mutual funds. At the time, I believed they were bad investments. In a free market you have to have the option to bet against an issue as well as betting for it. Taking away the option to short an issue provides for nothing more than a rigged game. But all the sheeple seem to go along with it. Everybody's 401K has the same restrictions. Nobody balks. It's much easier to remain ignorant of the realities of investing than to gain the understanding that they are being fleeced.”

Wed, 08/15/2012 - 15:51 | 2707963 Buckaroo Banzai
Buckaroo Banzai's picture

Why the heck do you think people are buying 3-month T-bills at negative interest rates? Because once the T-bill is purchased, the Treasury is legally obligated to pay you your money back in 90 days.

Of course they could just default on that, but they will default on the FDIC obligations before they default on the Bills themselves.

Wed, 08/15/2012 - 16:27 | 2708100 oddjob
oddjob's picture

physical Gold?...and don't say you can't stash that anywhere, because if you have 500K and have not secured remote rural property on which you can survive off it is because you chose not too. Billions would kill for your 'problems'.

Thu, 08/16/2012 - 04:10 | 2709457 StychoKiller
StychoKiller's picture

$500K / $1600/Toz = 312.5 Toz (Au) = 26.04 Troy Ibs

Wed, 08/15/2012 - 15:23 | 2707758 CheapBastard
CheapBastard's picture

Sentinel execs in China would get a "speedy but fair trial" and then promptly executed.

 

Here, they will move to Bermuda down the street from Mozillo and Grasso and enjoy a game of golf or perhaps yachting, if the winds are right.

Reminds me what Crazy Eddie said in that former ZH article (interviewed on RT):

'America is Fraudsters paradise."

Wed, 08/15/2012 - 15:54 | 2707975 Buckaroo Banzai
Buckaroo Banzai's picture

Do yourself a favor, please don't imagine that the Chinese "justice" system is any better than ours.

They would be executed only if they had committed the crime of not having had the right political connections in place before committing the fraud.

Otherwise, the "fraud" wouldn't even see the light of day.

 

Wed, 08/15/2012 - 20:39 | 2708827 nofluer
nofluer's picture

Entirely correct. China is a kleptocracy.

Wed, 08/15/2012 - 15:34 | 2707855 Frederic Bastiat
Frederic Bastiat's picture

While this ruling is ludicrous, for those of you needing to address the risk, get a signed letter from your broker saying that your funds are in fact segregated, and that any comingling or use of your funds for any purpose in internal brokerage accounts is will be considered an act of fraud.  Something like this should flip the courts ruling from misappropriation to fraud, and entitle you to the funds. 

 

 

Wed, 08/15/2012 - 15:56 | 2707984 Buckaroo Banzai
Buckaroo Banzai's picture

They already signed that letter, it was called "The Brokerage Agreement".

Try again.

Wed, 08/15/2012 - 18:08 | 2708462 Mad Max
Mad Max's picture

Oh Frederic, YOU ARE SO CUTE!!!  Did you just finish high school Government 101 and get an A+ on your final paper?

I was you once, when I was younger and less aware.

As you are now, so once was I.

As I am now, so you will be.

Prepare, my friends, to follow me.

Wed, 08/15/2012 - 15:45 | 2707927 Shizzmoney
Shizzmoney's picture

Check out this graph on Reformed Broker on stocks in election years: hint, they mysterious are bullish (no matter what the economic situation).

http://www.thereformedbroker.com/2012/08/15/stocks-election-year/?utm_source=dlvr.it&utm_medium=twitter

Wed, 08/15/2012 - 15:46 | 2707939 ableman28
ableman28's picture

The vast majority of brokerage accounts in the US are structured so that client "owned" assets are held in what is called "STREET NAME".  Street name means the name of the institution that manages your brokerage account.  In simple English the typical investor with a portfolio NEVER holds legal title to ANY of the investments in their portfolio.  The investments in their portfolio are managed for then somewhat similar to a REVOCABLE beneficial trust wherein the trustee has certain responsibility to pay the interest and matured principal to a third party. BUT the trustee never actually relinquishes title ownership of the asset.

If you don't think this is true of your portfolio, and you happen to hold a municipal bond, contact directly the issuer of the municipal bond.  Ask them if you are recorded as owner of the bond with the reference ID on your monthly brokerage stategment.  Surprise, surprise, they will never have heard of you.  Its the same with every other investment you own.

The risk is clear.  If the brokerage house gets into trouble (or the bank that owns the brokerage house gets into trouble) they can move, if they so choose, to make use of assets in your portfolio as subornable collateral.  

No one, and I mean no one, should ever put any form of treasury they are comfortable holding to maturity in a brokerage account.  You can buy these directly, register your ownership with the US Treas, and specify where interest payments and matured proceeds are to be paid.  Ironically, banks CAN NOT take that money from your account.  That qualifies as theft.  But they can pledge a treasury held in "your portfolio" to a third party as collateral. 

Thu, 08/16/2012 - 00:19 | 2709278 MrSteve
MrSteve's picture

check out DRS on JS Mineset.com.

you'll be pleased!

Wed, 08/15/2012 - 16:29 | 2708103 LawsofPhysics
LawsofPhysics's picture

At the end of the day, this is no different than what the French once went through.  Long Guillotines.

Wed, 08/15/2012 - 18:10 | 2708464 Mad Max
Mad Max's picture

I'm not sure the French had nearly as much justification.  But their nobles had shit-for-brains as their PR firm.

Wed, 08/15/2012 - 19:26 | 2708660 WillyGroper
WillyGroper's picture

The technology of weaponry has changed somewhat. BTW what company makes those hollow points?

Wed, 08/15/2012 - 17:52 | 2708401 Mad Max
Mad Max's picture

We're doomed.  DOOMED!!!

Wed, 08/15/2012 - 19:00 | 2708589 calgal
calgal's picture

Here's a link to Ann Barnhardt's epic rant re: Sentinel

http://www.youtube.com/watch?v=GwKGNO59pqA

"if you don't understand what GET THE HELL OUT! means, I can't help you at this point"

 

Wed, 08/15/2012 - 23:50 | 2709239 OneTinSoldier66
OneTinSoldier66's picture

If you don't hold it in your hand, you don't own it.

Thu, 08/16/2012 - 01:16 | 2709362 collon88
collon88's picture

Wow!  Looks like it's RISK ON for all brokers.  If it's not risk off for clients, they deserve to lose. 

Thu, 08/16/2012 - 01:46 | 2709386 WojtekSz
WojtekSz's picture

the day today was really nice and sunny

..................untill i have read through this!

 

/edited for spelling errors

Sun, 09/16/2012 - 10:56 | 2800462 Heyoka Bianco
Heyoka Bianco's picture

" This realization itself could well hasten the system's demise." Right. Do you realize how long it took humans to realize they shouldn't shit in their own water supplies? There's probably .5% of the American population who would understand what this all means, and half of them are for it.

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