Shadow Rehypothecation, Infinite Leverage, And Why Breaking The Tyranny Of Ignorance Is The Only Solution

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Sat, 12/10/2011 - 14:15 | 1966252 Jim in MN
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Look at it this way: Extend and pretend made a certain amount of sense in that time, time alone, allowed some derivatives to simply expire harmlessly--the 'weapons of financial mass destruction' (Buffet) have timers.  But if the banks start piling back in, then even the modest upside of can-kicking is lost.  And all the vast downside remains.

Looks like we're right back to square one, but with trillions already down the rathole.

Sat, 12/10/2011 - 14:30 | 1966300 FreedomGuy
FreedomGuy's picture

With only a fuzzy understanding of much of this stuff, this to me seems to be a great argument against central banks. In a sense a Fed or central bank puts you in the middle of the mess. In fact, it grows and multiplies it. Banks and financial houses left to themselves can invent any crap they want but the results are fairly limited to their own money and not backed by the public.

Imagine, like the early days of our country (the USA), mulitple private currencies, no central bank and limited leverage. Add to that no way for the government to TARP or stimulus or bail out. No one thing could take "the system" down as there would be no one system and plenty of escapes for those caught in financial stupidity.

Am I wrong?

Sat, 12/10/2011 - 14:53 | 1966314 Nobody special
Nobody special's picture

I see more. We now have an explination for why matching serial numbers of 'hard currency gold' showed up, though no duplicate bars were ever found. There are multiple first party claims on the same serial numbered asset. The bars were not duplicates; the same bar was moving into inventory multiple times. It proves that the shadow wealth is just that. It really emphasizes the importance of taking personal possession of your assets.

With rehypothecation, your serial number does not matter. Your evidence that the wealth is yours is no better than anothers, and likely no more legitimate. Those who hold paper are about to experience the ultimate fleecing.  In the past, when multilple parties held equally legitimate claims, courts usually ruled in favor of the party in possession.  So, who's in possession?

If you own but do not hold, you've already lost your gold.  Better trade out your paper fast to take delivery. Your gold as been taken from you, and your GLD will soon be unconvertable. Move to safety before it is too late.

Sat, 12/10/2011 - 15:43 | 1966409 jekyll island
jekyll island's picture

So we have a fractional reserve banking system that is backed by nothing.  On top of that we have a fractional reserve equity market, which always appear to be backed by someone else's assets when TSHTF.  On top of that there is a shadow banking system which is funded by someone else's assets from the prime brokers in the equity market which come from clients who take their funds from the fractional reserve banking system, which is backed by nothing.  On top of that there is a shadow derivatives market, where shadow banks write contracts to each other to hedge against loss, all of which is apparently backed by nothing.   The shadow banks and prime brokers can rehypothecate their collateral to increase their liquidity, which is backed by nothing, by as much as $2-4 trillion in the US alone, unable to calculate in the UK because there are no limits to churning.  Did I miss anything?   No wonder Germany said Fuck You when they were asked to pledge their gold to backstop the ECB bailout.  I am going to go give my gold a hug.  Uhhh, if I had any, that is.  

Sat, 12/10/2011 - 16:04 | 1966477 Ahmeexnal
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Switzerland about to jettison the euro-peg. Preparations for euro-collapse under way.

Sat, 12/10/2011 - 16:16 | 1966500 WmMcK
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“We are naturally (preparing) for possible alternatives” - Widmer Schlumpf

Naturally, we should be too.

Sat, 12/10/2011 - 16:32 | 1966524 trav7777
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The Rothschild BOE is the epicenter of a nearly 400 year ponzi of creditmoney.  In fact, this bank is a charter member of the FRBNY.  For centuries, London was the world hub of trade in real bills, the largest exchanges were there, and the Sterling Bill radiated power all across the world.

Like I said, all those Rothschild palaces did not build themselves.

Sat, 12/10/2011 - 16:45 | 1966546 pods
pods's picture

Exactly.  Even though it seems like all these banks are US, Italy,or Germany based, most of the leverage, and the control, is right in the City of London, where the Rothschilds have made their living since Nathan Mayer usurped control over the BOE.


Sat, 12/10/2011 - 17:04 | 1966573 Manthong
Manthong's picture

-----  SPX   > 1200 on 17Dec11

-----  SPX   < 1200 on 17Dec11

Not what you want.. what you think,


Sat, 12/10/2011 - 17:04 | 1966577 The Big Ching-aso
The Big Ching-aso's picture



Once upon a time ignorance was truly bliss.    Now everyone knows each other's pretending to be ignorant it's fake bliss.

Sat, 12/10/2011 - 17:46 | 1966648 Michael
Michael's picture

And we would of gotten away with it too if it wasn't for them dam bloggers.

Senator Rockefeller even said the Internet should have never been invented. I wonder why he said that? 

Sat, 12/10/2011 - 23:22 | 1967101 Pitchman
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Sun, 02/05/2012 - 16:24 | 2129181 JW n FL
JW n FL's picture



Repo markets are a potential channel for liquidity risks, given their systemic importance, inherent leverage, and short tenor. For individual financial institutions that rely on repos as a source of leverage, loss of access to repo financing can both directly undermine funding liquidity and create negative market perceptions about the institution’s financial condition. Repo market disruptions, manifested in increased haircuts, aversion towards certain forms of assets as collateral, or elevated concerns about counterparty risk, can pose broader risks to asset pricing and the functioning of the financial system.


As illustrated in a hypothetical example (see “Repo Haircut Increases: Forced Selling?” chart), increases in haircuts can compel forced selling of the underlying repo collateral. In this example, a corporate bond portfolio requiring a 5% haircut for repo financing would enable an institution to take on a $1,050 exposure backed by $50 in equity, equivalent to leverage of 21 to 1.


Mon, 02/06/2012 - 16:12 | 2131596 JW n FL
JW n FL's picture



Federal Reserve Earnings verse Federal Reserve Loans to the United States of America


1. How much does the Federal Reserve Bank Earn in Interest Payments? From anyone other than the United States of America.

Federal Reserve $15 Trillion Dollars in Loans Bloomberg

Loans from 3 / 9 / 2008 to 3 / 9 / 2009 totaling $15,760,004,161,955.00

Getting Bigger

Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total ** assets ** held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data

** **

The Fed’s Secret Liquidity Lifelines




2. Who are those Monies Participated Out too? That the Federal Reserve Bank Collected?

Who owns the Federal Reserve?

The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.


So! The question stands.. if the Federal Reserve is collecting .25% interest on $100 Trillion Dollars a Month (minimum).. Where Does ALL!! That Money Go?!?!?!?!?!

6% here.. 6% there.. Participated Out to the Shareholders.. into their Federal Reserve Bank Accounts.


So if the Federal Reserve is Collecting 6 times more a MONTH in Interest payments than is due by the United States of America (for our National Debt of $15 Trillion).. Why are the American People having too carry that debt? When the Federal Reserve is making AT LEAST 6 Times More than the Payment Due by ALL! of us?


Henry Ford-

"It is well enough that people of the nation do not understand
our banking and monetary system, for if they did,
I believe there would be a revolution before tomorrow morning."


If the Shareholders of the Federal Reserve are collecting their 6% of the $100 Trillion (minimum) Dollars a month in Interest payments..


Then why in the FUCK! Do We the People of the United States need to be taxed to death to pay for the Bank Bailouts?

How fucking hard is this for anyone to understand?

How can I dumb it down more for you?

How many people do you think you could explain this very simple FACT too?


When do you think would be a good time to let people know this?

Never mind Baby Boomers! I know you are just trying to sneak out without having to pick up this for shit bar tab the rest of us are saddled with!

But you younger people that will have to live this fucking nightmare going forward for a good long while should take a GREAT! Amount of interest in the facts that have been dumbed down and sourced and sited for even the most simplistic of mentalities to be able to grasp, easily.



Clip and Paste!

And then send it to everyone you know in your email box.. it is like you have to click the mouse 5 or 10 times total to educate everyone you know.. and feel free to let the dumbasses that you are sending this to as well know how simple it is to educate everyone they know..

And maybe..

Just fucking maybe!

We will be able to stop getting RAPED by the Federal Reserve and Washington DC via the Wall Street Lobby!


Thanks for Playing Along!

Add your name here! _____________________



Sat, 12/10/2011 - 16:44 | 1966545 Global Hunter
Global Hunter's picture

At least it sounds really cool when I read it out loud in my hollywood German accent.  I don't know to say this in German, French, Italian or Romansh, please hurry up so I can see what life looks like after this great collapse and I can begin the next phase of life, survival.  

Sat, 12/10/2011 - 23:36 | 1967038 Al Gorerhythm
Al Gorerhythm's picture

A survival note.

The dollar that you have "saved" in a bank (using the international CB accepted fractional reserve hypotication ratio) has been rehypothicated 9 times over. Do you really own that dollar or does someone else have a claim to it? It now all depends on where you stand in the line, before your savings and loan or credit union or TBTF bullion bank goes bankrupt. You'll notice that the MF Global customers are now sitting in the cold, outside of the shearing shed, after they've been sheared. Released back to pasture. Bleating.

Don't join the herd.

Sun, 12/11/2011 - 09:15 | 1967367 jeff montanye
jeff montanye's picture

flock them.

Sun, 12/11/2011 - 12:28 | 1967510 s2man
s2man's picture

Yup.  Because of fractional reserve, he who runs on the bank first, runs best.

Mon, 12/12/2011 - 07:40 | 1969439 merizobeach
merizobeach's picture

sheeple vs. zheeple


Unlike it's domesticated cousin, the independent zheep is both somewhat literate and contemplative; it is also a much better 'sprinter' during bank-sponsored 'runs'.

Sat, 12/10/2011 - 16:55 | 1966565 yabyum
yabyum's picture

Why they pegged to the doomed Euro will always be a huge question for all of us.

Sat, 12/10/2011 - 16:55 | 1966566 SWRichmond
SWRichmond's picture

Not surprised here.  I still hold all of my CHF, I'm not as stupid as SNB must think.

Sat, 12/10/2011 - 22:41 | 1967055 Freebird
Freebird's picture

Does that come in English - did not see a language option..(?)

Sun, 12/11/2011 - 00:30 | 1967170 homme
homme's picture

Sometimes it has a problem with nuance and context but Google's translation usually works well enough:

Sat, 12/10/2011 - 23:03 | 1967077 Pitchman
Pitchman's picture

Jekyll isl. I think you have it.

Yet again we are exposed, the hard way, to the extent of manipulation the financial sector has gone to rig the game.  This City of London derived scheme has nothing to do with promoting organic growth and everything to do with extracting rents and transferring wealth.  What could be more blatant than putting your clients assets at risk for your personal gain.  It gives a new meaning to fiduciary responsibility.  And like all fascist manipulations; when things go wrong the people pay.  As for Corzine, this loophole will likely protect him in this case.

RE-HYPOTHECATION: Are Your Brokerage Accounts, Muni Bonds, Futures Contracts, Corporate Bonds... Safe?




Money Power And The Central Bank: Life Is But A MEME


”To the wicked, everything serves as pretext.” -Voltaire

 Trillions of CDS with nothing to back it

Europe's Voluntary Haircuts?, CDS Market Sham & B of A: Less Than Zero

MF Global is a fractal in a frying pan.

Sat, 12/10/2011 - 15:43 | 1966443 GiantVampireSqu...
GiantVampireSquid vs OWS UFC 2012's picture

Fuck me drunk.  These cunts have created a complicated way to take your money.  At the same time, by creating inflation, they force you to give them your hard earned money, which gives them the ability to steal it.  Buy fucking tangible assets, GTFO of paper.

Sat, 12/10/2011 - 15:54 | 1966457 Teamtc321
Teamtc321's picture

It does not look like it is just gld or slv, it is appearing like most brokerage account's use hypothecation. This some scary shit for all trader's to put it bluntly imo. Many have been checking there perspectus and saying there account's have verbing of hypothecation.   

Sat, 12/10/2011 - 16:15 | 1966499 Vint Slugs
Vint Slugs's picture

"It does not look like it is just gld or slv, it is appearing like most brokerage account's use hypothecation."

Correct.  The first thing to do if you have securities accounts with domestic US brokerage companies is to make sure that you instruct the broker that he may not loan your securities.   The second thing, assuming you're not in-and-out trading, is to take delivery of you stock certificates which you then put in a privately-owned vault -- keep no securities in "street name."

Sun, 12/11/2011 - 01:26 | 1967217 Mauibrad
Mauibrad's picture

@Vint Slugs re: "take delivery of you stock certificates which you then put in a privately-owned vault" 

Most brokerages now tell their customers that they don't offer delivery of stock certificates.  What you say?

Sat, 12/10/2011 - 17:27 | 1966618 DosZap
DosZap's picture


It does not look like it is just gld or slv, it is appearing like most brokerage account's use hypothecation.

Well, lets see just how many Intelligent traders,GLD/SLV participants there are after getting a whiff of the real truth.

If nothing changes,you got yer answer...........................

If these morons just PULLED out their fiat,these bitches would just collapse,until the point the OTB that run them, declared  BR, and hypothecated their Phyizzzzzzzzzzzzzzz.

Wonder how this would/could work, with GoldMoney, or PSLV/PHYS?.

Sat, 12/10/2011 - 17:51 | 1966661 ouchtouch
ouchtouch's picture

I think it would be more accurate to say that ALL margin brokerage accounts use re-hypothecation.  I have not seen any NON-margin account customer agreement that allows hypothecation, and there is no reason why they would.  I have confirmed with Vanguard that my non-margin accounts can't be re-hypothecated.

Sat, 12/10/2011 - 16:02 | 1966472 Ropingdown
Ropingdown's picture

And people laughed as if Kyle Bass was paranoid when he took physical delivery of gold.  So much glib talk is spouted in the financial tv/print press.  So many comments made by finance committee politicians have been revealed to be lies.  If Bass didn't take delivery, I'd consider him incompetent. 

Sun, 12/11/2011 - 01:19 | 1967212 Mauibrad
Mauibrad's picture

@Nobody special  With all this re-hypothecation and gold talk, it makes all the more sense why that supposedly "stupid Communist" Chavez recently realized Venezuela needed to take possession of it's gold, at least some of it.  Better take possession of the rest of it, or he'll never see it. 

Sat, 12/10/2011 - 14:52 | 1966356 Rossalgondamer
Rossalgondamer's picture

Good analysis -

but maybe add to your eulogy: a population that was still knowledgeable on the farm, in the wood, and at the forge.

Break fiat and the carrots for wagon wheel repair trade ends much of our clear and present danger. While at it - please unshackle me from FDIC type assurances given by a false daddy. Life's tough - but tougher with parasites.








Sat, 12/10/2011 - 16:16 | 1966357 Rossalgondamer
Rossalgondamer's picture









Sat, 12/10/2011 - 15:04 | 1966371 anonnn
anonnn's picture

My surprise, verb  hypothecate is in 1994 Webster's New World, in all its financial glory.

 Appears after hypothec, noun form,  "security or right given to a creditor over debtor's property w/o transfer of possession or title".

So re-hypothecate is appears to be typical use of financial clever strokes to move the boundaries and enable profitable chaos.


Sat, 12/10/2011 - 15:13 | 1966384 CIABS
CIABS's picture

tyler, if you can, please provide a downloadable (not scribd) pdf of "Are the Brokers Broken?".  thanks.

Sat, 12/10/2011 - 15:21 | 1966399 Manthong
Manthong's picture

It only takes a minute to set up a free Scribd account to download the .pdf.

Sat, 12/10/2011 - 16:04 | 1966478 Harbourcity
Harbourcity's picture

I checked into that and no luck.

Sat, 12/10/2011 - 17:08 | 1966586 Manthong
Manthong's picture

..maybe they changed. I set one up last year.

Sat, 12/10/2011 - 15:14 | 1966386 Jonathan E
Jonathan E's picture

Hipoteca == Mortgage (Spanish).

Sat, 12/10/2011 - 16:07 | 1966482 WmMcK
WmMcK's picture

The "inversa' (reverse) versions are often predatory instruments used to steal lifetime savings.  Unfortunately many of the brokers of these contracts are trusted because the have the same heritage as the clients. Of course this happens in many (minority?) subsectors of our (failing) economy.

Sat, 12/10/2011 - 16:10 | 1966486 MissCellany
MissCellany's picture


Like I just said...sounds like MERS...

Sat, 12/10/2011 - 17:46 | 1966652 FatFingered
FatFingered's picture

Whoa!  The missing 'notes' were not missing, they were re-re-re-re-hypothecated!  Scandalous!

Sat, 12/10/2011 - 16:09 | 1966485 MissCellany
MissCellany's picture

Sounds like MERS.

Sat, 12/10/2011 - 15:31 | 1966421 el Gallinazo
el Gallinazo's picture

Am I wrong?


Well it might require a little more study.  The earliest days of the Republic did in fact have a central bank.  In those days corporations had a limited life span dictated in their charters.  Andrew Jackson finally killed the central bank by preventing the renewal of its corporate charter, although it almost killed him first.  He was only saved by a double misfire of two flintlock pistols shoved in his belly.  If we had sixguns in the 1830's financial history would read differently.  In belated revenge, the Federal Reserve put his face on the $20 bill to remind his shade of their ultimate victory.  A fairly painless way to aquaint yourself with the role of central banking in the USA is Bill Still's The Money Masters downloaded for free from Google video.  All the central banks in the USA were puppets of the Bank of England.  J.P. Morgan was also a puppet of the Bank of England which wasn't really documented until his death when his will was made public.

Sat, 12/10/2011 - 15:56 | 1966458 Newsboy
Newsboy's picture

Nice historical context, El G.

(I sure miss getting to post on Automatic Earth...)

Sat, 12/10/2011 - 19:31 | 1966817 el Gallinazo
el Gallinazo's picture

Patience, Grasshopper.

Sat, 12/10/2011 - 15:40 | 1966441 Right-on Left-off
Right-on Left-off's picture

Am I wrong?

Nope!  Anytime there is centralization and a hierarchy to handle that situation .... you are talking a grand scheme for control and domination on a very broad scale.

You are also talking fertile ground for shadow systems and synthetic ignorance if you will (lies and obfuscation about the truth).

Sat, 12/10/2011 - 16:06 | 1966480 OttoMBMP
OttoMBMP's picture

But right in the intro abstract of Gorton/Metrick you can read:

"... which they maintain is a manifestationof an age-old problem with private money creation: banking panics."

Well, they are sponsored by a central bank....


Sun, 12/11/2011 - 07:09 | 1967323 Ghordius
Ghordius's picture

There are many arguments agaist Central Banking
IF you are not a bank, a government or a nation in deficit/overspending mode

Without the FED, it would be inpossible for the USA to spend half of the military expenses of this world, just so as a reminder...

So now the anti-EUR campaign is reaching the zenith while the "UK is the ugly butt of USUK" campaign begins. I expect a lot of articles about the way Soros attacked the Pound, the UnAmericanness of The City (vs blameless Wall Street), how the UK is a banker Island without other economy, etc. etc.

No idea yet how long the cycle would be, perhaps if Mr. King can induce more inflation Krugman will take him as a role model? Then we have the debate about how much which CB has really printed?

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