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Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences For The Eurozone, Canadian Banks, Jefferies And Everyone Else

Tyler Durden's picture


Reposting by popular demand, and because everyone has to understand the embedded risks in this market, courtesy of the shadow banking system.

In an oddly prescient turn of events, yesterday we penned a post titled "Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?" in which we explained how it was not only the repo market, but the far broader and massively unregulated shadow banking system in Europe that was becoming thoroughly unhinged, and was manifesting itself in a complete "lock up in interbank liquidity" and which, we speculated, is pressuring the Bundesbank, which is well aware of what is going on behind the scenes, to slowly back away from what will soon be an "apocalyptic" event (not our words... read on). Why was this prescient? Because today, Reuters' Christopher Elias has written the logical follow up analysis to our post, in which he explains in layman's terms not only how but why the lock up has occurred and will get far more acute, but also why the MF Global bankruptcy, much more than merely a one-off instance of "repo-to-maturity" of sovereign bonds gone horribly wrong is a symptom of two things: i) the lax London-based unregulated and unsupervised system which has allowed such unprecedented, leveraged monsters as AIG, Lehman and now as it turns out MF Global, to flourish until they end up imploding and threatening the world's entire financial system, and ii) an implicit construct embedded within the shadow banking model which permitted the heaping of leverage upon leverage upon leverage, probably more so than any structured finance product in the past (up to and including synthetic CDO cubeds), and certainly on par with the AIG cataclysm which saw $2.7 trillion of CDS notional sold with virtually zero margin. Simply said: when one truly digs in, MF Global exposes the 2011 equivalent of the 2008 AIG: virtually unlimited leverage via the shadow banking system, in which there are practically no hard assets backing the infinite layers of debt created above, and which when finally unwound, will create a cataclysmic collapse of all financial institutions, where every bank is daisy-chained to each other courtesy of multiple layers of "hypothecation, and re-hypothecation." In fact, it is a link so sinister it touches every corner of modern finance up to and including such supposedly "stable" institutions as Jefferies, which as it turns out has spent weeks defending itself, however against all the wrong things,  and Canadian banks, which as it also turns out, defended themselves against Zero Hedge allegations they may well be the next shoes to drop, as being strong and vibrant (and in fact just announced soaring profits and bonuses), yet which have all the same if not far greater risk factors as MF Global. Yet nobody has called them out on it. Until now.

But first, a detour to London...

As readers will recall, the actual office that blew up the world the first time around, was not even based in the US. It was a small office located on the top floor of 1 Curzon Street in London's Mayfair district, run by one Joe Cassano: the head of AIG Financial Products. The reason why this office of US-based AIG was in London, is so that Cassano could sell CDS as far away from the eye of Federal regulators as possible. Which he did. In fact he sold an unprecedented $2.7 trillion worth of CDS just before the firm collapsed due to one small glitch in the system - the assumption that home prices could go down as well as up. Yet the real question is why he sold so much CDS? The answer is simple - in a world of limited real assets, the only way to generate a practically limitless cash flow annuity would be to sell synthetic insurance on a virtually infinite amount of synthetic underlying. Which he did. Only when it came time to pay the claims, AIG blew up, forcing the government to bail it out, and set off the chain of events where we find ourselves now, where every day could be the developed world's last if not for the ongoing backstops, guarantees and bailouts of the central banking regime. 

What is greatly ironic is that in the aftermath of the AIG collapse, the UK was shamed into admitting that it was its own loose, lax and unregulated system that allowed such unsupervised insanity to continue for as long as it did. As the Telegraph reminds us, "Conservative Party Treasury spokesman Philip Hammond called for a public inquiry into the FSA’s oversight of AIG Financial Products in Mayfair. “We must not allow London to become a bolthole for companies looking for a place to conduct questionable activities,” he said. “This sounds like a monumental cock-up by the FSA,” said Lib Dem shadow chancellor Vince Cable. “It is deeply ironic,” he added, that Brown was in Brussels last week calling for tougher global financial regulation just as the scandal over the FSA’s role in one of the key regulatory failures at the root of the global panic emerged as an international issue." It is ironic because the trail in the MF Global collapse, where it is yet another infinitely leveragable product that once again comes to the fore, once again goes straight to that hub for "questionable activities" - London.

But before we explain why London is once again to blame for what was not only the immediate reason of the MF Global collapse, but could well precipitate the next global collapse, a quick look at rehypothecation.

As Reuters points out, it was not so much the act of creating "repos-to-maturity" that imperiled MF Global, but what is a secret gold mine for those privy to it - the process of re-hypothecation of collateral.

[h]ypothecation is when a borrower pledges collateral to secure a debt. The borrower retains ownership of the collateral but is “hypothetically” controlled by the creditor, who has a right to seize possession if the borrower defaults.


In the U.S., this legal right takes the form of a lien and in the UK generally in the form of a legal charge. A simple example of a hypothecation is a mortgage, in which a borrower legally owns the home, but the bank holds a right to take possession of the property if the borrower should default.


In investment banking, assets deposited with a broker will be hypothecated such that a broker may sell securities if an investor fails to keep up credit payments or if the securities drop in value and the investor fails to respond to a margin call (a request for more capital).


Re-hypothecation occurs when a bank or broker re-uses collateral posted by clients, such as hedge funds, to back the broker’s own trades and borrowings. The practice of re-hypothecation runs into the trillions of dollars and is perfectly legal. It is justified by brokers on the basis that it is a capital efficient way of financing their operations much to the chagrin of hedge funds.

So far so good, assuming there was regulation, and assuming if regulation failed, that the firms that blew up as a result of their greed would truly blow up, instead of being resurrected as TBTF zombies by a government in dire need of rent collection and lobby cash (because with or without regulation, if those who fail are not allowed to fail, then the whole point of capitalism is moot). But... there is always a snag.

Under the U.S. Federal Reserve Board's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client's liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.


But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500).


This asymmetry of rules makes exploiting the more lax UK regime incredibly attractive to international brokerage firms such as MF Global or Lehman Brothers which can use European subsidiaries to create pools of funding for their U.S. operations, without the bother of complying with U.S. restrictions.


In fact, by 2007, re-hypothecation had grown so large that it accounted for half of the activity of the shadow banking system. Prior to Lehman Brothers collapse, the International Monetary Fund (IMF) calculated that U.S. banks were receiving $4 trillion worth of funding by re-hypothecation, much of which was sourced from the UK. With assets being re-hypothecated many times over (known as “churn”), the original collateral being used may have been as little as $1 trillion – a quarter of the financial footprint created through re-hypothecation.

So let's see: a Prime Broker taking posted collateral, then using the same collateral as an instrument for hypothecation with a net haircut, then repeating the process again, and again... Ring a bell? If you said "fractional reserve lending" - ding ding ding. In essence what re-hypothecation, and subsequent levels thereof, especially once in the shadow banking realm, allows Prime Brokers is to become de facto banks only completely unregulated and using synthetic assets as collateral. Curiously enough it was earlier today that we also penned "ECB Confirms Shadow Banking System In Europe In Tatters" in which we explained that since ECB has to expand the eligible collateral it will accept, there is no real collateral left, meaning the re-hypothecation process in Europe has experienced terminal failure.  Yet the kicker is that the "safety haircut" only occurs in the US. Not in the UK. And therein lies the rub. In the UK, the epic failure of supervision has allowed banks to become de facto monsters of infinite shadow banking fractional reserve leverage - every bank's wet dream! Naturally, Prime Brokers have known all about this which explains the quiet desire to conduct re-hypothecation out of London-based offices for every US-based (and Canadian) bank. Reuters explains:

Keen to get in on the action, U.S. prime brokers have been making judicious use of European subsidiaries. Because re-hypothecation is so profitable for prime brokers, many prime brokerage agreements provide for a U.S. client’s assets to be transferred to the prime broker’s UK subsidiary to circumvent U.S. rehypothecation rules.


Under subtle brokerage contractual provisions, U.S. investors can find that their assets vanish from the U.S. and appear instead in the UK, despite contact with an ostensibly American organisation.


Potentially as simple as having MF Global UK Limited, an English subsidiary, enter into a prime brokerage agreement with a customer, a U.S. based prime broker can immediately take advantage of the UK’s unrestricted re-hypothecation rules.

While we already mentioned AIG as an example of the lax UK-based regulatory regime, it is another failed bank that is perhaps the best example of levered failure but in the specific re-hypothecation context: Lehman Brothers itself.

This is exactly what Lehman Brothers did through Lehman Brothers International (Europe) (LBIE), an English subsidiary to which most U.S. hedge fund assets were transferred. Once transferred to the UK based company, assets were re-hypothecated many times over, meaning that when the debt carousel stopped, and Lehman Brothers collapsed, many U.S. funds found that their assets had simply vanished.


A prime broker need not even require that an investor (eg hedge fund) sign all agreements with a European subsidiary to take advantage of the loophole. In fact, in Lehman’s case many funds signed a prime brokerage agreement with Lehman Brothers Inc (a U.S. company) but margin-lending agreements and securities-lending agreements with LBIE in the UK (normally conducted under a Global Master Securities Lending Agreement).


These agreements permitted Lehman to transfer client assets between various affiliates without the fund’s express consent, despite the fact that the main agreement had been under U.S. law. As a result of these peripheral agreements, all or most of its clients’ assets found their way down to LBIE.

And now we get back to the topic at hand: MF Global, why and how it did precisely what Lehman did back then, why it did this in London, and why its failure is a symptom of something far more terrifying than merely investing money in collapsing PIIGS bonds.

MF Global’s Customer Agreement for trading in cash commodities, commodity futures, security futures, options, and forward contracts, securities, foreign futures and options and currencies includes the following clause:


     “7. Consent To Loan Or Pledge  You hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements [repos] or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.”


In its quarterly report, MF Global disclosed that by June 2011 it had repledged (re-hypothecated) $70 million, including securities received under resale agreements. With these transactions taking place off-balance sheet it is difficult to pin down the exact entity which was used to re-hypothecate such large sums of money but regulatory filings and letters from MF Global’s administrators contain some clues.


According to a letter from KPMG to MF Global clients, when MF Global collapsed, its UK subsidiary MF Global UK Limited had over 10,000 accounts. MF Global disclosed in March 2011 that it had significant credit risk from its European subsidiary from “counterparties with whom we place both our own funds or securities and those of our clients”.

It gets even worse when one considers that over the years the actual quality of good collateral declined, meaning worse and worse collateral was to be pledged in these potentially infinite recursive loops of shadow banking fractional reserve lending:

Despite the fact that there may only be a quarter of the collateral in the world to back these transactions, successive U.S. governments have softened the requirements for what can back a re-hypothecation transaction.


Beginning with Clinton-era liberalisation, rules were eased that had until 2000 limited the use of re-hypothecated funds to U.S. Treasury, state and municipal obligations. These rules were slowly cut away (from 2000-2005) so that customer money could be used to enter into repurchase agreements (repos), buy foreign bonds, money market funds and other assorted securities.


Hence, when MF Global conceived of its Eurozone repo ruse, client funds were waiting to be plundered for investment in AA rated European sovereign debt, despite the fact that many of its hedge fund clients may have been betting against the performance of those very same bonds.

At this point flashing red lights should be going though the head of anyone who lived through the AIG cataclysm: in effect the rehypothecation scenario affords the same amount of leverage, and potentially even less supervision that the CDS market. Said otherwise, the counteparty risk of daisy chaining defaults is on par with that in the case of AIG.

As well as collateral risk, re-hypothecation creates significant counterparty risk and its off-balance sheet treatment contains many hidden nasties. Even without circumventing U.S. limits on re-hypothecation, the off-balance sheet treatment means that the amount of leverage (gearing) and systemic risk created in the system by re-hypothecation is staggering.


Re-hypothecation transactions are off-balance sheet and are therefore unrestricted by balance sheet controls. Whereas on balance sheet transactions necessitate only appearing as an asset/liability on one bank’s balance sheet and not another, off-balance sheet transactions can, and frequently do, appear on multiple banks’ financial statements. What this creates is chains of counterparty risk, where multiple re-hypothecation borrowers use the same collateral over and over again. Essentially, it is a chain of debt obligations that is only as strong as its weakest link.

And the kicker:

With collateral being re-hypothecated to a factor of four (according to IMF estimates), the actual capital backing banks re-hypothecation transactions may be as little as 25%. This churning of collateral means that re-hypothecation transactions have been creating enormous amounts of liquidity, much of which has no real asset backing.

It turns out the next AIG was among us all along, only because it was hidden deep in the bowels of the unmentionable shadow banking system, out of sight (by definition) meant out of mind. Only it was not: and at last check there was $15 trillion in the shadow banking system in the US alone, where the daisy chaining of counteparty risk meant that any liquidity risk flare up would mean the AIG bankruptcy was not even a dress rehearsal for the grand finale.

But where does one look for the next AIG? Who would be stupid enough to disclose the fact that they have essentially the same risk on their off-balance sheet books as AIG had on its normal books? Once again, we turn to Reuters:

The lack of balance sheet recognition of re-hypothecation was noted in Jefferies’ recent 10Q (emphasis added):


    “Note 7. Collateralized Transactions
    We pledge securities in connection with repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. The pledge of our securities is in connection with our mortgage?backed securities, corporate bond, government and agency securities and equities businesses. Counterparties generally have the right to sell or repledge the collateral.Pledged securities that can be sold or repledged by the counterparty are included within Financial instruments owned and noted as Securities pledged on our Consolidated Statements of Financial Condition. We receive securities as collateral in connection with resale agreements, securities borrowings and customer margin loans. In many instances, we are permitted by contract or custom to rehypothecate securities received as collateral. These securities maybe used to secure repurchase agreements, enter into security lending or derivative transactions or cover short positions. At August 31, 2011 and November 30, 2010, the approximate fair value of securities received as collateral by us that may be sold or repledged was approximately $25.9 billion and $22.3 billion, respectively. At August 31, 2011 and November 30, 2010, a substantial portion of the securities received by us had been sold or repledged.

    We engage in securities for securities transactions in which we are the borrower of securities and provide other securities as collateral rather than cash. As no cash is provided under these types of transactions, we, as borrower, treat these as noncash transactions and do not recognize assets or liabilities on the Consolidated Statements of Financial Condition. The securities pledged as collateral under these transactions are included within the total amount of Financial instruments owned and noted as Securities pledged on our Consolidated Statements of Financial Condition.


According to Jefferies’ most recent Annual Report it had re-hypothecated $22.3 billion (in fair value) of assets in 2011 including government debt, asset backed securities, derivatives and corporate equity- that’s just $15 billion shy of Jefferies total on balance sheet assets of $37 billion.

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. One wonders: will Sean Egan downgrade you for this latest transgression as well? All the better for Leucadia though: one more million shares that Dick Handler can sell to Ian Cumming.

Yet Jefferies is just the beginning. It gets much, much worse.

With weak collateral rules and a level of leverage that would make Archimedes tremble, firms have been piling into re-hypothecation activity with startling abandon. A review of filings reveals a staggering level of activity in what may be the world’s largest ever credit bubble.


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).

And people were wondering why looking through the balance sheet of Canadian banks revealed no alert signals. It is because all the exposure was off the books! Hundreds of billions of dollars worth. As for JPM and MS amounting to nearly a trillion in rehypothecation... well, we are confident the market will be delighted to start pricing that particular fat-tail risk as soon as tomorrow.

Yet it is Reuters' conclusion that strikes home, and is identical to what we said last night about the liquidity lock up in Europe and what it means for the shadow banking system, although from the perspective of an inverted cause and effect:

The volume and level of re-hypothecation suggests a frightening alternative hypothesis for the current liquidity crisis being experienced by banks and for why regulators around the world decided to step in to prop up the markets recently. 

That's precisely right: the shadow banking system, so aptly named because its death rattle can never be seen out in the open, is slowly dying. As noted yesterday. But lest we be accused of hyperventilating, this time we will leave a respected, non-fringe media to bring out the big adjective guns:

To date, reports have been focused on how Eurozone default concerns were provoking fear in the markets and causing liquidity to dry up....Most have been focused on how a Eurozone default would result in huge losses in Eurozone bonds being felt across the world’s banks. However, re-hypothecation suggests an even greater fear. Considering that re-hypothecation may have increased the financial footprint of Eurozone bonds by at least four fold then a Eurozone sovereign default could be apocalyptic.


U.S. banks direct holding of sovereign debt is hardly negligible. According to the Bank for International Settlements (BIS), U.S. banks hold $181 billion in the sovereign debt of Greece, Ireland, Italy, Portugal and Spain. If we factor in off-balance sheet transactions such as re-hypothecations and repos, then the picture becomes frightening.

And there you have it: in this world where distraction and diversion often times is the only name of the game, while banks were pretending to have issues with their traditional liabilities, it was really the shadow liabilities where the true terrors were accumulating. Because in what has become a veritable daisy chain of linked shadow exposure, we are now back where we started with the AIG collapse, only this time the regime is decentralized, without the need for a focal, AIG-type center. What this means is that the collapse of the weakest link in the daisy-chain sets off a house of cards that eventually will crash even the biggest entity due to exponentially soaring counterparty risk: an escalation best comparable to an avalanche - where one simple snowflake can result in a deadly tsunami of snow that wipes out everything in its path. Only this time it is not something as innocuous as snow: it is the compounded effect of trillions and trillions of insolvent banks all collapsing at the same time, and wiping out the developed world and the associated 150 years of the welfare state as we know it.

In this light, it makes far more sense why, as we suggested yesterday, the sanest central bank in Europe, the German Bundesbank, is quietly making stealthy preparations to get the hell out of Dodge, as it realizes all too well, that the snowflake has arrived: MF Global's bankruptcy has already set off a chain of events which not even all the world's central banks can halt. Which is ironic for the Buba - what it is doing is "too little too late." But at least it is taking proactive steps. For all the other central banks in the Eurozone, and soon the world, unfortunately the deer in headlights image is the only applicable one. And all because of unbridled greed, bribed and corrupt regulators sleeping at their job, and governments which encourage the TBTF modus operandi as the only fall back one, which in turn gave banks a carte blanche to take essentially unlimited risk.

We are all about to suffer the consequences of all three.


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Thu, 12/08/2011 - 00:33 | 1957274 StormShadow
StormShadow's picture

Hmmm...time to build up a few more ARs and load some more cartridges. It's gonna get interesting real soon. God help us all

Thu, 12/08/2011 - 02:12 | 1957493 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Damn it I just drank the last of my beer.

Thu, 12/08/2011 - 00:34 | 1957277 bill1102inf
bill1102inf's picture

Canadian Real Estate is FUCKED, let me be the first to say "I TOLD YOU SO BITCHEZZ"

Thu, 12/08/2011 - 00:40 | 1957295 High Plains Drifter
High Plains Drifter's picture

but but still have sprott..........

Thu, 12/08/2011 - 01:06 | 1957357 Ahmeexnal
Ahmeexnal's picture

Yes, some of us knew a while back Canadian real estate was a ticking time bomb.

Yet idiots like the archduke kept trolling about BC as the the place to buy land.

Haven't heard from his trolling in a while.

Thu, 12/08/2011 - 01:12 | 1957373 Lore
Lore's picture

I can confirm that. Several BC bubble centers are tanking.

Wed, 12/14/2011 - 19:50 | 1981063 Archduke
Archduke's picture

I hope you're not refering to me, cause if so you're a libelous lying fucktard.

I've said no such thing.  here have a look:

Thu, 12/08/2011 - 05:51 | 1957691 Sandmann
Sandmann's picture

but it is so much better than leaving your money in China.......the Canadians are much nicer Communists !

Thu, 12/08/2011 - 00:34 | 1957278 High Plains Drifter
High Plains Drifter's picture

oh if it was as easy as a mere default.........but they can't do it and there is a good reason for that........i wonder if the europeans understand what is going on there and here etc.  sounds to me like the 2 month vacation yearly thingy is about over for one thing, not to mention the comfy retirement packages.......etc.....

Thu, 12/08/2011 - 01:15 | 1957377 Ahmeexnal
Ahmeexnal's picture

Never mind the 2 month vacation.

They will get an unexpected early retirement....from life.

Thu, 12/08/2011 - 00:36 | 1957285 Madcow
Madcow's picture

10,000 tickets have been sold - for a flight with just 100 seats. 


Thu, 12/08/2011 - 00:42 | 1957300 High Plains Drifter
High Plains Drifter's picture

ah, so when there is a hiccup in the mailout of government checks, do you think all of those north africans and turks  , libyans and arabs ,etc are going to be happy sitting in their government controlled section 8 housing , with nothing to do or eat?   

Thu, 12/08/2011 - 00:53 | 1957324 Potemkin Villag...
Potemkin Village Idiot's picture

Do bags fly free?

Thu, 12/08/2011 - 01:35 | 1957423 tictawk
tictawk's picture

no there are only 10 seats

Fri, 12/09/2011 - 00:25 | 1961849 pettolicious
pettolicious's picture

And no refunds, in fact, they've already allocated your fare into the bonus pool.   Thank you for frequenting Banksta Air.

Thu, 12/08/2011 - 00:37 | 1957288 Bansters-in-my-...
Bansters-in-my- feces's picture

"Cataclysmic collapse" Bithcez...!!! Allright...

They all be needing some liqsqiddity,

Thu, 12/08/2011 - 00:43 | 1957302 High Plains Drifter
High Plains Drifter's picture

will that mean that nato runs out of money?

Thu, 12/08/2011 - 00:38 | 1957291 beenburnedtwice
beenburnedtwice's picture

One of the more awe inspiring posts I've read on ZH in almost two years.   There's strange solace in the enlightenment.

Thu, 12/08/2011 - 00:44 | 1957306 High Plains Drifter
High Plains Drifter's picture

yes , it was . very enligtening and everyone in amerika should read it and ponder what it means...

Thu, 12/08/2011 - 01:34 | 1957419 Terminus C
Terminus C's picture

Hahahaha, 95% of America (or any 'developed' nation for that matter) would not understand anything past the first sentence.

Thu, 12/08/2011 - 01:38 | 1957431 Sockeye
Sockeye's picture

I have to agree.

Thu, 12/08/2011 - 01:46 | 1957446 HyperLazy
HyperLazy's picture

I am jumping in to say, I concur.

Thu, 12/08/2011 - 00:44 | 1957304 DormRoom
DormRoom's picture

omfg.. I just puked.. If rehypothecation allows primary dealers, and large institutions to effectively create 'synthetic' liquidity, we are soooooooooooooooooooooooo fucked.


Since it's 'synthetic liqudity' a collapse to real valuation would most likely be in a discrete gap.  Re-pricing could wipe hundreds of trillions of notional value in seconds. 


Bahahahah.. how the fuck do you money managers sleep at night.

Thu, 12/08/2011 - 00:45 | 1957308 High Plains Drifter
High Plains Drifter's picture

in cramerica there always is a market somewhere , so no, they don't sleep much........

Thu, 12/08/2011 - 01:12 | 1957372 palmereldritch
palmereldritch's picture's the new thermite!

Thu, 12/08/2011 - 00:45 | 1957307 Eireann go Brach
Eireann go Brach's picture

How has that fucking parasite Jon Corzine not been beaten in public over the past month? US citizens should be given a Free Corzine pass, which allows citizens to have one free punch, whack with a bat, or kick in the nuts at Jon Corzine himself, if you happen to see him anywhere in

Thu, 12/08/2011 - 00:46 | 1957311 High Plains Drifter
High Plains Drifter's picture

did you read the regs?   he technically did nothing wrong. when he took money out of individual accounts. 

Thu, 12/08/2011 - 03:08 | 1957580 Kiwi Pete
Kiwi Pete's picture

Spot on. It's not theft if you signed away your collateral. I wonder how many clients realised what it actually means. Just bizinez!

Thu, 12/08/2011 - 01:28 | 1957406 azusgm
azusgm's picture

Has anyone seen him during that last month or so?

Thu, 12/08/2011 - 00:45 | 1957309 Yen Cross
Yen Cross's picture

I like that revolver idea, Tyler. I'll catch ya in late Europe.

Thu, 12/08/2011 - 00:45 | 1957310 Frank Owen
Frank Owen's picture

Articles should proof read before posting, not after. Too often I read an article on here and don't forward it because of spelling mistakes.

Thu, 12/08/2011 - 00:47 | 1957315 Tyler Durden
Tyler Durden's picture

Then don't forward it. Or perhaps you are one of those people who unfollows someone on Twitter but not before telling everyone you are unfollowing them?

The truth is nobody cares. Feel free to forward... or don't.

If you think grammar in this case is more important than the message then by all means go read a dictionary before bedtime.

Thu, 12/08/2011 - 00:54 | 1957327 samsara
samsara's picture

Bam,  Down

Thu, 12/08/2011 - 08:51 | 1957853 Barbarous Relic
Barbarous Relic's picture

Without exaggeration, this is the most eye-opening article I've read in my life.  

Looking forward to reading all the ass-covering 'we're ultra-conservative' statements by the banks, brokers, etc. - looks like IB got an early start.  Liquidity my ass, I'm more concerned with return-OF-capital than a bit of extra market liquidity.  Anyway, liquidity is just broker-speak for 'bigger bonus for me'.  

I'm transferring all my positions to a non-margin 'cash' account but I'm sure my broker will find a loophole and rehypothecate them from there, even though they pinky-swear they won't.  

This is the closest I've been to saying fuck it and piling everything into land and gold.

Thu, 12/08/2011 - 00:57 | 1957336 Potemkin Villag...
Potemkin Village Idiot's picture

He fancies himself as 'Doc Holliday'...

Thu, 12/08/2011 - 01:04 | 1957349 Frank Owen
Frank Owen's picture

I don't follow anyone on twitter. I've followed this blog for ages and am truly amazed you are defending sloppiness and basic spelling mistakes.

I point it out because I want to be proud of you, not read "unchanied" and grimace.

Thu, 12/08/2011 - 01:14 | 1957376 wretch
wretch's picture

Fuck you, Frank.

Thu, 12/08/2011 - 01:22 | 1957394 Frank Owen
Frank Owen's picture

Thanks, you wretched bag-licker. Sheep converted to bag-lickers... Interesting.

Thu, 12/08/2011 - 03:51 | 1957615 saulysw
saulysw's picture

Frank has a fair point. It doesn't take much to spell check. A top site like this should do it as a matter of course.

Thu, 12/08/2011 - 09:56 | 1958050 Ruffcut
Ruffcut's picture

FO, is frustrated because he still can't figure out how to tie his dick into a knot.

Thu, 12/08/2011 - 19:15 | 1961083 terryfuckwit
terryfuckwit's picture

all the cooel guys an jels mispelting is cultural ant to be encuoraged

Thu, 12/08/2011 - 02:20 | 1957505 Zadok
Zadok's picture

Perhaps he would prefer charts and illusions of grandeur or at least illusions of control?

Thu, 12/08/2011 - 00:57 | 1957335 Joseph Jones
Joseph Jones's picture


Thu, 12/08/2011 - 00:58 | 1957337 Seasmoke
Seasmoke's picture

i du nott agree witj yoou

Thu, 12/08/2011 - 01:10 | 1957368 Frank Owen
Frank Owen's picture

Good, sub-mitt an article. It will probably be axecepted.

Thu, 12/08/2011 - 01:44 | 1957441 Eireann go Brach
Eireann go Brach's picture

Frank...yur 350 pound sweaty fatt disgusting wife wuz gang banged by a donkey, a horse and a goat in a treveling circus before she met ur pathetic self! Can u make sure to proof read this for me?

Thu, 12/08/2011 - 01:53 | 1957460 Frank Owen
Frank Owen's picture

Good job Tyler, your followers have come full circle.

Thu, 12/08/2011 - 06:20 | 1957710 LeZinc
LeZinc's picture

I can't believe grammar ticks you so much when the message itself bears a death sentense for so many.

I wish you lots of good grammar to eat in the coming years.

Thu, 12/08/2011 - 23:43 | 1961756 Almost Solvent
Almost Solvent's picture

Like, umm, you know what I'm saying, right?

Thu, 12/08/2011 - 02:10 | 1957491 New World Chaos
New World Chaos's picture

You left out the word "be" before "proof read".

Thu, 12/08/2011 - 02:15 | 1957498 LarryDavis
LarryDavis's picture

Maybe Zero Hedge should hire some copy readers so dipshits like you feel better about forwarding. Are your friends linguists? How many phenomes are in the phrase "lick the interior of my penis"? White people....

Fri, 12/09/2011 - 07:58 | 1962221 Pope Clement
Pope Clement's picture

WTF is a phenome?

Thu, 12/08/2011 - 03:34 | 1957603 NoClueSneaker
NoClueSneaker's picture


Thu, 12/08/2011 - 00:47 | 1957312 azusgm
azusgm's picture

Closed my IRA brokerage account yesterday. Paid the 10% premature distribution penalty and will have to pay the ordinary income taxes. Whatever.

Hope the check gets here soon so I can cash the sucker and put the proceeds into something productive or at least tangible before this thing blows. If there is no dramatic event, at least I have more IRA and Roth IRA money at the credit union. As is, I am out of the market and this small aliquot of capital will be beyond any IRA rules. Thank God (with a capital "G").

Thu, 12/08/2011 - 01:53 | 1957459 bob_dabolina
bob_dabolina's picture

What if Ben prints and the stock market goes up? 

Check Zimbabwe stock market.

Thu, 12/08/2011 - 02:40 | 1957540 azusgm
azusgm's picture

What if the brokerage blows?

The way I see it, there are asset-strippers milling about. So far, they have met little resistance from the regulators or from law enforcement. I'll just leave the sandbox, thank you, and take my toys with me.

Surely there is some productive use for my piddly little bit of moron retail cash.

Thu, 12/08/2011 - 00:47 | 1957313 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

When the president rode into the white house promising change, he meant all the people would be left with was "change".  As in a few coins jangling around.

Thu, 12/08/2011 - 01:04 | 1957352 CompassionateFascist
CompassionateFascist's picture

Let them be future coin of the realm: Silver Eagles. What every gun-toting farmer is going to want for some grocs.  

Thu, 12/08/2011 - 01:15 | 1957379 High Plains Drifter
High Plains Drifter's picture

when we use silver coins to buy stuff from farmers do you think they would get pissed off if we checked the farm area for radioactive fallout?  just sayin........

Thu, 12/08/2011 - 01:32 | 1957408 CompassionateFascist
CompassionateFascist's picture

Ann Coulter sez radiation (in moderate amounts) is good for U, and I believe it. We won't need to buy any more light bulbs. In any case, we won't have much choice. Just getting from the house to the "store" is going to be an adventure, and will best be done in well-armed groups. It is interesting, and I think just, that the people who come out on top after all this are going to be the - endlessly screwed 'til now - individual farmers.

Thu, 12/08/2011 - 01:33 | 1957415 azusgm
azusgm's picture

If it gets bad enough, glow in the dark food will become a favorite for good eatin'.

Thu, 12/08/2011 - 03:27 | 1957596 vast-dom
vast-dom's picture

I Have A Very Special Life Tip For You. The Symbol Is A-P-O-C-A-L-Y-P-S-E

Thu, 12/08/2011 - 01:46 | 1957445 pvzh
pvzh's picture

trillion dollar coins of change, mind you.

Thu, 12/08/2011 - 00:49 | 1957320 kito
kito's picture

Canadian BACon--best served fried....

Thu, 12/08/2011 - 00:55 | 1957329 Seasmoke
Seasmoke's picture

i am looking forward to tomorrow and seeing Corzine in public

Thu, 12/08/2011 - 00:55 | 1957330 imapopulistnow
imapopulistnow's picture

As of

Thu, 12/08/2011 - 01:09 | 1957367 beenburnedtwice
beenburnedtwice's picture

It would appear that the time is now.  The instability presented in the shadow banking system is mindblowing.


Thu, 12/08/2011 - 01:41 | 1957434 Sockeye
Sockeye's picture

It is time.

Thu, 12/08/2011 - 00:55 | 1957331 bankonthebust
bankonthebust's picture

The masses will ignore. Markets will surge on rumors that Germany will save the world... Just follow the script people.

Thu, 12/08/2011 - 00:58 | 1957341 Legolas
Legolas's picture

Wow, Tyler, that was an incredible read!  Thanks for the lesson.  I really appreciate your analogies and explanations. 

Thu, 12/08/2011 - 01:20 | 1957387 tom a taxpayer
tom a taxpayer's picture

Tyler - Exceptional analysis. Thank you for the heads up. Your post on hypothecation is one of the all-time classics on Zero Hedge.

Horror movie: "Honey, we've been re-hypothecated!"

Thu, 12/08/2011 - 01:03 | 1957345 Meremortal
Meremortal's picture

When I left another spot to head over here I posted that I was off to see if I should short the planet when the market opens in the morning.


Thu, 12/08/2011 - 01:04 | 1957351 Lore
Lore's picture

"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)....And people were wondering why looking through the balance sheet of Canadian banks revealed no alert signals. It is because all the exposure was off the books! Hundreds of billions of dollars worth."

In and of themselves, the numbers seem shocking but not apocalyptic. But then, these are only ESTIMATES, and we still don't know how deep the hole goes...

It seems that Canucks will not be spared the task of bending over and picking up the Austerity soap...

Thu, 12/08/2011 - 02:36 | 1957535 Caviar Emptor
Caviar Emptor's picture

You don't get it. Every time a Trillion blows up the real cost is the follow-on damage to the real economy. First through the anti-competitive process of propping up and rewarding failure. THen through transference of the bill for that failure to the public (taxpayer). Finally through incipient monetary expansion required to cover it which creates inflation. The ultimate expression of all of that is in biflation, where you have debt-deflation and inflationary forces working synergistically to erode the real economy

Thu, 12/08/2011 - 01:04 | 1957353 zorba THE GREEK
zorba THE GREEK's picture

The Black Swan has arrived and it is far larger than anyone ever imagined.

No wonder Bernanke's lip quivers. And to think I was worried about CDSs.

I'm taking all my $ out of the bank tomorrow. Next week, I cash out my

retirement fund at Merrill Lynch. January 2, I start looking seriously for a

nice, secluded house in the mountains. The time to act has come and those

who dally may not survive.

Thu, 12/08/2011 - 02:18 | 1957501 New World Chaos
New World Chaos's picture

Wait a month to cash out your retirement fund and you won't have to pay tax until April 2013.  By then the dollar will be worthless and the whole country will be in flames.

Thu, 12/08/2011 - 01:05 | 1957354 sasebo
sasebo's picture

Sure beats working at a job to produce something worthwhile & consumable.

Thu, 12/08/2011 - 01:08 | 1957361 holdbuysell
holdbuysell's picture

Ho. Ly. Shit.

Tour de force on that one, Tyler.

Thu, 12/08/2011 - 01:11 | 1957362 CompassionateFascist
CompassionateFascist's picture

Interesting. But I still believe that, so long as the dollar remains (more or less) the Reserve Currency, Shalom Ben will cleverly manuver us between Scylla and Charbydis (sp.)....until the Iran War begins. Then: put your head between your legs, and kiss your ass goodbye.

Thu, 12/08/2011 - 01:09 | 1957363 Ecoman11
Thu, 12/08/2011 - 01:16 | 1957380 CompassionateFascist
CompassionateFascist's picture

And the additional thought occurs: this TD is a profound subversive. Too many people are reading ZH. Power has gone to his head, the uncertainty principle is at work, and he is trying to CRASH THE SYSTEM RIGHT NOW. Please. Don't. I am not ready.

Thu, 12/08/2011 - 01:29 | 1957407 Lore
Lore's picture

Heaven forbid that someone should be upset by current events.

BAN any article that interferes with sleep!

Thu, 12/08/2011 - 01:53 | 1957430 CompassionateFascist
CompassionateFascist's picture

So I assume all who red-flagged me are "ready". Do you have any idea what is coming, given the seismic fractures - racial, economic, political, sectional - that lie just below the surface in the US? This is what's coming: @  Duck, you suckers.

Thu, 12/08/2011 - 06:18 | 1957709 UP Forester
UP Forester's picture

Not everybody lives in cities.  Some live on arable farmland, 4 hours from an Interstate, have stored food, PMs, and plenty of weapons and ammunition and neighbors to protect it.

If you're in a city, good luck.

Thu, 12/08/2011 - 21:41 | 1961441 Lore
Lore's picture

The people in that scene must churn through a hundred thousand rounds of ammunition. How long do you think THAT will last?

Thu, 12/08/2011 - 01:18 | 1957384 i be julia
i be julia's picture

Do I dare to eat a peach?

Thu, 12/08/2011 - 01:21 | 1957390 caerus
caerus's picture

we have lingered in the chambers of the sea
by sea-girls wreathed with seaweed red and brown
till human voices wake us, and we drown.

Thu, 12/08/2011 - 01:35 | 1957422 tom a taxpayer
tom a taxpayer's picture

I should have been a pair of ragged claws

Scuttling across the floors of silent seas.

Thu, 12/08/2011 - 01:20 | 1957386 Ineverslice
Ineverslice's picture


Thu, 12/08/2011 - 01:23 | 1957396 chump666
chump666's picture

ZH you just topped it.  Amazing stuff.


Thu, 12/08/2011 - 01:25 | 1957400 ElvisDog
ElvisDog's picture

and wiping out the developed world and the associated 150 years of the welfare state as we know it

I say "Bring it on". I hate our current society and system. Bring it down. Bring it down.

Thu, 12/08/2011 - 01:25 | 1957401 sunny
sunny's picture

This answers a fundamental question for me:  just how will the world end?  Now I know.  If this article is as much as 1/10th correct in the analysis, the best advise is to fasten your seat belts, it's gonna be a wild ride.


Thu, 12/08/2011 - 01:33 | 1957416 caerus
caerus's picture

the earth will be swallowed by the red giant sun

Thu, 12/08/2011 - 01:46 | 1957447 WonderDawg
WonderDawg's picture

You're feeling kind of cryptic tonight, eh, Caerus? Can't blame you, after reading that post. Shit will be getting very real, very soon, I'm afraid.

Thu, 12/08/2011 - 01:50 | 1957453 jomama
Thu, 12/08/2011 - 01:27 | 1957404 Cult_of_Reason
Cult_of_Reason's picture

Holy shit!

Now it explains as to why Geithner shitted his pants in Europe after Merkel told him "Nein Nein Nein" (and she was not talking about Herman Cain).

Thu, 12/08/2011 - 06:27 | 1957716 LeZinc
LeZinc's picture


I got a good laugh at your jeu de mot. And believe me, I needed one.

Thu, 12/08/2011 - 01:30 | 1957409 lotusblue
lotusblue's picture

Tyler-you've done it again.This piece more depthful then any in darkest days of 2007-2010.

Thank you.Even if you're a pod Tyler.Where's Marla?I miss her music casts.

This piece is shaking Lonon,NY and DC tonight.

All we can hope for now is Jubilee.

Be careful.

Thu, 12/08/2011 - 01:47 | 1957449 jomama
jomama's picture

yes, let's hope for jubilee with no accountability! wait...

Thu, 12/08/2011 - 01:36 | 1957420 bob_dabolina
bob_dabolina's picture

Snooki is on in 12 hours

Stop bitchin. You're like my GF always worried about somthing.

Thu, 12/08/2011 - 01:41 | 1957435 AndrewCostello
AndrewCostello's picture

The entire world is based on a fantasy, and pretty soon this is going to become obvious.  The elite are out to force everyone into debt by taking their real assets and replacing them with nothing but worthless paper.


Soon, they are going to crash the whole thing, and the world will never be the same again.


Thu, 12/08/2011 - 01:42 | 1957437 whoopsing
whoopsing's picture

does'nt anyone use lawyer's any more? Or more precisely,read the part of the contract when opening an acct with these guy's mean's that your money can be sent oversea's to a subsidiary never to be seen again? I mean,really, if you can't accept that risk,go somewhere else. Or conversly, if you DID'NT read the contract, or know the rule's,whose the dummy? You wanna play these game's, fine,but when it goes to shit bail your own ass out.

Thu, 12/08/2011 - 01:42 | 1957438 bankonzhongguo
bankonzhongguo's picture

Just remember that things did not have to turn out this way.

Congress, regulators, and the Fed all had enough information to kill Gramm Leach Bliley and reinsert Glass-Steagall. Before Lehman, they could have done it.

They didn't.  After LTCM, everyone knew what could happen if just one firm got ahead of the curve.

Not only did the TPTB not do anything, they doubled down, hit the accelerator and lied with every breath all these years.

I'm embarrassed to say I was once a banker.

You are going to have to make a choice when you meet these assholes in the future.

Are you going to stay quiet like a good sheep, or are you going to use their guts to grease the treads of our tanks?

Thu, 12/08/2011 - 01:44 | 1957443 jomama
jomama's picture

that's quite a pontification on hypothecation!

(i couldn't resist)

Thu, 12/08/2011 - 02:04 | 1957476 ClassicalLib17
ClassicalLib17's picture

Would someone kindly help me here with a question?  What was the original reason that they created this re-hypothecation procedure in the first place?  Please don't tell me it's to steal, because I have a bad right shoulder and I am a 57 year old not yet retired tradesman.  Just when I think that I am beginning to understand one of these articles it seems like there is a blank spot that I am unable to fill in.  Why do they have to employ so much leverage? I hope that doesn't sound stupid. Oh well.  Thank you   P.S.  I have logged a minimum of 4 hours a day on this site for the last 19 months.  I registered as a member about 14 months ago 

Thu, 12/08/2011 - 02:20 | 1957503 jomama
jomama's picture

someone can feel free to correct me if i err, but according to this article (within this piece) that TD posted above, it appears that MF global was able to leverage their clients funds using this legal? work-around.

from that article:




Under the U.S. Federal Reserve Board's Regulation T and SEC Rule 15c3-3, a prime broker may re-hypothecate assets to the value of 140% of the client's liability to the prime broker. For example, assume a customer has deposited $500 in securities and has a debt deficit of $200, resulting in net equity of $300. The broker-dealer can re-hypothecate up to $280 (140 per cent. x $200) of these assets.


But in the UK, there is absolutely no statutory limit on the amount that can be re-hypothecated. In fact, brokers are free to re-hypothecate all and even more than the assets deposited by clients. Instead it is up to clients to negotiate a limit or prohibition on re-hypothecation. On the above example a UK broker could, and frequently would, re-hypothecate 100% of the pledged securities ($500). 

This asymmetry of rules makes exploiting the more lax UK regime incredibly attractive to international brokerage firms such as MF Global or Lehman Brothers which can use European subsidiaries to create pools of funding for their U.S. operations, without the bother of complying with U.S. restrictions. 


Thu, 12/08/2011 - 02:29 | 1957524 ClassicalLib17
ClassicalLib17's picture

If a customer deposits $500 in securities why does he have a debt deficit of $200? 

Thu, 12/08/2011 - 02:44 | 1957548 Caviar Emptor
Caviar Emptor's picture

It's a hypothetical example, but your question is good. They could have said it better: if a customer buys securities with a $500 deposit and a $200 maintenance margin, then the broker could lever the $200 through hypothecation (as if this were a collateralized "loan")

Thu, 12/08/2011 - 03:12 | 1957585 ClassicalLib17
ClassicalLib17's picture

Thank you for your reply.  I will look up the definition of maintenance margin myself, because I like to read.  I hope it is not anything like the definition of MBS; that one took an hour and a half to read and reread and I was still confused.  I'm grateful that I learned and sustained a long career in carpentry.  I can always find a cash job when I want.  The only stock I own is 33 shares of Prudential I got from a lawsuit settlement in the 90's from their variable appreciable life insurance business.  Thanks again, sir  

Thu, 12/08/2011 - 23:47 | 1961755 hangemhigh
hangemhigh's picture



sir:  i admire your spunk.  i was once a capenter myself and can think of nothing more depressing than reading the definition of mbs. don't let all of the doubletalk confuse you.  it is there for exactly that pupose, to turn you away before you have found the answer.  continue to search and seek and the truth shall be made known to you.....god bless.................


Thu, 12/08/2011 - 02:31 | 1957531 haskelslocal
haskelslocal's picture

Yeah. You have $100 and put it with your broker and alls good in your life and how you invest. Yet broker puts it with another and they lever it say 4x to create $400 to invest with. Then that broker daisy chains it up, puting $400 with another broker to create $1600 all off your $100 that may be doing good but also, may be losing heavily if you're a bad investor. Or what if you cash out? How does the rest unwind? And what about bonuses? The guy at broker $1600 will make 2% fees at least, meaning $32 with only your $100 in back. (You've already lost 1/3 of your money then) So yeah, it's greed buddy. On a collective level so large and so disconnected that it feeds and grows off itself. The originators who bent the rules to favor such behavior I'm sure would care less of the greed bleeding downstream to favor others yet, by the time something gets so large and so many are eating at the trough and you're still making money, how's one to stop it? Accept maybe clean the slate and start it again. When the scheme dries up it's the bottom 80% left shirtless.

Thu, 12/08/2011 - 05:22 | 1957671 rufusbird
rufusbird's picture

"What was the original reason that they created this re-hypothecation procedure in the first place? "

As a registered rep for a retail brokerage I was often asked that question. I liked the way you phrased it because the original reason, as I understood it and explained it my clients, was so that the company could use the securities to borrow themselves, and to lend other companies for selling the same positions short. Firms who lent the securities to others were paid for these lent securities.

However, it has evolved and become more complex, and more digitized. I quit trading about the same time I began to be unable to get physical certificates. Everything is controlled by DTCC. Another can of worms indeed. 


Thu, 12/08/2011 - 01:51 | 1957456 walcott
walcott's picture

if I had a nickel for every time I heard the word 


Thu, 12/08/2011 - 03:07 | 1957578 Flocking swans
Flocking swans's picture

If I had a nickel for every time I heard the word hypothecation before today.....

I'd not have a nickel. 

Thu, 12/08/2011 - 04:29 | 1957586 Raphio
Raphio's picture

synchronicity on the similar retorts

Thu, 12/08/2011 - 03:11 | 1957583 Raphio
Raphio's picture

If I had a nickel for every time I heard the word hyper re-hypothecation...... I would have 5 cents

Thu, 12/08/2011 - 02:00 | 1957462 HyperLazy
HyperLazy's picture

I was wondering how and why the "missing" Mother Fucking Global moola ended up in England. Thank you Tyler(s) for the explanation.

Now that I have been given a shocking glimpse into the Darkness of the Shadow Banking butcher shop, I suddenly wonder - truly, no trading or brokerage facility is safe since the majority are tied in with a variety of banks and exchanges knee deep in this wanton blood drenched river of corrupt rotting meat.

How many accounts will go "missing" in the near future?

Edit: Nevermind, nothing is safe afterall...

Thu, 12/08/2011 - 02:00 | 1957469 AldoHux_IV
AldoHux_IV's picture

MF Global's bankruptcy has already set off a chain of events which not even all the world's central banks can halt. Which is ironic for the Buba - what it is doing is "too little too late." But at least it is taking proactive steps. For all the other central banks in the Eurozone, and soon the world, unfortunately the deer in headlights image is the only applicable one. And all because of unbridled greed, bribed and corrupt regulators sleeping at their job, and governments which encourage the TBTF modus operandi as the only fall back one, which in turn gave banks a carte blanche to take essentially unlimited risk.

We are all about to suffer the consequences of all three.

While the 1st paragraph was most eloquent and succinct in describing what's to blame, I would most humbly disagree with the 2nd paragraph because the more people that are aware of this, the more we can control who suffers the consequences i.e. justice being served and reforming a broken economy. The financial system is insolvent, the central banks are aiding and abetting, the politicians are paid to distract, the media seeks to lock in that distraction, and in the end the ponzi will fail regardless of how many 'bazookas' and 'nuc's' they come up, it will never free them from the event horizon.

Great and timely article ZH! Spread the word bitchez!


Thu, 12/08/2011 - 02:11 | 1957477 bob_dabolina
bob_dabolina's picture


I got word the spent fuel pool in rx#4 collapsed. is also down 

Is there anyone that can confirm/deny?

If true, we're all getting cancer soon.

Thu, 12/08/2011 - 02:27 | 1957519 bob_dabolina
bob_dabolina's picture

Those have been proven to be looped. 

Why is down?

I got a really strange email from someone working there saying something happened.

Thu, 12/08/2011 - 02:49 | 1957555 HedgeCock
HedgeCock's picture

Check the EX-SKF blog.  If somethin's  a'smouldering, he'll post it.

Thu, 12/08/2011 - 02:30 | 1957525 Ineverslice
Ineverslice's picture

What?...Hope not. if true, that is where the "Where science has never been before" scenario comes into play....and it's when Dr. Helen Caldicott purchases one way tickets for all her family members in Boston to fly into Sydney. 

Thu, 12/08/2011 - 02:38 | 1957537 bob_dabolina
bob_dabolina's picture

I hope it's not true but I can't get back with my contact. 

Thu, 12/08/2011 - 02:39 | 1957539 Ineverslice
Ineverslice's picture

I noticed Enews down most all day.

Thu, 12/08/2011 - 02:52 | 1957559 bob_dabolina
bob_dabolina's picture

If this is true. Wer're all dead quicker than we thought. 

This is terrible. The worst thing is that our children will feel it the hardest. 

Thu, 12/08/2011 - 03:14 | 1957587 azusgm
azusgm's picture

Could this be related?

Thu, 12/08/2011 - 02:05 | 1957478 Analog Kid
Analog Kid's picture

I agree with populist. This article cemented it for me.


Gold, Ground, Guns, Grub and God.

Thu, 12/08/2011 - 02:07 | 1957481 Dane Bramage
Dane Bramage's picture

rehypothecation: infinite recursive loops of shadow banking fractional reserve lending. :)

& the "assets" being rehypothecated = ?  Money from nothing (fiat), fractional reserve lent, valuation of something, entered on a ledger as investment collateral, etc.,.   I'm seeing an equation here: 0x  still equals 0, right?  (just exponentially more entertaining!)

 Well, I can't blame them.   The envy must be unbearable.  They not being able to will "money" into existence like the Federal Reserve, etc.,.  What a frigg'n awesome gig!   I'm going to start writing myself IOUs and rehypotheticate my way to a lovely estate.  :-)  


Thu, 12/08/2011 - 02:10 | 1957490 surf0766
surf0766's picture

I just finally finished reading the. Wow a great read. The sheep will never know what happened. Even with all that has been written , it is beyond their ability to comprehend.



Thu, 12/08/2011 - 02:12 | 1957494 haskelslocal
haskelslocal's picture

But this doesn't just end! And this be not the last story. And a found shadow only exposes the shadow of it's shadow. Clearly assets be gone and synthetics feed the machines. However, does anyone see it truly stopping on a dime in some sort of organized chaos? This isn't playing Monopoly with your cute sister. This is having attempted to play with the retarded brut who's twice as large as everyone else and has no problem flipping the board in rage upon his exit. There is no replay. It's destruction upon a scapegoat. Love, American Style.

Thu, 12/08/2011 - 02:24 | 1957513 DarthVaderMentor
DarthVaderMentor's picture

No, this is't playing monopoly with your cute sister. This is raping her then sharing her with all your buddies. Unbelievable. No wonder Corzine has dropped out of sight.

Thu, 12/08/2011 - 02:22 | 1957507 DarthVaderMentor
DarthVaderMentor's picture

This article makes me think that physical gold in hand and real estate (in spite of its loss in value) in South America might be the safest investments!

Thu, 12/08/2011 - 02:51 | 1957557 jomama
jomama's picture

^ trying to figure out how to get my stack down there.

Thu, 12/08/2011 - 02:24 | 1957512 Scalaris
Scalaris's picture

This is astonishing while unfortunately not unexpected. If one takes a step back and sees the wider picture he would only wonder how mankind was able to reach a point, where some people managed to create such vast wealth for such a long time, by using a specific process, and now a zenith has been reached where the complexities of said process have reached their own end point, and pose a grave threat for the system which allowed its existence in the first place.

The problem is, that because of the continuous political administrations who accommodated the banking industry's interest throughout the years, this collapse will of course impact the broad society, yet will leave the same people, who profited by the process which broke it, completely unscathed.

At this point I'm assuming that everyone reading this article has realized that everything we live and have lived is nothing but a farce, as I'm sure sager people have for quite some time now.

Again, prior to the inception of capitalism, who would have thought that its apex and tipping point would be caused by the creation of such copious wealth, backed by nothing but a Hamletian clusterfuck of a pledge, to a pledge, to a pledge, and which would eventually demand its, inexistent, dues.

As for MF Global, if one never read ZeroHedge, he would have no idea about the severity of the situation, which was the first and only place, which heralded said collapse as the "canary in the coal-mine" event. Of course now everyone here knows that things not only never changed since AIG's collapse in 2008, but have actually gotten much worse, as we can observe by the timelines of political events and their impact on people's life.

Since it is becoming obvious that the same people knew about this ship's direction, I can only speculate whether at this point they will do everything to save and perhaps prolong its demise to a latter time, by using all unconventional methods possible. And since its rule-breaking times, I'm assuming that the global population will be promptly pooled and herded, for the appropriate placement of the chess set, in order to be prepared for the upcoming "tectonic shifting" events.

So if the outcome of Friday's EU summit isn't drafted already, people can already see the "safeguards" that Mr Cameron will be supposedly asking -nay- demanding, by the Germans, in order to ensure City's criminal reign, as a playground for bank's rampant and careless behaviour. 

Thanks again to ZeroHedge and I hope that your servers are placed in international waters, because I'm sure that some future clause will magically appear within the "Patriot Act”, which will render "fringe" blogging as terrorist action.

Thu, 12/08/2011 - 02:27 | 1957521 The Heart
The Heart's picture

I have a question to ask this group of distinguished contributors here:

If you had the power to do so, how would you crash the banks?

Thu, 12/08/2011 - 06:22 | 1957711 UP Forester
UP Forester's picture


Fri, 12/09/2011 - 03:54 | 1962098 tumblemore
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i wish i knew. however as Wall St. and the City of London have turned into a menace for the whole planet i think Russia, China and now possibly Germany may be working on it.

Thu, 12/08/2011 - 02:27 | 1957523 Arkadaba
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For all gen x:

And for that millinieum kid - sorry but you are not first the wave of children that have faced somewhat dire economic condition:

Graaduated in the early 80s - sucked.

Being somewhat resourceful moved to the States  (2000 - 2008). Two Bush presidents a few wars and hopium.

And not the best move

Thu, 12/08/2011 - 02:31 | 1957529 vainamoinen
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Bravo Tyler, BRAVO!

Thu, 12/08/2011 - 07:08 | 1957678 falak pema
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Plan B :Lebensraum, has always been there. Germany will walk away from the current financial system if the cost is too high. This has always been there. Merkel is Bismarck's daughter, or at least will be tempted to be if the GS cabal tries to railroad her to becoming a fiat pawn in the porn printing to infinity game of monetary debasement of USD/EUR; the globalist strategy of US/FED/WS. 

We could see a two tier monetary system in Eurozone, or a rapid meltdown to individual currencies which will spell mayhem for Club Med Europe.

The new Berlin-Moscow-Peking axis is a real possibility.It will include Ankara and Tehran.

PS : A lot of people here at ZH, not TD of course, nor RM, have scoffed at the assertion made by posters like myself that the heart of the financial ponzi, POST 2008, remains the ANGLOSAXON BANKING SYSTEM as it won't admit its past sins; on the contrary. NOT THE continental EUROPEAN SYSTEM, surrogate victim,  WHICH IS CURRENTLY GETTING HAMMERED. This brilliant demonstration here just goes to prove that assertion even more so in chilling detail; layers upon layers of synthetic debt mountain. 2009 saw this financial strategy baloon, and Brown the poacher pretended he was Brown the gamekeeper; now the chickens are flying out of the hen pen.

PPS : The current discussions TODAY between Merkozy and Cameron may be impacted by the relevance of findings in this thread; as Cameron WANTS Eurozone to TRANSFER to the City ALL financial supervision and intendant financial service activities, to Bolster City's dominance of Eurozone...

Thu, 12/08/2011 - 02:31 | 1957530 Sizzurp
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This rehypo scam is just another fraud.  Legal loophole or not, one gets the feeling that one of these banker / broker types is eventually going to lose the wrong person's money. I don't think it will go over very well. 

Thu, 12/08/2011 - 02:36 | 1957533 EZYJET PILOT
EZYJET PILOT's picture

I don't agree that the failure is with us. The banks have bought the government and they have bought the media and now they have bought the police and military. It has been an insidious rise to power by evil. Most people lead simple lives and do not think for a minute or understand the minutia of what goes on, they are so busy with family/friends, in other words THE THINGS THAT MATTER! It is wrong to just simply say it's us, we are not the greedy flithy scum who only care for bonuses and new porsches and private jets, it is the top .1% and the people who work in finance that are to blame. Whilst I'm here you can add in politicians and the military who will shortly be doing the bankers bidding by launching attacks on Iran/Syria.

Thu, 12/08/2011 - 07:07 | 1957732 lakecity55
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And now, they are preparing to staff the camps:

Thu, 12/08/2011 - 02:38 | 1957536 LarryDavis
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Here is how it works......I have a company with assets in country A which I lever to the gills with idiotic bets reccomended by my "analysts" (monkeys who like beer, sports, and do what the fuck they are told so long as they are paid just enough to have a nice car having been slightly rewarded they are then loyal to the fraudulent system). Before these bets go belly up, I incorporate this levered shit tent in another country whereupon I say look at my ASSets, can you please give me some motherfucking additional leverage? I don't have time to wait either. With that leverage I go back to my original country and get a huge overpriced office in midtown manhatten, hire a bunch of useless people that went to good schools (so they can ask their rich ceo family friends for tips or to invest) to enter fake trades and give prime brokers business (so their ponzi scheme can perpetuate symbiotically), and have investors greeted by attractive secretaries. You have a really nice office. You must know what the fuck you are doing. How the fuck are you going to give someone even a million dollars and not know exactly what the fuck they do??? That's what I didn't get about Madoff? If I'm giving you a billion dollars then you are gonna tell me exactly what you do with that money and the fact that that degree of opacity is business as usual shows the high degree of smoke and mirrors needed for the assholes to get on CNBC each day. Trust combined with laziness is a hallmark of the modern financial world(free/easymoney people). I take new investors money and start over. All I really need to do is safely provide 3% returns but I need to ball/mistresses/ducati time and to send my legitimate kids to really nice schools so I'm going to get a little riskier. Das ist Kapitalismus.

Thu, 12/08/2011 - 02:44 | 1957547 haskelslocal
haskelslocal's picture

Fun explanation laden with scotch, but chill the reverse-blame tactic regarding people who don't know what there brokers due with money. You also don't know what: Cooks do with your food, surgeons do with your abdomen, butlers do with your tooth brush, maids with your linen, dentists with your teeth, lawyers with your hours.... The list goes on and you well know trusted advisors established and backed by supposed regulations and consistent returns makes for an easy risk-off attitude regarding legal documentation that's no different than a pharma script that pretty much spells out the liability of how you'll die if you take the medicine to save you... All just for legal purposes of course...


Thu, 12/08/2011 - 03:02 | 1957571 LarryDavis
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So you are intimating that it's customary for evolved primates to fuck each other over?? Wall St. is a special hyperbolic case. Must be the human condition.....or not. If a doctor makes even a small mistake, shows up drunk, steals, etc. he or she gets into big trouble (look at malpractice premiums) but as we've seen that brand of justice is not oft applied in the world of finance. I generally do know what cooks are doing with food. They cook it, not inject it with feces/AIDS semen and let the government reimburse them for spoilage. Are butlers costing this country billions? Trillions? Is the person handling your linen getting over on you? Let's say hypothetically that there is a spectrum of evil, deceit, and negligence. Wall St. is much higher on that aforementioned spectrum than the professions you name. I get your point but there are different degrees to being an asshole. I'm not going to concern myself with a drunk kid pissing in an elevator, but debasing my contry's currency is worth noting and exploring. Get it?

Thu, 12/08/2011 - 02:43 | 1957543 Georgesblog
Georgesblog's picture

This sounds like the Federal Reserve note, itself. I wonder if Ben Bernanke doodles scams like this on his napkin, at lunch.

Thu, 12/08/2011 - 02:43 | 1957544 msjimmied
msjimmied's picture

The rest of the media seems oblivious to what's going on. MF Global barely registers, likewise for the Euro crisis. Someone forwarded this to me, guess they think I talk about things that can't possibilly  be true... ZH at 7.27

Thu, 12/08/2011 - 02:44 | 1957546 soopy
soopy's picture

That's a whole lotta side bets.

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