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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prains's picture

The real cost comes from the mouths of guys who have spent the last 30 years working at Suncor, the number they say is $30 a barrel and closer to $40 when they are doing plant shut downs for maintenance etc. of course the company isn't going to go public with the real numbers because 70 % profit is ass rape.

Al Huxley's picture

Exactly. Insiders will tell you, off the record, that the cost is around $35/barrel. But they don't tell the public that, for obvious reasons.

onthesquare's picture

Is that before or after government subsidies?


itchy166's picture

Its high yes, but probably closer to $65.

donsluck's picture

Give me a break, skinny, fake boobs, airbrushed, no thighs indicating no excercise, just starves herself and looks in the mirror all day.

Socratic Dog's picture

Yeah?  I wouldn't kick her out of my bed.

GFKjunior's picture

I'd rather swim this babe, from my blog. But I like a little color ;) 




geminiRX's picture

Confidence in the system has imploded. MF global will be remembered as the catalyst for the demise of the system as we currently know it. I still think the AUD and CDN dollar will the top fiat in the swirling toilet bowl due to commodity richness.

DormRoom's picture

for a short time, yes.. But both will suffer from dutch disease, and you'll see huge dislocation among the resource rich, and manufacturing based provinces.  Eventually both sovereigns will implode from dutch disease, and a global depression.


In the hyperinflation scenario, mass protests, and social unrest, culminating in ?

Mr Lennon Hendrix's picture

It will always be Bear and Lehman.  Always.

WonderDawg's picture

Hyperinflation? Did you read the article? I'm no rocket scientist, but I read DEflation between the lines.

Mr Lennon Hendrix's picture

Its a WWF wrestling match between deflation and inflation.

scatterbrains's picture

I'm thinking stick 100% of your assets in a 50/50 mix of cash and gold and bury in the yard. Which ever way she finally blows, one will increase 10 fold in value against the other. At least this way you can stop trying to track and predict the final explosion and get on with your life.

CompassionateFascist's picture

That post-WWI deflation in Germany was pure hell.

PolishErick's picture

Good one... but Id save about 20% and put it in potatoes and spirits like whiskey and vodka... In Poland, after WWII people who speculated and stocked up on alcohol (or made moonshine) had nice bargaining chip when it came down to bribes for the right people. 


... Besides if shit really hits the fan- You can't get wasted drinking gold :D

Cadavre's picture

The logic of free market osmosis  suggests one sovereign's de-inflation is typically balanced against another sovereign's inflation. In a currency war the winner is the sovereign that can shed the most value without incurring the wrath of angered gentry stakeholders such that they useg the flesh and sweet breads of so called political employees and counting room managers as main course at a pig's bris.

Just seems, mind you, the rating agencies are trying to stagger (control) the uncontrollable - dosing a phynancial methadone of sorts - desperately attempting to balance the effects sure to fail piggy backed carry bets - a tubeless tire - a slowout instead of a blowout - is that it? Ain't enough methadone in two universes, and the underverse, to warm a cold dead turkey back to life.

If American bookies are risking USDs Americans consigned for investment then the rules the bookies play by to place those bets should be American rules (right). If Mr and Mrs American investor sign waivers allowing said bookies to bet in foreign casinos under [foreign] house rules - then f*ck `em - if the bet falls apart - toooo bad. They can bail this (hand u-no-where) up their ass.

Maybe those non-winning lotto tickets in the junk drawer are worth something after all!!. Ain't talking `bout the 2 bucks shelled out at the liquor store - I WANT WHAT I WOULD HAVE RECEIVED HAD THOSE TICKETS WON THE JACKPOT.

* Give me a f*cking break - where I come from you loose a bet you pay up (one way or another). Hmmmm  .. perhaps a barter when the fiat crashes  .. Corzine - Blankenstien  - all trussed up in a 'Lil Bo Beep outfit - with a riding crop hanging out the kazoo - selling their double secrets a nickle a throw - shit that imagery makes me wet as that fancy smancy sissified big city "hypothecation" thinga-mabob! Isn't that what adolescent males do during those not too infrequent and vey often frenzied, though  sincere, midnight confessions?

Keep it wet. Don't eat the yellow snow. "Hypothecate" too much and you'll go blind. So many things to remember. So many ..

fonestar's picture

Our Canadian dollar is shit, our central bank does not even pretend to own any gold like the other fake fucks do.  Our government just tries every failed policy the US government does, just a few years later, when it's obvious to everyone at that point it was a dumb idea.

Bansters-in-my- feces's picture

Steven DickTator Harper and his fff Flunky.Jjjj imbo Flaperhty,are hidding all the banks pppproblems,and giving them cash bbb bailouts,bbb behind the scene.

Harper needs early retirement..

ucsbcanuck's picture

Thank you for pointing this out. Many Canadians think Canadian banks are strong and turn their nose up at US banks. I tried to explain to my friends the other day not to overrule the possibility that the Canadian banks could shit the bed as well. They refused to believe me. 

It's this complacent Canadian attitude which I hate. As a German friend who lives in Canada said "It could be so much more." Sure it could - if we weren't so fucking complacent.

Mr Lennon Hendrix's picture

Canadian gold vaults are empty, and that is all that matters.

Deo vindice's picture

If you MUST use a bank, at least use a Credit Union. If you must.

Society has been conditioned to become bank-dependent in less than 2 generations.

BigInJapan's picture

And I'll move back home, scooping up a house and land, on ze cheep.

Sockeye's picture

TPTB will simply take our oil and water in exchange. Our grandchildren will be left with mountains of debt, soiled landscapes, and no clean water.

tekhneek's picture

And then in 100,000 years new crazy shit will start happening.

Propaganda much?

Stack Trace's picture

Some bankers need their nuts hyper-hypothecated so that we all have an opportunity to step on them.

Big Bopper Kenosha's picture

Oh jeez ZH. You know full well that banks don't hypothecate customer accounts.  This is pure bs. This site has gone way downhil, you're just pounding out crap at this point.


And give it up with Sean already. Dude's been a joke for years.

Use of Weapons's picture

Bank of America's holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of the contracts at the end of June, according to data compiled by the Comptroller of the Currency. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades. The company is the second-largest U.S. lender by assets.

In August, the bank said a two-level downgrade by all ratings companies would require it to post $3.3 billion in additional collateral and termination payments, based on agreements as of June 30. As of Sept. 30, the bank could have been required by counterparties to produce $4.9 billion beyond what it had already posted, according to last week's filing. Of that, $3.2 billion resulted from the Moody's downgrade.




If the banks are clean here, why move $53 trillion onto the clients' book?

smiler03's picture

This is a first for me... looking at personal information for Big Bopper Kenosha gives "Access Denied"

Does this mean TD has bazookered a troll? Bring it on!

onthesquare's picture

“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.”

Anyone who agrees to these terms is an idot and deserves to loose their shirt

scatterbrains's picture

I'm thinking your talking anyone with a Fidelity / Seibert / Schwab and anyone else doing buisness via National Financial Services LLC I'm pretty sure.

Piranhanoia's picture

Begin with each mortgage back security that have been shown not to exist. These were sold to different trusts by altering a number in a computer database.  Each loan was sold using the same method to multiple securities.  They sold them so many times there is nothing left to collect due to their being paid back 10x for each loan.  Then they resold them.  There is only proof on these going back about 15 years.

Unprepared's picture

I worked for a Canadian bank and I KNOW that their London branch hypo's and rehypo's clients deposits.


Fuck off.

JOYFUL's picture

Canadian banks have been running their $ laundering and off shore tax shelter scams from their pirate empire in the Caribbean(capital: Grand Cayman) longside their political bedmates since before Meyer Lansky smoked his first Montecristo.

In point of fact, Bronfmans and the rest of the Montreal Kosher mafia were way up on the pecking order from Meyer and his calabrian gofers...while Joe Kennedy & Sons were nothin more than down the line distributors...too bad Jack had to screw it up huh?

Anglo-American Establishment. Five generations of fronting for their Macher bosses. What a bunch o schmegeggy schnooks. Even a schvartze can do a better job of it these days!



darkaeye's picture

As concise and accurate an appraisal of the Canadian socio-economic situation as I have ever seen.  Too bad most of us Canucks can't (or won't) see it.  I moved my assets out of CIBC and RBC 8 years ago, converted them to yellow and white shiny stuff, and buried them in a deep hole in the backyard.  With nary an institutional investment in my possesion I am 400% wealthier than I was in 2003.  And I sleep well.

prains's picture

Our cup of fucketh run over

Ted K's picture

Unless I'm missing something, even though Canadian banks are being bad boys here, they are taking advantage of London officed subsidiaries like the other TBTF banks???  And this after Yves Smith told us months ago Britain was going to "get tough" with their banking laws and put America to shame??? Damn, it's getting to where you can't even trust some moody cunt who hosts a blog anymore.

max2205's picture

This is scary shit. Good work ZH!

Davalicious's picture

>Canadian banks are sitting on a mountain of shit.


They are sitting on a ton of shit for the same reason Canada has a single department for immigration and multiculturalism. Canada is a great country, rich with natural resources. The global elite can't control Canada without wiping out their financial system. They wipe out the financial system, bring in ethnic minorities (soon to be majorities) to create social friction, and soon enough Canadians are too busy fighting immigrants, and their offspring, to notice that their country is being raped.

Zapp Brannigan: "...If we can hit that bullseye, the rest of the dominoes will fall like a house of cards. Checkmate.

Herkimer Jerkimer's picture

Here's the article from MacLean's magazine that talks about this coming mortgage crash in Canada.

I wondered how all my buddies were getting loans out the ying-yan, or levering up several houses on top of each other -- "You just don't tell the bank you own other houses!" How does that work?!--without somebody catching on or caring? Because the foolish CMHC is on the hook. The banks don't give a &^% It's our own NINJA/subprime just waiting to explode.


Do the gozintas. You know, the arcane math theorem developed by my dad, the math teacher!! 2 gozinta 4 twice! How can people afford a loan for a house in Toronto that's worth $550,000 on a double income? Because it's for 40 years and at virtually zero interest! The prices have been going up and up and up! Doesn't anybody remember 1989? I do.


And when the rates go from 3.5% to 8? We're sunk.


Buy gold. Buy guns. Buy food.





YBNguy's picture

Im actually listening to this currently (and on repeat):



Damn Kyle Bass Redux video posted a few days ago got it stuck in my head...

Ineverslice's picture

Ok, I'm reading it again. Thanx dude.

deepsouthdoug's picture

Or The Doors 'The End'



Emerson wrote, 'Events are in the saddle and ride mankind.'  Events are mounting up. 


illyia's picture

This kind of reporting kicks ass compared to anything, anywhere, anytime. Bravo ZH and all you shadow tylers! Really fine - awesome - work.


THX -i