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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 - 02:53 | 1957558 Caviar Emptor
Caviar Emptor's picture

Why is it so hard to understand in America today that politics and financial power go hand in hand? That doesn't mean that "Government" is a problem. It means you, buddy, have a political problem (and someone else much richer than you doesn't) 

If there were no national government, you'd soon find another "government" right outside your front door. Even if instead of the word "Government" the best word would be "Gang". That's politics on the micro level

The epic struggle right now is between politically powerful, connected people acting in their own self-interest (greed is good, remember) and politically weakened un-connected people suffering as a result. 

Government is just an intermediating body, like a voting machine. The machine doesn't make the decisions. People do, even if they cheat to accomplish it. 

Thu, 12/08/2011 - 02:53 | 1957560 ebworthen
ebworthen's picture


Get your money out of the casino NOW.

Thu, 12/08/2011 - 03:04 | 1957574 Banksters
Banksters's picture

Outstanding article ZH!  I love you guys/gals.



Thu, 12/08/2011 - 03:04 | 1957575 beatus12
beatus12's picture

the oilsands make profit even if the oil price drops quite low,

especially on the older project,  my hugh worry is

the horrific housing bubble, especially in the west

Thu, 12/08/2011 - 03:04 | 1957576 FranSix
FranSix's picture

It takes an unbelievable amount of air travel to hypothecate in London.

Shouldn't long dated bonds be scrutinized for signs of a sell-off?

Thu, 12/08/2011 - 03:09 | 1957581 prains
prains's picture

Here I thought this was just Judeo-Gucci off balance sheet exponential meltdown but it's much worse.

Thu, 12/08/2011 - 03:28 | 1957595 vast-dom
vast-dom's picture

Interconnected M.A.D.

Thu, 12/08/2011 - 03:31 | 1957600 jmc8888
jmc8888's picture

Hmm, so I wonder if that is where the money market funds went in 2008.  Could it be the initial outflows were pulled because it was rehypothecated collateral?

Regardless of the above question, overall this is just another reason to ditch monetarism, and put it through the Pai Mei five point exploding heart technique known as Glass-Steagall.  Granted you have to actually enforce it, and let the winners and losers actually happen, but it is a prime example of what simple, short, yet effective regulation should be there as the rules that frame the box where within winners and losers are decided.  Where risk and reward can be adequately figured out.  It's not about an invisible hand, and it's not about someone watching over us. 

Allowing this fraud to ramp up because of a weakened and then repeal of Glass-Steagall (and it permeates much more than just the scope of capital markets as it is ingrained into at the very least, western society as a whole, and exported massively to everybody not included int he west), gives weak and corrupt politicians a reason to fear the collapse and aid the banksters in 'never losing' where it should never of been a problem to begin with.   It is much bigger, much more systemic, so on and so forth.

Of course this was all pushed from the oligarchy as the use of the markets and gov'ts are but some of the tools in their war chest.  Get the people to believe bullcrap, and they'll use the levers of gov't incorrectly for the benefit of those planting the idea.  If the people don't know how to use gov't, then it is used against them by those that do.  It has been, obviously.

Now in our current state of affairs the weak and corrupted politician has to also worry about biting the hand that funds it, which in the sense give the oligarch a great deal of control to continue screwing up the risk/reward to benefit itself. The fear ceded the control.  We saw that clearly in 2008 from the big perspective.  No doubt we'll see it again soon.   Of course the entire perspective that you need bank funding is another trick pulled on us, that for the lack of this knowledge, our dear gov't leaders get scared shitless when they hear banks are about to fail.

We let them get away with it over, and over, and over again, until it scared the shit and soul out of most politicians to hand the rest of what's left over these recent years, and again upcoming.  Even in the present in the form of what's been going on with European Nations ---> Euro-technocrats aka fascist imperialist monetarists.

We can let it collapse with all the horror that goes along with it, or we can separate things into two piles (fraud and real) with Glass-Steagall and slog through the mess the best we can, going outside the bankster funding loop to create real wealth (not paper), while letting the obvious worthless crap get discovered as crap and the risk be realized it is worth zero.  Get back to a system that has rules, and lets winners and losers be decided by reality, instead of leverage, who holds their breath the longest, or whatnot.  Those that create the best value win, those that don't end up in a range from; win less to outright loss.

The removal of sane, simple, easy regulation, on the broader level, allowed the tools for the oligarchy to screw up the risk/reward model to be created and deployed massively.  Once the crack was made, those we put into power, turned it into the San Andreas.   Every election allowed another opportunity to make another dumbass crack open the fault wider. 

Once you allow this crap to be deployed, additional regulation can always be overlooked, bribed, obfuscated, or willfully neglected.  Thus over time, as we've seen, it has been overlooked, bribed, obfuscated, and willfully neglected, so that most lose, and very few win.  Risk and reward are inconsistent, and have no basis on reality, just connections (see Goldman), and gaming the system within the legal shitshow we call capital markets.  You stop it at the root, or the regulation is meaningless, and as shown many times before, once it gets so big and so lengthy (because it's trying to get around the point of the regulation to begin with) to become one giant loophole, it's those without the means to jump through said hoops, that are at a competitive disadvantage, creating another feedback loop benefiting the oligarchy.  For every CFMA there is a Patriot Act.

But we the world, let all the sophistry bullshit cloud our minds with whatever trick diverted our eyes from the magicians hand.  The charts, the statistical 'science', the different forms of monetarism induced ideology, supply side, tax cuts, tax raises, whatever that only appeared to give ourselves a reason as describing the situation and its solution as presented by those who would ultimately profit off it from our expense.  We must have regulation at the root, but what we have today is nothing but legal loopholes designed to benefit those who write it, and it is called wrongfully, regulation.  It's about having the right regulation, not a specific amount.  It's about us, understanding why these boundaries must be in place, and holding ourselves to it because we actually understand why, and know the ultimate consequence of not doing so (we're about to).  This is only impossible when people believe it is possible that crap can be caviar, if we all just believe.  We believe bullcrap because it was taught to us to believe it. 

It is possible to break away from this.  But we have to quit mindfucking ourselves.  Creating another ad hoc regulation won't solve this problem.  When the world finds out that what is in their mouth is nothing but shit, the answer isn't to wash it down, it's to spit it out.  We don't need this shit.  We can't stomach this shit.  We must confront those who sold us this shit.

It is the imperial monetarist ideological oligarchy

It is the gov't that is controlled by it

It is us that put said gov't in charge

It is us that choose to believe the sophistry that fuels our ideology, usually as left or right or keynesian or austrian, on and so forth

It is us that still evades reality and won't look at what's real, and what alternatives we can actually take to get out of this mess the best way we can

Good luck.  Great read ZH.



Thu, 12/08/2011 - 03:45 | 1957611 electricgorilla
electricgorilla's picture

Fantastic Article! Well done ZeroHedge! This whole thing is epic. Last time when shit hit the fan during the Great Depression J.P. Morgan lent GOLD to save the system. Try Re-Hypothecationing that. Could we witness the collapse of the greatest ponzi scheme of all time. This credit bubble would make John Law jealous. Silly Europeans. Where's Mansa Musa when you need him. Maybe he can loan as much gold to the Europeans as the gold he showered to the Arabs on his pilgrimage to Mecca a few hundred years ago. How the hell do you think its ok to leverage your collateral. Fractional Reserve Lending? This is just out of control.

Thu, 12/08/2011 - 03:47 | 1957612 Cast Iron Skillet
Cast Iron Skillet's picture

Thanks for the insightful article ... this is the kind that make me love ZE!

(and also makes me want to stack more PMs)

Thu, 12/08/2011 - 04:11 | 1957626 Mauibrad
Mauibrad's picture

OK, I got a question.  Maybe stupid, but this hypothecation and re-hypothecation is apparently common on brokerage accounts, but would it be expected to affect FDIC insured money market or CD accounts with banks like Chase, Wells Fargo, Citibank, and BAC? 

Thu, 12/08/2011 - 04:19 | 1957632 Caviar Emptor
Caviar Emptor's picture

money market mutuals can legally rehypothecate securities. So yes. 

Thu, 12/08/2011 - 18:10 | 1960896 centerline
centerline's picture

Like I have been saying for years... the cash is already toast.  It just has yet to realize it.  We are running on fumes only.  The black hole of the shadow banking system has yet to call it in.  When it does, it will be a whirlwind of cascading bank failures resulting from global counterparty exposure.  Either we reset somehow afterwards, or it will be war.  Maybe both. 

Thu, 12/08/2011 - 04:11 | 1957627 Meremortal
Meremortal's picture

"Some say fascism is just an advanced form of capitalism: state-supported monopolies, privately owned. Our system has certainly been sliding in that direction."

'Some say' that because they are leftists desperate to define an evil form of capitalism. Fascism requires a strong govt ruling with central planning in concert with business. Capitalism shuns central planning and interface of govt and business. Fascism is leftist at its core, it is built on collectivism, with an authoritarian structure. Capitalism is always at odds with fascism since Capitalism raises the individual higher than the govt. The two are like oil and water.


Thu, 12/08/2011 - 17:28 | 1960703 Jekyll On The Island
Jekyll On The Island's picture

Forget all that- THIS IS HOW YOU BET THEM  -

BUY GOLD BUY GOLD BUY GOLD!!!!! Put ALL your retirement money into GOLD!!!  It will drive the RUTHCHILDS CRAZY!!!  If for no other reason buy it as a form of PROTEST.... For every ounce of gold YOU HOLD it takes $250,000.00 in lending power away from the bankers!  Time to fight, it is the least you can do to actualy make a change in the world and to safegaurd your money value aswell.  Do it BEFORE they make ownership illegal AGAIN!!  AT about $2800.00 per OZ. you can BET they will not want COMMON PEOPLE to even hold any Gold!


Thu, 12/08/2011 - 04:35 | 1957644 Sandmann
Sandmann's picture

It also explains Ireland's problem with its little waterfront tax haven status for offshore businesses running SIVs through Dublin. The CMOs held by German Landesbanken and Depfa through SIVs in Irish tax jurisdiction to benefit from EU-subsidised low corporate taxation. How many German chemical companies are invoicing through Dublin ? Just how many daisy-chains pass through Dublin. England is simply a giant GIbraltar with offshore money leaving a trail of onshore liabilities for UK taxpayers. It is the ultimate hollowing out of the world's first industrial nation to be simply a laundromat for funk money leveraged and recycled in an entrepot trade

Thu, 12/08/2011 - 04:53 | 1957658 piceridu
piceridu's picture

Sherlock Tyler: Fucking awesome post...please keep holding these mother fucker's feet to the fire...

Cue the little blue and white droid...."help us Zero Hedge, you're our only hope...."

Thu, 12/08/2011 - 04:59 | 1957661 terryfuckwit
terryfuckwit's picture

here we are a nation of toxic fucking balloon blowers...i listen to cameraman all day yesterday.. he is going to tell merkozy where to get off if they impose restrictions on uk financial sector...they will shut us down completely and with good justification

Thu, 12/08/2011 - 08:09 | 1957763 NuYawkFrankie
NuYawkFrankie's picture

Re a nation of toxic fucking balloon blowers

Perfidious Albion: Yes, I'm afraid the Little Corsican had it right.

BTW I surprised that a man of you obvious erudition & savoir faire can actually  stomach listening to cameraman all day - just the sight of that marble-mouthed, stuffed-shirt pr!ck makes me ill.

Thu, 12/08/2011 - 17:09 | 1960593 terryfuckwit
terryfuckwit's picture

great .comment and great to be for once esteemed amongst the truly erudite..looked up the perfidious stuff and glad i did..

wow... and cameraman is back ground noise whilst i get edumacated by the hedge...

Thu, 12/08/2011 - 05:32 | 1957679 slackrabbit
slackrabbit's picture

Agree with the other posts.

I have gold and grub, getaway plan will be harder as I’m in London and home is New Zealand....but have just applied for a firearms licence.

 the more you find out, it now just simply boggles the mind.


Thu, 12/08/2011 - 08:29 | 1957758 NuYawkFrankie
NuYawkFrankie's picture

Re (I) have just applied for a firearms licence.

A frearms licence in the UK? hahahahaha!!!!!  Good one !!!

You have more chance of winning the lottery, being hit by lightning,  abducted by aliens  and - last but not least - having Kim Kardashian demand that you be her sex slave....ALL IN THE ONE DAY!!!

LOL!!!  Keep 'em comin!!!


Thu, 12/08/2011 - 17:59 | 1960858 Jekyll On The Island
Jekyll On The Island's picture

BUY GOLD BUY GOLD BUY GOLD!!!!! Put ALL your retirement money into GOLD!!!  It will drive the RUTHCHILDS CRAZY!!!  If for no other reason buy it as a form of PROTEST.... For every ounce of gold YOU HOLD it takes $250,000.00 in lending power away from the bankers!  Time to fight, it is the least you can do to actualy make a change in the world and to safegaurd your money value aswell.  Do it BEFORE they make ownership illegal AGAIN!!  AT about $2800.00 per OZ. you can BET they will not want COMMON PEOPLE to even hold any Gold!

Thu, 12/08/2011 - 05:42 | 1957685 Dick Darlington
Dick Darlington's picture

Awesome post Tyler, just brilliant!

Thu, 12/08/2011 - 06:12 | 1957706 Johnny B Good
Johnny B Good's picture

Time for the UK to leave the EU. I am so glad you are not in the Eurozone. Not a year from now and you wish you had Greeks Problems. And that goes double for the US. At least Britain can hope to rejoin the EU, once the Dust settles. No such luck for the US.

Thu, 12/08/2011 - 06:41 | 1957718 vegas
vegas's picture

Message to TBTF banks and other bloated fucktard institutions: let's see you hypothecate my gold.

Thu, 12/08/2011 - 13:20 | 1959205 Matt
Matt's picture

If your gold is GLD or stored at the bank in a non-allocated account, I think they already did.

Thu, 12/08/2011 - 07:04 | 1957731 lakecity55
lakecity55's picture

So, if we were not living in zombie world, a lot of guys would be pulling hard time.

Thu, 12/08/2011 - 07:25 | 1957741 Yellow Tang
Yellow Tang's picture

Blah, blah, fucking blah.  The financial apocalypse is always a few weeks away on this blog.  By now gold should be $2500 and teh dollar in hyperinflation.  Yet it's not, and probably none of it will ever happen.


About time someone came up with a firm timeline for Economic Armageddon and WWIII so we can all just get on with our lives then check back in here a few weeks before teh event for a big fucken circlejerk.

Thu, 12/08/2011 - 18:02 | 1960868 IAmNotMark
IAmNotMark's picture

Wow.  I guess you're right.  The crystal ball here is just so lame, isn't it?  Future telling?  This blog just doesn't do it with 100% accuracy.  Don't they suck?  I'm sure your future telling is much better.  As you asked for it...why don't you come up with a firm timeline?  No?  I didn't think so.


Thu, 12/08/2011 - 07:29 | 1957742 DollarDive
DollarDive's picture

Great article.  Super insight.


As a followup - I checked into FXCM - currency broker - and did a search  for "segregated accounts".  This link came up.  I thought it was interesting.  It seems to concur with what this article is suggesting.  Read the link.

Thu, 12/08/2011 - 07:50 | 1957744 Zero Govt
Zero Govt's picture

"..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.."

Er, didn't MF Global have hugely supervised regulation? You know, approval from the NY Fed, SEC, CFTC and the CME Group who even "regulated" MF's trading accounts and swept them on a daily basis?????

Would the author of this shitology London entities are "unregulated" like to try setting up a bank or insurance company in Britain? ...where your business is regulated to hell, your staff need qualifications and has to have risk managers and compliance officers and auditors and Non-Exec Boards and even its Board Directors have to be approved by the FSC (Fascist Systemic Control).

It is the REGULATED WORLD that is the most dangerous bankrupt anarchy on the planet.

The Free Market would allow all types of institutions to flourish, from high risk to highly conservative low risk.

You'd then have a CHOICE (power) to decide where your money went. Rather than what we have of an elite protection racket of highly regulated morons and gambling junkies

Regulation is bollocks. Every part of its promise has failed miserably... wake up and smell total systemic failure 

Thu, 12/08/2011 - 07:52 | 1957756 Sandmann
Sandmann's picture

Funny that. I thought only financial groups interfacing with the public and consumers were heavily regulated. It used to be that Hedge Funds were regarded as UNREGULATED Pools of Capital because they had so-called (misnomer, surely ?) "sophisticated" investors below a certain magic number as Limited Partners and were therefore outside the scope of generalised tick-box regulation so favourd by financial crooks in Britain

Thu, 12/08/2011 - 07:36 | 1957746 NuYawkFrankie
NuYawkFrankie's picture

Re. the German Bundesbank, is quietly making stealthy preparations to get the hell out of Dodge.

Nothing to add to that...

Thu, 12/08/2011 - 21:52 | 1961473 Papasmurf
Papasmurf's picture

they will all go out for lunch and none of them return.

Thu, 12/08/2011 - 07:45 | 1957751 mogul rider
mogul rider's picture

So why don't we check the net increase levels of shorts on Monday to see who knew and who didn't shall we?

Just like 10,000 gold, 200 silver, the pumpers and anti-pumpers abound.

Thu, 12/08/2011 - 21:40 | 1961438 Teamtc321
Teamtc321's picture

Mogul, don't you think there is just a touch of manipulation going on in silver and gold? If not, then re read the entire article very slowly imo. 

Thu, 12/08/2011 - 08:03 | 1957768 overmedicatedun...
overmedicatedundersexed's picture

we all want to be "in the know".. ZH provides the grist..bravo.

anyone here advocating larger and more gov control (there are many) chooses to ignore the fact that giving humans such power always leads to tyranny and crime..  got angels to run your super gov control depts..thought not.

the simple fact is enough current laws have been violated to put every major banker, elite investement house ceo and pol in jail many times over.

regs and laws only matter when they are; 1. used 2. equally applied to all.

thats a problem no human has ever solved.

Thu, 12/08/2011 - 08:18 | 1957769 DollarDive
DollarDive's picture

Alright - so let's assume that the world is going to end because of the increased leverage - everywhere.  Re-Hypothecating assets ad nauseum creates excessive risk and leverage in the system.  So.... What's a central banker to do ? They can do the only thing that they know how to do.  PRINT PRINT PRINT.  The alternative is complete failure of the financial system and pure anarchy.

Governments will not allow this to happen.  They will print money until the markets don't permit them to print any more.  As long as the USA can continue to auction off its' shit paper at ridiculously low rates - game on.....right ? 

The game will end badly when we have a failed auction.

I'd be interested in learning more about the history of failed US auctions or which auctions were the worst treasury auctions ever.  This history might teach us something.  Does anyone have suggestions about where to go to learn more about our worst UST auctions ? 


Here's an interesting quotation from Pragmatic Capitalist's Blog - explaining why US auctions never fail : 


"Where do these bond buyers come from?  They come from many places (in addition to the banks holding reserves – which is why they are always oversubscribed), but most important is the fact that there are excess reserves at the banks earning 0.25% and they have the option to trade these reserves in favor of higher earning assets with a marginally different risk structure.  It’s practically a no brainer trade for the banks.  Why would they not turn in their excess reserves?   The important fact here is that the money the Treasury has spent has ended up in the banking sector as excess reserves and the Fed is simply issuing securities to soak up those reserves and maintain their overnight rate.  It’s that simple.  The auctions never fail because there is always excess reserves if there is deficit spending."

Thu, 12/08/2011 - 10:00 | 1958068 PulauHantu29
PulauHantu29's picture

Printing to make up for the massive black hole created by the defaults is historically the way to go. Reinhardt & Rogoff define it as inflating away the debts:

It's an excellent read and most libraries have it.

Thu, 12/08/2011 - 18:11 | 1960907 youngman
youngman's picture

"The game will end badly when we have a failed auction"....we can´t ever have a failed auction as it is today...the Primarys are required to buy up everything.....and they will have too.....and then sell it back the next week is how I think it will work out...and has been working out actually at a very big profit for them by the way....

Thu, 12/08/2011 - 11:03 | 1957776 Voluntary Exchange
Voluntary Exchange's picture

Great article, and thanks for awakening me to all the "big fish" out there that may already be carrying a fatal dose of UK hypothecation "radiation". It remains to be seen if there are enough of those to bring down "clean" firms: at some point, if enough dead fish are stinking up your market ecosystem you won't be able to survive no matter what your dose of hypothecation. 

I want to emphasize that it is governments that crafted the "system" today ,  and thus created the circumstances for the problems cited in the last paragraph:

"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 acarte blanche to take essentially unlimited risk." 

Those of you who instinctively think government and "regulation" is the solution to such evils please stop and think.

"Regulation" already existed long ago to stop such crimes. They remain the basic rules of civilization common to just about all cultures and they existed before all the modern States of today.  Here are 4 of those "regulations":   Do not bear false witness.  Do not steal. Do not initiate force. You "break" it, you pay for it.

When individuals have been intentionaly deceived about the nature an agreement there is no "meeting of minds" and thus, if they are damaged, they have been harmed through "false witness". A  person who seeks out disclosure of risks to purformance of a counterparty has been deceived when that counterparty fails to disclose known material risks.  

When a free market of justice/adjudication exits in a society people are then free to make their case in witness to their fellow members of society and those who can enforce "justice".  Justice then comes down to discerning the actual facts in play, the circumstances, the people, intentions, and individual conduct. This is why, the more the complexity of your "laws", the less "justice" you will experience.  Simple universaly recognized truths, combined with adjudication from skilled people who have the needed wisdom will give you a better solution that writing an endless series of laws for every past circumstance that is unable to foresee the creativeness and innovation of those of criminal intent.


It is a fact of history that the cleaver criminals seek to obtain control or influence of the legislation/adjudication process, (part of "government"), so that they can introduce "fine print" legal wording well suited to their criminal creativity. One example is Alexander Hamilton arguing prior to the "ratification" of the US Constitution that certain vague wording did not grant "Congress" certain powers, and then arguing for different  meaning of those words after the Constitution was "ratified" and he himself had obtained a certain measure of illegitimate "power". And thus we had the crimes of the first "Bank of the United States" almost from the beginning of the Republic. When ever you grant a group of people the power to take wealth from others by force to accomplish some end, (governments call that "taxation"), you set into play the above dynamic.  The taking of justly acquired wealth by force is a crime, and to base a system on such crime is to ensure the corruption thereof.

Then you can expect other additional corruptions to occur through time such as:

Granting special government created entities, (corporations), a special "right" to only pay debts or restitution based on paid in capital and retained earnings of that corporation, combined with the carefully crafted definitions of criminal  and civil liability with regard to corporations. Criminals were there at the beginning to use this special power to "privatize" dividends and capital gains to themselves and their allies while letting the Corporation later take the rap when the smoke and mirrors finally cleared.  We see that theme reoccurring over and over and over throughout America's history. A free individual able to seek adjudication in a truly free market judicial system that cannot be turned into a monopoly of corrupted justice by the crafty criminals, will then retain their power to seek damages according to the basic universal truth: You shall not bear false witness. In a free market, restitution is not thwarted by special privileged, rather, the simple rule: "you "broke" it, you pay for it"  applies without loopholes.  

Please keep in mind also that when people provide service in a free market there is a strong incentive for a "regulator", (a form of "watchdog"),  to refrain from "sleeping at their job" - because such a goof-off will quickly discover his "customers" disappearing and going to a differing entity that knows how to do their job. Government created monopolies of services, especially those paid for by "legal" threat of force,(taxation), do a very poor job of providing "service" - if the word "service" can even be used for the harm and crimes that they do.


Another favorite corruption that will come to the system in time is fiat money. 

Another that is just a matter of time: government run schools.

Here are some big ones that come if the "State" can gain enough power: war and conscription. 

And so it goes.  Government is often the institutionalized expression of monopoly capture of services by those prone to criminal conduct.  Voluntarism and a genuine free market is the grand solution to these problems and is the anti-thesis of  "government". 

It is quite simple really, what do you want - misery, scarcity, death, theft, fraud, war, injustice, genocide, extinction?  If so then continue to choose government (vote, pay taxes, join or support the monopoly security/defense/enforcement "services" - (military, police), and cage or kill those who do not agree with you) . But if you want the opposite then choose the opposite: voluntarism. 

Thu, 12/08/2011 - 15:36 | 1960036 philipdybel
philipdybel's picture

Yeah, I think we all agree "in principle" with these "basic rules of civilization common to just about all cultures":

Do not bear false witness. Do not steal. Do not initiate force. You "break" it, you pay for it.

I think we'd all "volunteer" to abide by these rules, in all our dealings with others. Or at least most of us...

Consider the case of "Joe Blow" (not his real name), a rich tough landowner, that refuses to pay me my fair day's wage for doing work at his estate. I remind him of the "basic rules" we're all supposed to follow, but he replies "You can go suck a ____." So I need a bunch of friends to go together with me to Mr. Blow's estate, and "remind" him of the fact that we are all living together here in this community, and we all need to deal justly with each other. And finally, to procure "remedy" from Mr. Blow as we all see fit. (And hopefully Mr. Blow's mansion doesn't "accidentally" burn down during the "discussion".)

But then, in such a perfect world, knowing the imperfect people that will be inhabiting it -- I doubt it would go down this way. Maybe the only people willing to support me before Mr. Blow would be Sally The Kook, and Kwasi Homeless; in which case, we'd be greeted with Mr. Blow's stock reply: "Go suck..."

In fact, I doubt if I would lift a finger for anyone else in this way. Because Mr. Blow does give me work at his estate once in a while; and he does pay me, at least most of the time.

In fact, until I achieve a glorious Nirvana, I'm probably just as well off letting Obozo and the Bernank keep running things for me, because I really don't want to spend the time or effort to make things better. I'm actually quite happy living in the crappy shithole I call home right now, and living on shabby subsistence wages.

In fact, I probably deserve it...

Thu, 12/08/2011 - 08:37 | 1957833 dcb
dcb's picture

It's sbout time some people focused on this issue. I always make fun of price discovery in the markets, because you have no idea what is backing up the prices. maybe it's someone elses assets. didn't get to the whole point, but now imagine those hypoticated assets that the broker pledged for it's trading, looses value and then the broker has to put up more. Boom. the broker looses the borrowed asset they didn't even own. How fucked up is that

Thu, 12/08/2011 - 08:46 | 1957851 bourbondave
bourbondave's picture

Did anyone else listen to the link of the Canadian "expert" refuting Zero Hedge claims?  He told Canadians that a big difference between the systems is that the US mortgages are non-recourse meaning everyone can walk away.  That would surprise the vast majority of the people in this country that live in states with recourse mortgages.

Thu, 12/08/2011 - 08:52 | 1957867 justtotaketheedgeoff
justtotaketheedgeoff's picture

One question I would like to ask Mr. Corzine: Did you at any time notify any members of Congress or their staffs of the impending collapse of MFGlobal?  Please be aware you may not take the 5th in response to this question as insider trading among members of Congress and their staffs is not illegal.

Thu, 12/08/2011 - 09:01 | 1957886 sumo
sumo's picture

This is the most frightening article I have read anywhere, anytime.

Now I believe the rumors that the Deutsche Mark will return:


Thu, 12/08/2011 - 09:08 | 1957901 IamMarla
IamMarla's picture

Bundesbank has many connections to banks in and out of Europe, Asia, Africa and the Americas. The German public is known to simply not participate in shaky banking because of the disastrous effects of the banking debacle that happened at the beginning of the 20th century. The Bundesbank has to be careful because the German taxpayers can look at what they are up to (and they are) through the taxpayers union looking up the skirt of some very silly algorithm makers. If Bundesbank backs away from the shadow circulation of circular debit instruments then France is left holding the bag and England is literally wearing no clothes. This can create a cascade effect that would wipe out the wealth of some very silly people. Those who are not silly any more are not asking for a wide margin of return they want to stabilize assets that can be turned into useable tender.

That is why Bundesbank is being put into the same article as Canada's bank and several others....

the orgy is over and it is time to take a fire hose to the salon where it happened.

Not that any one was looking or anything.

Thu, 12/08/2011 - 09:14 | 1957915 Savvy
Savvy's picture

Yeah. I know a girl (daughter of a friend) she's 21, makes $14/hr, 2 maxxed out credit cards, 2 payday loans, no high school diploma, Mom and Dad just paid off her cell phone bill. Just got pre-approved for a $100k mortgage. Not sure which bank, CIBC probably.

Thu, 12/08/2011 - 23:49 | 1961769 Almost Solvent
Almost Solvent's picture

I knew several folks just like that, but they also had brand new vehicles with 72 month terms - but that was wayyy back in 2005-2007 in the U.S.

Thu, 12/08/2011 - 09:19 | 1957932 Northeaster
Northeaster's picture

To try to answer a question that was lost in the pages:

I would start looking in Sec. 902, but no further than Sec. 1001.

BK is not my specialty, maybe someone that specializes in this area of law can answer better. I did not specifically read where derivative claims take precedence over depositors. However, that doesn't mean that it wasn't staring me right in the face, which is why someone with BK knowledge would be more helpful.

Thu, 12/08/2011 - 09:32 | 1957962 I am a Man I am...
I am a Man I am Forty's picture

Well, it's being reported that Jon "Mother Fucking" Corzine doesn't know where any of the customer money is, while I manage assets and can track every single penny at any given second of any given day, he just can't seem to find it.  I got an idea, track one fucking customer's account, there's a start for ya.  You fucking PIG.

Thu, 12/08/2011 - 09:34 | 1957975 blindman
blindman's picture

great ! urrr, i mean terrible. terrible truth,
great writing and thinking! among the best i have
had the fortune to ever read with these eyes.
congratulations on this web cite and article and
thanks for letting the likes of me in to comment
and howl!

Thu, 12/08/2011 - 09:37 | 1957985 Benjamin Glutton
Benjamin Glutton's picture

Is this the co-mingling(re-hypothecate outside US Law)that JPM is citing to seize client funds? hmmmm...

Thu, 12/08/2011 - 09:40 | 1957991 QuietCorday
QuietCorday's picture

London has become a bolthole for all manner of questionable activities and individuals, not just financial. The regulation of almost everything -- finance, immigration, revenues, public spend, dubious foreign nationals in residence that cause diplomatic problems for the state (oligarchs and people wanted for terrorism in other countries), the police, the welfare system, public health, environmental health, sex institutions, law and order etc -- has been dire for about fifteen years.

It got so bad a few years ago that they couldn't actually stop a strip club/brothel from opening up on the ground floor of an apartment block or across the road from a school (though I think they have changed the legislation now) or prevent Gulfies from racing their Ferraris through Knightsbridge in the middle of the night.

The sheer level of criminal activity in London now is extraordinary. Hundreds of thousands of Brits are leaving the capital every year because the situation is so ridiculous.



Thu, 12/08/2011 - 09:51 | 1958030 PulauHantu29
PulauHantu29's picture

Greenspan said,"derivatives actually diversify and decrease risk so they are ultimately as good thing."

Could "The Maestro" have been incorrect?

Thu, 12/08/2011 - 10:00 | 1958069 Shizzmoney
Shizzmoney's picture

People think Wall Street is dirty?  London is even DIRTIER in their fiscal shenanegians.

Thu, 12/08/2011 - 10:07 | 1958112 My Days Are Get...
My Days Are Getting Fewer's picture

Possibly the most meaningful article I have read on ZH.


I have just sent an email to my broker requesting the following question to be answered in writing:

Have you pledged and or all of the assets in my account as collateral for loans obtained by you from third parties?

If I do not get a simple answer of "no", then I will request that the broker to issue out the certificates for my holdings in CEF, SGOL and SIVR.  Then, my next dilemma will be to figure our where I can safely store the certificates.

Thu, 12/08/2011 - 11:07 | 1958231 Archduke
Archduke's picture

I'm not sure what this article is trying to say.  we already know everything is over-leveraged

due to the mechanics of fractional reserve combined with a plethora of unicorn-priced products

and opaque otc counterparty risk assumptions, such as CDS, CDO, SPVs etc..


there's no great scary special "hypothetication" monster.  banks deal with each other in a variety

of products that take advantage of arbitrage opportunities due to their different markets and

exposure.  it's what should allow more efficient capital flows.  provided proper pricing of course.

which we have not. 


also to say that Canadian banks are ignoring tier-1 capital ratios or that the Canadian mortgage

bubble is as bad as its option-arm-robo-signing originating peers down south is a longshot.


imho MF global's worst impact has nothing to do with obscure off-balance flows, repos, or

the sheer amount of margined up crap held in its or any other dealer's balance sheet.


the real pernicious consequence is that now no central clearer/dealer/broker can ever be trusted.

your assets allegedly held for you in fiduciary trust are no longer trusted to be yours to recover.

that should be sacrosanct.  it's one thing to skim a margin by front-running your client's trades.

it's a worse fraud to cheat your clients and hawk a bad product you are shorting on the other hand.

but outright stealing from your client's seggregated account really tops it on the scale of felony.

this is not fraud. this is grand theft.


note that your dealer already pockets from the fees and from position knowledge as a liquidity provider.

temporary plundering from your portfolio is just that: theft.  banks do it with your savings, but they have

strict capital ratios and are backed by depositor insurance.  dealers and brokers are not entitled to this.

(arguably, banks perform a public service in the act of money creation and return a pittance in interest).



Thu, 12/29/2011 - 08:58 | 2018721 Archduke
Archduke's picture

here's Janet Tavakoli essentially saying the same thing, courtesy of HuffingtonPost:


Thu, 12/08/2011 - 10:47 | 1958346 doggis
doggis's picture


is hypothecation, and re-hypothecation via the UK how mutual funds have financed themselves with neverending  redemptions ~ given that their cash levels are at all time lows, and they have yet to sell positions to bring that level of cash higher....


is this how they do it??

Thu, 12/08/2011 - 12:02 | 1958736 Edna R. Rider
Edna R. Rider's picture

Tyler: little bird tells me lots of hedgies not willing to write down the MF loss before year end though they all know the money will never be recovered.

Thu, 12/08/2011 - 12:04 | 1958744 tony bonn
tony bonn's picture

alan greedscam's gift of unregulation keeps on giving.....thank god he is a sociopath so he can sleep well at night.

Thu, 12/08/2011 - 12:08 | 1958761 Winston Smith 2009
Winston Smith 2009's picture

The implications of all of this?  Your money is safe NOWHERE:

MF Global: The SERIOUS Issues Reach Mainstream Media

Final paragraph at above link:

And finally, let me reiterate what I've said since this story broke: So long as there are off-balance-sheet liabilities and derivative contracts have preference over deposits -- both of which are true in the present time -- this very same risk is present for anyone with a BANK OR INVESTMENT ACCOUNT OF ANY TYPE in The United States.  If you believe otherwise you are wrong.




Thu, 12/08/2011 - 17:52 | 1960828 AC_Doctor
AC_Doctor's picture

Winston,  precious metals strategically hidden are a valuable store of wealth and may be one of the few safe havens left.

Thu, 12/08/2011 - 12:37 | 1958920 Martial
Martial's picture

THIS is why I love ZH! Great piece.

Thu, 12/08/2011 - 13:02 | 1959054 Matt
Matt's picture

Wasn't hypothecation and re-hypothecation a big part of Enron's financing?

Thu, 12/08/2011 - 13:22 | 1959225 slewie the pi-rat
slewie the pi-rat's picture

the queen is gonna get her bloomers in a bunch, now, BiCheZ!

if people have counterparties, do they even really know who they are, much less wtf they are up to?

Thu, 12/08/2011 - 13:22 | 1959227 Forgiven
Forgiven's picture

I wonder if TD Ameritrade rehypothecates their customer accounts? (cue Homer Dohhh! sound)

Thu, 12/08/2011 - 15:59 | 1960129 Mauibrad
Mauibrad's picture

The Congressional hearing today is a big jerk off.  Has even one Congressman or Corzine even mentioned Re-Hypothecation?  They are talking all around it without talking about the known problem.  This is why these things happen and don't get solved, Congress are a Bunch of Dumba$$e$!

Thu, 12/08/2011 - 18:16 | 1960924 Zymurguy
Zymurguy's picture

Yeah, they ask him if he knows where the money went.

The answer is:


"what money, there was no real money to begin with."

Thu, 12/08/2011 - 18:24 | 1960949 Global Hunter
Global Hunter's picture

One of them did this morning to Sommers, I think he was from Nebraska but he didn't ask Corzine any questions I don't believe.

Thu, 12/08/2011 - 17:26 | 1960692 Jekyll On The Island
Jekyll On The Island's picture

BUY GOLD BUY GOLD BUY GOLD!!!!! Put ALL your retirement money into GOLD!!!  It will drive the RUTHCHILDS CRAZY!!!  If for no other reason buy it as a form of PROTEST.... For every ounce of gold YOU HOLD it takes $250,000.00 in lending power away from the bankers!  Time to fight, it is the least you can do to actualy make a change in the world and to safegaurd your money value aswell.  Do it BEFORE they make ownership illegal AGAIN!!  AT about $2800.00 per OZ. you can BET they will not want COMMON PEOPLE to even hold any Gold!

Thu, 12/08/2011 - 17:52 | 1960831 ronin12
ronin12's picture

I think it's time for everybody to cash in their chips and go home.

Thu, 12/08/2011 - 17:56 | 1960844 swabeyjw
swabeyjw's picture

Deposit account are not safe, bonds are not safe. So how does one hold cash other than digging a hole in the backyard? Any opinions on currency trust - Rydex FXC or FXA for example?

Thu, 12/08/2011 - 17:58 | 1960853 Jekyll On The Island
Jekyll On The Island's picture

BUY GOLD BUY GOLD BUY GOLD!!!!! Put ALL your retirement money into GOLD!!!  It will drive the RUTHCHILDS CRAZY!!!  If for no other reason buy it as a form of PROTEST.... For every ounce of gold YOU HOLD it takes $250,000.00 in lending power away from the bankers!  Time to fight, it is the least you can do to actualy make a change in the world and to safegaurd your money value aswell.  Do it BEFORE they make ownership illegal AGAIN!!  AT about $2800.00 per OZ. you can BET they will not want COMMON PEOPLE to even hold any Gold!

Thu, 12/08/2011 - 18:53 | 1961014 terryfuckwit
terryfuckwit's picture

Deposit account are not safe, bonds are not safe. So how does one hold cash other than digging a hole in the backyard? Any opinions on currency trust - Rydex FXC or FXA for example?

Thu, 12/08/2011 - 18:02 | 1960865 falak pema
falak pema's picture

is this corzine medecine or was it done behind his back? Rehypothecation sounds like true GS defecation.

Thu, 12/08/2011 - 18:03 | 1960874 Enceladus
Enceladus's picture

I think this might be the most important piece ever done on ZH.

Thu, 12/08/2011 - 18:22 | 1960940 Global Hunter
Global Hunter's picture

It is a masterpiece but I'd like to point out the Fukushima coverage was unbelievably brave too. 

Thu, 12/08/2011 - 18:24 | 1960944 Dburn
Dburn's picture


Thu, 12/08/2011 - 18:15 | 1960918 Zymurguy
Zymurguy's picture

hypo' and rehypo' were sitting on a fence and hypo' fell off... who was left?


hypo' and rehypo' were sitting on a fence and hypo' fell off... who was left?


hypo' and rehypo' were sitting on a fence and hypo' fell off... who was left?


hypo' and rehypo' were sitting on a fence and hypo' fell off... who was left?


This is why fractional reserve lending upon a fiat currency should be illegal - punishable by death.

Thu, 12/08/2011 - 18:18 | 1960927 lauramalter
lauramalter's picture

Corzine had a "Rick Perry, OOOPS moment" when he let on that he knew what was going on - when asked about multiple regulatory agencies and what could be done to make sure another MFG doesn't happen again, he replied quoting the names of multiple different organizations and the different rules regarding each, and specifically, the differences in UK rules regarding segregation of funds.

Thu, 12/08/2011 - 18:19 | 1960934 Global Hunter
Global Hunter's picture

This was a great post last night TD(s)-you've managed to put all this into clear terms for any and all to see.  Those who aren't shocked and somewhat frightened by this either knew about it all along or are in denial.  

Thu, 12/08/2011 - 18:26 | 1960952 swabeyjw
swabeyjw's picture

Does anyone have an opinion on how to hold cash other than in a hole in the backyard?

Thu, 12/08/2011 - 18:36 | 1960976 Dburn
Dburn's picture

Let your dog take a big pile of shit in the same spot. Build up a nice compost. Bag it and stuff it down. Cover only with the latest and steamiest. Microwaving might help for the winter. The Barbeque could help too.

Thu, 12/08/2011 - 19:15 | 1961082 ejhickey
ejhickey's picture

spece bags are good for sealing up cash , airtight .   but i like the burying it under dogshit and compost .  Now that is a deposit.

Thu, 12/08/2011 - 18:26 | 1960953 junkmail
junkmail's picture

guys, i have a question.. who is the best financial analyst you use, and who is the dumbest... ?

Thu, 12/08/2011 - 18:28 | 1960957 Odin
Odin's picture


Thu, 12/08/2011 - 18:40 | 1960983 pettolicious
pettolicious's picture

Holy fuck...What then becomes the trigger to accerate the avalanche?

Thu, 12/08/2011 - 18:40 | 1960985 naked short
naked short's picture

hmmm...this does not look good as well. If everybody is borowing...someone needs to print

Thu, 12/08/2011 - 18:41 | 1960988 dbach
dbach's picture

Perhaps without this re-hypothecation, the brokerages would not have created enough liquidity to absorb all of the debt that has been generated over the past decade. If not for this created liquidity to absorb new debt, the sovereign debt issues may have been much smaller than they are these days and may have been already resolved as interest rates on the debt would have risen with the increase in issuance.

Instead we have an even larger house of cards that is ready to fall down. Fun!

Thu, 12/08/2011 - 18:52 | 1961012 americanspirit
americanspirit's picture

Dear ZHers - just found this clause in my Schwab One account agreement - might want to check yours

11. Pledge of Securities and Other Property


We may pledge, re-pledge, hypothecate or rehypothecate, either separately or together with Securities of other customers, all Securities and Other Property that you, now or in the future, carry, hold or maintain in your Margin and Short Account. The value of the Securities and Other Property we pledge or re-pledge may be greater than the amount you owe us, and we are not obligated to retain in our possession and control for delivery the same amount of similar Securities and Other Property

Thu, 12/08/2011 - 19:01 | 1961033 pettolicious
pettolicious's picture

I was just checking mine as well - it has virtually same language.

Thu, 12/08/2011 - 19:22 | 1961096 kaiserhoff
kaiserhoff's picture

Does this give me an insurable interest in Jon Corzine?  Just asking, because, it's not life insurance, it's death insurance, and well..., Hmmmmm.

Thu, 12/08/2011 - 19:31 | 1961119 slewie the pi-rat
slewie the pi-rat's picture

a gf was gonna open an account last year to do some trading;  she had been reading some of the stuff i had pointed out to her, and had some ideas--not a large proportion of the portfolio she and her CFA were running, but she was at the point if she wanted to buy something, she just wanted to spend a few thou and buy it

so, she asked for advice and i told her about the companies i had experience with, but told her to figure it out for herself

she thought schwab would be ok for her and she was ready to sign thingies and get ready to fund it a little

i told her not to open any accounts with a "broker" until she had read and understood the "prospectus"

she couldn't understand it, but wanted to get into the game and try to pick a stock or two!  just like anybody else, really

i reminded her that she hadn't been able to read and understand what the contract said and meant in my usual suave and subtle ways, and she eventually decided not to open it

but who knows what the woman actually did?

Thu, 12/08/2011 - 20:55 | 1961339 TheAkashicRecord
TheAkashicRecord's picture

Scottrade has nearly the same agreement

//62. Pledge of Securities, Options and Other Property. All securities and other property now or hereafter held, carried or maintained by us in or for your Account may, from time to time without notice to you, be pledged, repledged, hypothecated or re-hypothecated by us, either separately or in common with other securities and other property. The values received may be greater than the amount you owe us. Any losses, gains or compensation resulting from these activities will not accrue to your brokerage Account. We are required under SEC rule 15c3-3 to retain in our possession and control all fully paid-for securities. Securities used as Collateral for Margin Loans are not fully paid for and therefore are not subject to the same obligation.//

Thu, 12/08/2011 - 18:53 | 1961016 jimmyjames
jimmyjames's picture

Canadian Banks under the guarantee of Canadian taxpayers via CMHC as of last year had 840 billion $ waiting for the defaults to roll in-

Who knows how much more has been added in 2011-so all those who profess the soundness of Canadian banks-need to give their heads a shake-

With 10% the population of the US-you can do the math and figure out the debt per head on this-

"Guarantee in force" 

"Insurance in force"

We're such sneaky bastards up here-



CMHC’s insurance-in-force (iiF) –
prudent risk management1
CMHC’s total insurance-in-force at the end of 2010
was $514 billion, $41 billion over 2009


Overall, CMHC’s securitization guarantee program
exceeded its plan for 2010 which was adjusted
downward from 2009 to take into account the
termination of IMPP. With the $95 billion guaranteed
in 2010, CMHC’s guarantees-in-force were $326 billion
as at December 31, 2010.

Thu, 12/08/2011 - 18:56 | 1961025 distopiandreamboy
distopiandreamboy's picture

And Draghi just "eased" collateral restrictions...

Thu, 12/08/2011 - 19:08 | 1961058 High Plains Drifter
High Plains Drifter's picture

they ought to keep this at the top for a month. people need to see this. 

Thu, 12/08/2011 - 19:11 | 1961069 terryfuckwit
terryfuckwit's picture


Thu, 12/08/2011 - 19:12 | 1961072 Goldilocks
Goldilocks's picture

Wow !!!

Thu, 12/08/2011 - 19:12 | 1961074 ejhickey
ejhickey's picture

So where was the CME when all this was going on?   Sitting on their Duff (ie)?   thanks a lot CME.  You sure deserve that tax break you requested from Illinois.

Thu, 12/08/2011 - 19:24 | 1961105 kaiserhoff
kaiserhoff's picture

CME's defense against paying out is..., are you ready for this... FRAUD!   LET THE GAMES BEGIN.

Thu, 12/08/2011 - 19:45 | 1961152 ejhickey
ejhickey's picture

If the CME was so easily fooled they don't deserve to be in business and they sure don't deserve a tax break.  that would just be subsidizing the FRAUD  that is the CME at taxpayers' expense.

Thu, 12/08/2011 - 20:17 | 1961225 kaiserhoff
kaiserhoff's picture

Agreed.  I think the CME signed its own death warrant with their response to this, but the implications for what any broker might be able to get away with are huge.  I've traded for over twenty years, taught this shit at college level, and did not believe this could happen.  Lots of shock and awe out there in the heartland, I'm sure.

Thu, 12/08/2011 - 19:24 | 1961103 Prepared
Prepared's picture

I am completely convinced now more than ever before that when this 'ball of string shit storm' unwinds, it's going to be lightening fast! 

Thu, 12/08/2011 - 19:31 | 1961115 sydneybound
sydneybound's picture

To boil it down into something easy to understand, how wrong (or right) are the following comments:


1) AIG was able to write CDS for unlimited amounts because a) they were unregulated when it came to this action (both AIG and CDS instruments) b) the models assumed that home prices wouldn't fall across the US by more than % c) AIG didn't have to put up any cash as margin as a counterparty


2) Certain financial institutions are able to hypothecate client assets because a) this is regulated but there are different limits to the implied leverage allowd (stricter limits within the US vs no limits in London as they are self-regulated) b) the models assumed that certain sovereigns wouldn't technically default c) the ultimate credit provider (client assets) didn't require any cash as margin as a counterparty



Thu, 12/08/2011 - 19:31 | 1961116 yogibear
yogibear's picture

The only "Hope and Change" will come from guns and ammo.

Thu, 12/08/2011 - 19:33 | 1961126 sydneybound
sydneybound's picture

Concerning banks such as the Canadian ones, is the author saying that cash on deposit can be used to hypothecate using the UK subsidiaries?  Or is the author saying that the brokerage arms of the banks can do what MF Global did?

Thu, 12/08/2011 - 20:34 | 1961290 Everybodys All ...
Everybodys All American's picture

If you have an account at a broker dealer and/or bank they can and likely would use hypothecation to trade with which is in essence your money. In the US the law is you can hypothecate up to 140%. Example if you have $10,000 in a margined trading account they can in essence buy something in the firms' trading account worth $14,000. Usually something extemely safe. Since Bernanke the idiot(I'm being kind) has come along nothing is safe or without risk. Remember this numbskull decided we all needed more risk in order to inflate the economy. Remember, this right doesn't necesarily mean they would use the money at all. Enough do however.

Thu, 12/08/2011 - 21:25 | 1961408 jimmyjames
jimmyjames's picture

Concerning banks such as the Canadian ones, is the author saying that cash on deposit can be used to hypothecate using the UK subsidiaries?


There is no cash on deposits-there hasen't been for years-

Canada has no reserve requirements-

In other words-your cash deposit is loaned out before it ever gets to a deposit account-

It is there in imagination only-if everyone headed for the exits at once-they simply do not have the money-they loan first and look for reserves second-like all FRB-

So the cash deposits have been levered up through FRB- our own  hypothecation scam first and then if for example-the money has been loaned to a hedge fund who engage in the MF Global game with the same results-the lender takes the loss-which of course gets passed on to the taxpayers-

Steve Keen has a good explanation about so called "cash on deposit reserves"

Thu, 12/08/2011 - 19:45 | 1961153 Antifederalist
Antifederalist's picture

Stunning.  I manage a fund and I am seriously considering a complete shut down and moving to physical and share certs.   Thanks ZH.

Thu, 12/08/2011 - 19:51 | 1961171 Bolweevil
Bolweevil's picture

He did not say "bolthole" and "cock-up" in the same breath? Crazy-ass Limey's.

Thu, 12/08/2011 - 20:01 | 1961198 earleflorida
earleflorida's picture

doesn't canada belong to great britain[uk]?

Thu, 12/08/2011 - 20:12 | 1961220 Global Hunter
Global Hunter's picture

Well the same folks run both places 

edit:I think you'll find they run your state too

Thu, 12/08/2011 - 20:09 | 1961227 claycalhoun
claycalhoun's picture

No, Canada is a sovereign country but we share the same Monarch,not the same as a President, purely a figurehead

Thu, 12/08/2011 - 20:09 | 1961228 claycalhoun
claycalhoun's picture

No, Canada is a sovereign country but we share the same Monarch,not the same as a President, purely a figurehead

Thu, 12/08/2011 - 20:14 | 1961240 ebworthen
ebworthen's picture




Is Merlin involved?  Rumplestiltskin?

This is worse than alchemy and "turning lead into gold".

Sat, 12/10/2011 - 09:55 | 1965857 philipdybel
philipdybel's picture

As Harry Potter said: "Rehypothecus Bernankio !"

Thu, 12/08/2011 - 20:16 | 1961255 Everybodys All ...
Everybodys All American's picture

Hypothecation and re-Hypothecation are not problematic in and of itself. I've seen many firms who don't even use this capability. However there are firms who choose to go way over their heads in risk.  Hypothecation is almost a license to pillage. What's worse is virtually no CEO or leader will take any ownership of mistakes over their trading activity at these brokerages. Primarily because there is no threat to be held accountable by the regulators, courts, or by the government. Therefore they don't care if the whole thing blows up just so they make their bonus's and salaries. They can leave the whole thing in collapse and still end up with not only a federal bailout but a golden parachute. It is insane. How can you explain that Citi has the same president as before their collapse in 2008. Why is Lloyd still at Goldman after getting a federal bailout? Why does are governent reward this kind of failure? How is that our government even allows larger banking structures after 2008?

How do you fix it? Start by breaking all of these firms into smaller banks or brokerages and many of these systemic problems will go away naturally. Smaller sizes means more jobs as well. Does it eliminate fraud or failure? No. But it makes them much more manageable when they do fail. Second. Something has to be done about the lack of morality. Lieing, cheating, stealing are way to common place in the white collar workplace. Why is it that Jon Corzine can walk around Congress today like he did nothing wrong? He should be ashamed and yet he's not. Why because he is amoral. Third. Prosecutions better start happening soon otherwise chaos or worse people taking the law into their own hands will likely happen.

I'm sure others feel the same and I'd be curious what other additional changes people would wish to see happen.

Thu, 12/08/2011 - 20:29 | 1961296 Antifederalist
Antifederalist's picture

Amen Brother.  All of the bailouts were SERIOUSLY WRONG.  However, if the Government is going to bail out failed banks why not fire management, change the Board of Directors, create new rules (Glass Steagall II), etc. 

I have a top lawyer friend who would have worked for the Government pro bono to negotiate with and punish the bankers.  It is an outrage.

Why wasn't Gensler under the gun today?  He was supposed to be the regulator.  We pay his salary.  Can he recuse himself from his regulatory failure?   What's up with that?

Finally, a special shout out for Vikram Pandit.  He is FUCKING SCUM.  He sold his hedge fund to Citibank and made hundreds of millions.  The fund then blew up and lost 98% of the investor money.  He becomes CEO of Citigroup and runs it into the ground.  And he still has a job?  Is he blowing Bob Rubin, does he have naked pictures of some people?   How can this possibly be.   All I can say is AMAZING.  

The Justice Department, SEC, SOMEONE had better find some balls and prosecute these bastards or they too will be culpable when bankers start getting taken out........  

I am not advocating it, I am just saying it is inevitable. 




Thu, 12/08/2011 - 23:44 | 1961758 CitizenPete
CitizenPete's picture

Amen again on all points.  The goverment corruption and direct ties into JP Goldman are unreal.  Great short rant. 


Surprized you didn't get a gab in on Hanky and Timah. 

Thu, 12/08/2011 - 22:26 | 1961540 Teamtc321
Teamtc321's picture

Also, what to do with all the forced public debt that has incurred within these fraudulent actions since, say 1913? 

Thu, 12/08/2011 - 21:10 | 1961263 CitizenPete
CitizenPete's picture


And now for something completely different: U.S. Economy at Risk: What Can Be Done?



Uploaded by  on Dec 8, 2011

U.S. Economy at Risk: What Can Be Done?

Despite massive monetary and fiscal stimulus, the U.S. economy remains at risk of another recession, threatened by the crisis in the eurozone and the lack of progress on jobs at home. Why have the policies attempted thus far fallen so short? What should we be doing instead?

The New America Foundation the Washington DC release of a paper the New York Times called "deeply nuanced" and having a "clear-eyed" view of our economic predicament. "The Way Forward: Moving from the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness," is authored by Daniel Alpert, Managing Partner of Westwood Capital, and Robert Hockett, Cornell University Law Professor and consultant to the New York Federal Reserve, and Nouriel Roubini, Chairman, Roubini Global Economics and Professor of Economics at New York University.

The authors of the paper as well as Liaquat Ahamed, author of Lords of Finance: The Bankers Who Broke the World, Bruce Bartlett, columnist for The Fiscal Times, and Leo Hindery, Jr., Managing Director of InterMedia Partners, discussed the risks facing the U.S. economy and what can be done to restore economic growth and full employment in the months ahead.

In this video, Sherle R. Schwenninger moderates this informative discussion.



No it's not the trailer for the new Three Stooges movie...   These three will explain a comprehensive plan of how the U.S. can simply spend their way out of debt.  Of course..., why we didn't think of that before?



Thu, 12/08/2011 - 20:34 | 1961306 peekcrackers
peekcrackers's picture

Holy Beaver fuckers .. great read

Thanks ZH ( Tyler  )  I have been following this story since your  post on Canadian Bank toxic balance sheet back in the the summer.  Looks like My home and Native land was hold 30% of the shit bag. Now I can truly under stand the busting of sewage that is coming my way .

Au Ag .. is the Mr plumer.,

Thu, 12/08/2011 - 20:42 | 1961323 Van Halen
Van Halen's picture

Ann Barnhardt over at has a pretty good writeup or two about Corzine.

Thu, 12/08/2011 - 21:19 | 1961396 booboo
booboo's picture

I hope they don't all think they are going to just all go live on Banker Island when the shit blows, though I think they may have a world (war three) class distraction waiting in the wings to keep the us all waving flags and sending our boyz to blow some more bubbles. War Bubbles, yea, thats the ticket. High oil, pares the overcrowding, gets the economy all jizzed up and rally's the homefront and now the buttworms in D.C. get to put you in a hole for questioning their mental state.

A Woodrow Wilson wet dream, cept this time when Johnny comes marchin home hoorah, hoorah, he's gonna need a job kickin doors down, so git your ass in line maggots or Git Mo'd. I see dead sheep.  

Thu, 12/08/2011 - 21:20 | 1961402 steve from virginia
steve from virginia's picture


Without numbers it is hard to see how large a problem re-hypothecation is.

Looking @ sorry condition of shadow banking (hedge funds losing money hand-over-fist and mucho dinero redemptions) re-hypothecation leverage isn't nearly as widespread as previous finance darlings AAA-rated mortgage backed securities and various synthetics/trading vehicles.

Right now, prob is MF Global customer accounts in custody of JPM. This is not a world-shaker by itself.

Bigger prob is inaction on the part of CME Group and the commodities Ponzi pissing off its shill (Celente). Talk about shooting yrself: CME should have limo taking Celente to his money tomorrow morning on TV with a 'courtesy contract' in Au as compensation for his 'trouble'.

Every day this doesn't happen means more business leaking out of the various exchanges, fewer people trusting the Ponzi with the Ponzi eventually collapsing on itself.

Until it shows up on the radar, (someplace besides Reuters opinion piece and ZH) the re-hypothecation is more re-hypothetical than re-ality.

Thu, 12/08/2011 - 22:12 | 1961453 jackinrichmond
jackinrichmond's picture

yeah, yeah, yeah..  canada's going to crash and burn...  geez, how many years have i been reading that ?  

i guess if you keep repeating it, you may get it right ..eventually...  but even a broken clock is right twice a day. 

you can't use american metrics to measure the canadian economy.    actually, the american metrics don't measure the u.s. economy very well either..   the numbers are lies based on lies and have no real value for investors.  they are strictly for propaganda.. 

jim rogers puts it best.. if the world recovers, the commodity sector will do very well - if the world collapses, they will print and print and print (very good for commodity prices).  

with 7 billion people on this planet, there will always be a big need for canada's resources... EH 

Thu, 12/08/2011 - 22:01 | 1961495 quacker
quacker's picture

So basically if a dog shits on the sidewalk in London it can immediately be used as collateral - over and over.

Thu, 12/08/2011 - 22:11 | 1961518 FranSix
FranSix's picture

It wod be a propos to post any MSM defending the banks:

Thu, 12/08/2011 - 22:21 | 1961527 whoisjohngalt11
whoisjohngalt11's picture

Corzine's Loss May Be Soros's Gain..

 Investor George Soros's family fund bought about $2 billion of European bonds formerly owned by MF Global Holdings Ltd., the very debt that helped force the securities firm to file for bankruptcy protection Oct. 31, according to people close to the matter.

Under the direction of MF Global's former chief executive, Jon S. Corzine, the firm accumulated $6.3 billion of short-term debt issued by various European nations, mostly from Italy, in a bid to boost trading profits. Over the summer, this debt led to nervousness by investors, regulators and ratings companies, resulting in the firm's collapse just over a month ...

Thu, 12/08/2011 - 22:35 | 1961558 tofu mary
tofu mary's picture

I just pulled out my Schwab One agreement and read the same paragraph about pledging securities and other property. At first I took it to mean that they only hypothecate etc. what you may have on margin. Even though I have a margin account, I never borrow anything on margin, so my first thought was, hey, maybe this doesn't apply to me. But then again, I think Celente said he had enough cash in his MF Global account to actually take delivery on his gold contracts, so he wasn't borrowing anything either, and he still got screwed. I also note that Charles Schwab has a subsidiary in London. So, I'm thinking all this money is at risk. Guess it's time to reduce exposure and buy more gold. Maybe leave a little something in there to try and catch that last big wave when the money printing extravaganza begins, which I think is inevitable. How else can these parasites save themselves?

BTW Tyler, this site is fucking awesome. Thanks for all you do!

Thu, 12/08/2011 - 22:35 | 1961559 earleflorida
earleflorida's picture

this is simply unbelievable - it is my third go-around and i'm still having a hard time grasping the ramification of total destruction

absolutely the best article i've ever read,... with unmitigated, superbly thorough investigative journalism  

grats tyler, and contributors  

Thu, 12/08/2011 - 22:42 | 1961571 cranky-old-geezer
cranky-old-geezer's picture



So client funds & assets are pledged 14 times over by banks & brokerage firms as collateral in the unregulated CDS market.

No wonder the next financial system crash will dwarf what happened in '08.

If Bernanke tries to print enough US dollars to bail the system out this time, it will destroy the US dollar once and for all and America as we know it will cease to exist.  It will be be the end of America.

Thu, 12/08/2011 - 22:45 | 1961578 cdskiller
cdskiller's picture

When you read posts like these, is there really any other website that matters?

Thu, 12/08/2011 - 22:58 | 1961594 lizzy36
lizzy36's picture

NO :)

Fri, 12/09/2011 - 00:02 | 1961804 blindman
blindman's picture

yes, there are and many. It was not berthed in a vacuum;
do not lose the foundation, ever.

Thu, 12/08/2011 - 23:18 | 1961662 Aquarius
Aquarius's picture

It is good to see the Banking charade now fully exposed and out in the open. Perhaps now those of the remnant will now slowly emerge into the open without fear of reprssal and worse.

I was personally involved with this nefarious trade back in the 90's when it was many of the European Banks that were behind the wall. The runners were the slick and smart young eager funds call and they were crawling the World to secure assets of all kinds; the bigger the better. The normal for my group - European  but a UK based front with the highest connections was in the order of ~$200M and the word was that most of the Banks were technically bankrupt due to political pressures to fund huge white elephants that ran at ever increasing losses. Of course, we knew that major scamming was also in play by the Bankers at the top and the HQ for those in the higher loops was Monaco. There was another game in play as well that I heard of and that was bouncing large amounts of clients' / investors' money around many Nations allowing percentages to be skimmed at each 'touch and go' before arriving at destination.

Indeed, a big and deadly game which has now come home to haunt the culprits and which the frauds of "leadership" cannot place on the backs of the unwashed masses. I keep getting flashes of the Madame Guillotine; pleasant moments I'd day.

I'd hope now to see the day that the great pretenders, the economists, and the politicoes along with the money mercenaries and the underlying disease of bureaucrats get kicked out of play and the remnants of competance, placed at the helm. Well done ZH et al;Le Papillon

Law conquered Reason,

Power conquered Law,

Only Ethics and Science can conquer Power.

Fri, 12/09/2011 - 00:10 | 1961817 blindman
blindman's picture

i am partial to song.
perhaps you have heard this one?
either way, here it be.
Townes Van Zandt – No Place To Fall.wmv
it all works out just as it must,
you know
as well
as anyone ever could

Thu, 12/08/2011 - 23:28 | 1961703 ucsbcanuck
ucsbcanuck's picture

Man I have to say this - ZeroHedge has changed the way I view the world... forever. Tyler Durden - all of you are legends. Thanks man!

Thu, 12/08/2011 - 23:55 | 1961787 trillion_dollar...
trillion_dollar_deficit's picture

Ive been reading this site since its inception back on the old format. This was by far the best post ever on ZH. My mind has been blown. The problem is so big and so pervasive theres literally no way out. And to think my wife is 31 weeks pregnant with twin boys. What the fuck is an ordinary Joe Shmoe like me suppose to do? I need a blue pill. 

Fri, 12/09/2011 - 00:06 | 1961812 roccman
roccman's picture

what better way to stem oil demand then to crash the whole fucking system?


enjoy the killoff

Fri, 12/09/2011 - 00:33 | 1961869 LongOfTooth
LongOfTooth's picture


Bring on the Revolution:


Fri, 12/09/2011 - 00:39 | 1961884 rbblum
rbblum's picture

Sooooo, why exactly is Bernie Madoff in jail ?


Sat, 12/10/2011 - 16:49 | 1966556 Lord Koos
Lord Koos's picture

In drug-dealer-world, if you use money owed to someone else to make money for yourself, you end up dead.

Sat, 12/10/2011 - 17:32 | 1966628 Beancounter
Beancounter's picture

So... where were the audit firms?

Sun, 12/11/2011 - 16:40 | 1968165 PulauHantu29
PulauHantu29's picture

How many Trillions are pledged?

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