Friday, December 09, 2011

MF Global and the great Wall St re-hypothecation scandal

MF Global and the great Wall St re-hypothecation scandal
A legal loophole in international brokerage regulations means that few, if any, clients of MF Global are likely to get their money back. Although details of the drama are still unfolding, it appears that MF Global and some of its Wall Street counterparts have been actively and aggressively circumventing U.S. securities rules at the expense (quite literally) of their clients.

MF Global's bankruptcy revelations concerning missing client money suggest that funds were not inadvertently misplaced or gobbled up in MF’s dying hours, but were instead appropriated as part of a mass Wall St manipulation of brokerage rules that allowed for the wholesale acquisition and sale of client funds through re-hypothecation. A loophole appears to have allowed MF Global, and many others, to use its own clients’ funds to finance an enormous $6.2 billion Eurozone repo bet.

If it becomes widely known that money put in banks and brokerage houses is being "rehypothecated" and maybe lost forever, what happens to the banking system? I call that a systemic risk. We will be taking our money out and hiding it under the mattress.

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