Why The UK Trail Of The MF Global Collapse May Have "Apocalyptic" Consequences

[El Laton Caliente]

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


Zero Hedge

This is an in depth piece on what the financial institutions have been doing (that should be illegal!) and why it is centered in London.

Basically, the large banks and other financial entities such as MF Global have used their liens against investor's collateral to borrow and invest in risky investments, then taken loans against the risky investments and bought even more risky investments. Rinse and repeat up to five layers deep!

[mriddick]

Is it time to take loans out against our 401's?

[N/A]

Only if it's fully funded.

[mriddick]

Only if it's fully funded.

Our 401k's or the banks?

[alismith]

Didn't these people pay attention in Economics 101 class? It seems all they did was play the lottery and hope for the best. So much for thinking bankers and investors have any common sense when it comes to money. The illusion of a disproportionately profitable return on a minimal investment caused them to blindly invest in smoke and try to cover it up with mirrors.

[N/A]

The 4o1k. It would have to be sufficient collateral to repay the loan if you default.

[mriddick]

The 4o1k. It would have to be sufficient collateral to repay the loan if you default.

You'll have to explain that, the money in the 401k is your's, if you borrow against it you are taking your own funds. You either pay yourself back plus interest, or in the case of unemployment before repayment you'd have to pay the taxes and penalties on any outstanding amount. I've known people who have borrowed the max amount (roughly up to half) when they thought there was a crash coming as a extreme way to shelter their own funds by removing them from the market (often times there are few other ways to actually remove your funds if you are employed).

[O.S.O.K.]

As I've stated several times already, I really do think that those in the position to do so are milking the system for everything it's worth and then taking the money and buying hedges - things that can't lose value - precious metals, land, essential commodites... that kind of thing.

It sure is obvious to me that they know exactly what is coming and are taking everything they can out of the system - - while they still can.

Guys - it is so evident.

And yes, it is time to just take the money out of the 401K - pay the taxes and the 10% penalty and buy something that won't lose value. IMHO.

[N/A]

Is it time to take loans out against our 401's?

If you take a loan "out against" something, you are putting that something up as collateral. What you are talking about is not taking out a loan, but just "removing money from an account", so to speak.

[O.S.O.K.]

You'll have to explain that, the money in the 401k is your's, if you borrow against it you are taking your own funds. You either pay yourself back plus interest, or in the case of unemployment before repayment you'd have to pay the taxes and penalties on any outstanding amount. I've known people who have borrowed the max amount (roughly up to half) when they thought there was a crash coming as a extreme way to shelter their own funds by removing them from the market (often times there are few other ways to actually remove your funds if you are employed).

You can transfer them to an approved plan that has precious metal funds... but I'm concerned that things could go so bad that you couldn't get your money out of a fund - it could be frozen... but if you have the money and buy the gold or whatever - it's in your hands, literally.

[El Laton Caliente]

You'll have to explain that, the money in the 401k is your's, if you borrow against it you are taking your own funds. You either pay yourself back plus interest, or in the case of unemployment before repayment you'd have to pay the taxes and penalties on any outstanding amount. I've known people who have borrowed the max amount (roughly up to half) when they thought there was a crash coming as a extreme way to shelter their own funds by removing them from the market (often times there are few other ways to actually remove your funds if you are employed).

Mike, I've worked for companies that had matching funds for 401k's. You were vested in the companies money over time; i.e. at 5 years you could claim 50% of the companies contribution, then at 10 years you were up to 100%.

[mriddick]

You can transfer them to an approved plan that has precious metal funds... but I'm concerned that things could go so bad that you couldn't get your money out of a fund - it could be frozen... but if you have the money and buy the gold or whatever - it's in your hands, literally.

I think that is only if you are no longer employed or your fund has a precious metals fund, if you stay employed and don't meet the emergency criteria normally all you can do it take half out as a loan. My wife can close hers out completely and either move it to another fund or take the penalty and tax, all I can do I believe is do a loan for half it's value.

Mike, I've worked for companies that had matching funds for 401k's. You were vested in the companies money over time; i.e. at 5 years you could claim 50% of the companies contribution, then at 10 years you were up to 100%.

Maybe it's just the rules for my fund but I thought at aspect was a reg for all funds.

[O.S.O.K.]

I'm 100% vested in mine but I'm not sure about my wife's - teacher thing...

[El Laton Caliente]

I just changed employers and moved mine all into a cash deposit IRA at my credit union.

Mike, I've worked for other companies that you were vested in the companies contribution as soon as deposited. The maximum matching amount is regulated, the last I remember was 100% on the first 2% and 50% from 2% to 6% of your base salary. Didn't matter to me I was putting 25% in when I ended up changing companies for the tax break. I was putting $400 to $500 a week away and with the tax difference it only reduced my check about $100 per week. Now I have to wait for the time period until I can start again.

[mriddick]

I just changed employers and moved mine all into a cash deposit IRA at my credit union.

Mike, I've worked for other companies that you were vested in the companies contribution as soon as deposited. The maximum matching amount is regulated, the last I remember was 100% on the first 2% and 50% from 2% to 6% of your base salary. Didn't matter to me I was putting 25% in when I ended up changing companies for the tax break. I was putting $400 to $500 a week away and with the tax difference it only reduced my check about $100 per week. Now I have to wait for the time period until I can start again.

Yea my wife is no longer employed and can move hers I think once a year or she can remove it all and do the tax. I'm still employed by my company so I'm stuck with the rules I'm under. One good thing is my company matches 100% for the first 5%, they stopped for a quarter but recently announced they are going to start matching again next year.

[Warthogg]

This is an in depth piece on what the financial institutions have been doing (that should be illegal!) and why it is centered in London.

Basically, the large banks and other financial entities such as MF Global have used their liens against investor's collateral to borrow and invest in risky investments, then taken loans against the risky investments and bought even more risky investments. Rinse and repeat up to five layers deep!

I'm more than cynical these days but this is far, far wore than I imagined.

For those who will not read the article, there is perhaps 25% equity in the ENTIRE WORLD to back these ........schemes.

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.

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.

Canadian Banks are also sitting atop a mountain of shit.


Wart

[Warthogg]

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.

Synthetic insurance on synthetic assets.......... .

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.

And Dubya Bush bailed out this sorry ass M*****F*****


Wart

[mriddick]

Synthetic insurance on synthetic assets.......... .

Can we pay them off in synthetic money and call it even?

[Warthogg]

Can we pay them off in synthetic money and call it even?

Gotta tell you with only 25% of the assets needed in the world, there is no way to pay.

Unable to believe balance sheets now.


Wart

[Warthogg]

I mean I've known we were going down for a couple or three years but I had no idea.......... . I read a lot, try to understand but I didn't know 10% of the information in El Laton Caliente's post.


Wart