You didn't believe me?
You didn't believe me?
~Nemo me impune lacessit~
This definition all understand.
Wart
[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).
Last edited by Warthogg; 12-11-2011 at 05:16 PM.
This definition we need to never forget.
Wart
Using client/customer money to back the broker's own trades or borrowings is......legalRe-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.
Last edited by Warthogg; 12-11-2011 at 05:06 PM.
Now we know how $600 Trillion to $1.4 Quadrillion dollars worth of derivatives came into being...
Ok, I too am a dumb ass with this stuff. Can someone post a short story line and explain this for the other dumbasses like me?
Is it:
Al invests with a broker.
Broker uses some of Al's money to back up Al's trading and pay Al's trading debts.
Or is it more complicated then that?
"What sick, barbaric bastards.
It's one thing to use terrorism to make a political statement, but the wanton mutilation and suffering of innocents? How does that forward your political goals? When done in the name of religion, how does that earn you brownie points with God?
Fuck religious extremism. And especially fuck the "religion of peace." "
So, lagcsocialist supports terrorism AS LONG AS ITS FOR POLITICAL ENDS....
Al shows up with $20 Million and borrows $80 Million to make a margin investment worth $100 Million.Originally Posted by Ruskiegunlover
Al's bank or brokerage firm transfers the $100 Million dollar lien to their London office and removes it from their USA books.
The London office borrows $100 Million against their $100 Million lien on Al's investment and buys Greek bonds that are high risk, but pay double or triple the interest else where.
The London office brings their $100 Million in Greek bonds back to London and borrows another $100 Million against them and buys more Greek bonds.
Repeat the last step 3 times.
Now out of $20 Million of Al's money the Bank has $500 Million in Greek bonds and a lien on $80 Million of Al's investment.
Al's investment goes south and he has a margin call for $10 Million. Al's sells for $90 Million and asks the bank for his other $10 Million.
Multiply that times 100 Als and the bank just got asked for $1 Billion that they have in Greek bonds they can't sell.
That is exactly what MF Global did...
Last edited by El Laton Caliente; 12-11-2011 at 05:55 PM.
If I understand it someone takes money and buys investments or futures on margins but takes out insurance to cover their losses just in case. All is well as long as the investor never loses or doesn't lose enough to sink the insurer but it can bankrupt the insurer if things go wrong.
That is what happened to AIG...
Bottom line: If the bets are called in (as described above), there is no where near the funds to cover them.
Default results.
Only option is more "quantitative easing" - that's printing more money but the limit has been reached and hyper inflation sets in. This pushes the interest rates up which causes the national debts of all countries to increase rapidly to the point that payments against them are not possible to meet.
Default results.
Stock markets plummet.
Currencies become worthless. The monitary bubble bursts.
Chaos ensues.
At this point, beans and bullets count the most. Posession is 9/10th's of the law. Everything grinds to a hault as there is no way that people continue to work, continue to trade, etc. if there's no currency to use to move value.
How long does this last before a new, gold-backed (or similar) currency is established?
Last edited by O.S.O.K.; 12-11-2011 at 07:35 PM.
~Nemo me impune lacessit~
Anyone remember the thread from the old board that contained the account of what happened in Argentina when their economy went belly up?
Yea, it was by a guy that lived though it...
Think I found it: http://www.survival-spot.com/surviva...tina-collapse/
Yes, that's it. I have it saved on my computer. A read worth everyone's time.
If 'all' the bets are called in and 'all' the assets are used, there is maybe a 75% short-fall.Bottom line: If the bets are called in (as described above), there is no where near the funds to cover them.
Wart
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.
Last edited by Warthogg; 12-11-2011 at 11:04 PM.
Roll your 401k into a gold or silver IRA, you'll be glad you did.
I sold all my guns and ammo, now I live the quiet retired life.
Argentina confiscated all retirement accounts when they went down. The money was gone in one day and didn't solve anything. The Dem's have floated this notion twice, once under Klinton and again after the 2008 crash when it became clear SS was about to pay out more than it took in.
Quote Originally Posted by insider View Post
Roll your 401k into a gold or silver IRA, you'll be glad you did.If one believes we still have a good bit of time left, I think insider is correct.
If one believes a can of beans and 10 bullets are soon to become the new preferred medium of exchange.....maybe not.
Timing, as is almost always the case, is crucial but how to time an event as is likely to happen.
Wart
Time may be running out: $48m run on Largest Latvian Bank.
This crap always starts with some backwater event...Archduke Ferdinand anyone? And once the dominoes start to fall...watch out for yourself.
Telling the truth is treason in an empire of lies.
WWG1WGA
Nothing good ever comes from a pinched sphincter
http://www.market-ticker.org/akcs-ww...lepost=2808411
Decent article discussing this MF Global mess.
Yup....good article that re-enforces the OP in briefer form.
That these liabilities are off balance sheet........well never mind.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.
Wart
From the reader comments associated with the article. Same fears I have.
No, the issue is simply the allowance of off-balance sheet games. So long as this is permitted there is no solution no matter what else you do.
You folks who think this doesn't apply to banks are out of your mind.
As long as there is an off-balance sheet liability out there and derivative contracts have preference over deposits you're at exactly the same risk.
Last edited by Warthogg; 12-12-2011 at 12:51 PM.
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