Can somebody please explain zero hedge "rehypothecation" & Canadian Banks

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cpkj's picture
cpkj
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Can somebody please explain zero hedge "rehypothecation" & Canadian Banks

Hi I just read http://www.zerohedge.com/news/why-uk-trail-mf-global-collapse-may-have-apocalyptic-consequences-eurozone-canadian-banks-jeffe  My question is, are canadian banks safe?  At one point, I remember Chris saying he was putting money in Canadian banks.  I have a couple of accounts in Canada, and was wondering if I should bring funds back to USA???  Thanks.

goes211's picture
goes211
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What does it mean?

I think this question is unanswerable.  Because the whole system is opaque there is no way of really knowing if this is a small problem or a huge problem, although it certainly seems likely to be huge to me.  It just seems like another reason not to trust counterparties. 

Massive leverage with counterparty risk is cancerous to a fiat system that is completely based upon trust.  Prepare to stare at the abyss.

cpkj's picture
cpkj
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Chris M has money in

Chris M has money in Canadian Banks, does he still think Canadian banks are safe?  (or at least a while ago, he mentioned having money in Canada)

cpkj's picture
cpkj
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Chris M has money in

Chris M has money in Canadian Banks, does he still think Canadian banks are safe?  (or at least a while ago, he mentioned having money in Canada)

Wendy S. Delmater's picture
Wendy S. Delmater
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rehypothication

Hypothication,  if I understand the terms as used by Zero Hedge, means that they take something that is a security for a real bank loan and use it ALSO as security for a shadow banking (read: not regulated, offf the books, under the radar) loan or financial derivitive. And rehypothication means they take THAT and use it as security for something else, perhaps more than once for more than one loan. And, this is how you get global indebtedness that is several times the amount of the world economy.

Can you say unsustainable, boys and girls? I knew you could.

Doug's picture
Doug
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re-hypothecation

Read this.  Lots of info and examples.  But a word of warning, it isn't for the faint of heart.

http://harveyorgan.blogspot.com/

Doug

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nickbert
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To me anyway, this ZH

To me anyway, this ZH article and the implications it presents is by far the most worrying development I've seen in awhile.  It implies that this hypothecation or rehypothecation is 'allowed' in most financial institutions, if not actively being used.  Even IF a given institution isn't currently using it to a great degree for leverage, the fact that it's available says to me that when crunch time comes most such institutions WILL use it when they get into trouble as a last ditch effort to dig themselves out.  And I don't expect it to work out for most of them.  And if most institutions ARE currently using this to greatly increase their leverage, not only is everything on even weaker foundations than we thought, but it increases the chances of investors and account holders getting robbed if/when there is a banking collapse.  I don't have an account with any big bank so I don't know their terms, but just maybe this little hypothecation/rehypothecation technicality might even be used to deny or indefinitely tie up any FDIC intervention or coverage where it should normally apply?  As a very smart person said, the rules will be broken whenever convenient to the status quo.

The facts that 1) the CME has not acted to protect MF Global investors, 2) that no one is going to jail or even under threat of it, and 3) that we recently saw many of the world's leading central banks move fast as one to pump liquidity into the system, all hint to me that this practice is highly likely to be widespread and a much larger threat to stability than all but a very few realize.  I'm increasingly of the opinion that it may already be too late for TPTB to successfully forestall or halt a systemic banking collapse in the next few months, even if the entirety of the EU were to successfully agree to and pull off a can-kicking epic QE this very minute.  This is just me, but at least until I see something different I'm personally reassessing a systemic banking/financial crisis as being a High-Likelihood High-Impact event in the near term, instead of a Low-or-Medium-Likelihood High-Impact event in the mid term.

My direct exposure to the banks and markets is close to nil, but I'm very worried about my family and friends.  Most still have most of their wealth invested in the financial system and in the banks, and I don't think they're very prepared for this possibility.

- Nickbert

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Poet
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An American Werewolf In London

First of all, I don't pretend to know all the details.

But this is what I believe is the issue:

In the U.S., hypothecation is legal (ick!) but limited. Canada likely also has limitations and tighter controls on client's assets.

However, the U.K. doesn't have limits on hypothecation and re-hypothecation. All of a client's assets can be hypothecated. And if that's deposited elsewhere as collateral, it can be re-hypothecated. Like someone said, that's like fractional reserve banking. Multiple pledged claims on one underlying deposit. When a call is made, it'll be gruesome, horrific, terrifying. Like An American Werewolf In London, but worse.

Apparently MF Global's contract with clients (y'know, those legal contracts that no one ever reads) allowed them to transfer client's assets to a London subsidiary or branch, where funds can be hypothecated and re-hypothecated ad infinitum. The concern is that other banks are likely doing the same, using London trading desks to get around the rules.

So are Canadian banks safe? Probably not.

If you do have to bank, may I suggest a local credit union?

Move Your Money
http://moveyourmoneyproject.org

So far we have at least three REALLY BIG ticking time bombs:
1. Bank of America, JP Morgan Chase, and other banks moving TENS OF TRILLIONS in derivatives bets from their investment banking units onto the backs of their depository units with the Federal Reserve's blessings, but against the wishes of the FDIC, because Glass-Steagal was repealed and the 2005 bankruptcy law places derivatives contract holders ahead of the line of all other claimants, including mom-and-pop depositors in a bank.
2. Major derivatives bets - likely in the tens or hundreds of trillions, definitely in the hundreds of billions - on Greece and other PIIGS defaults that could be triggered. Some on Greece should already have been triggered when the debts were restructured - but are not because they are labeled as "voluntary" hair-cuts.
3. Clients' assets are hypothecated and re-hypothecated in order to be plunked down as collateral on contracts, including possibly derivatives bets. MF Global customers (and clients of brokerages and asset management firms that cleared through MF Global) will likely not get most of their money back.

Notice all of this is financial chicanery. We still have the 3Es to deal with.

Poet

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SailAway
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Local Credit Union, San Diego
Poet wrote:

 

If you do have to bank, may I suggest a local credit union?

Move Your Money
http://moveyourmoneyproject.org

 

Thanks Poet for the link.  

Does anybody know/use a trust worthy Credit Union in the San Diego Are?

Thanks!

 

Poet's picture
Poet
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SailAway:

SailAway

You can search this site to check rankings/safety:
http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx

I did find a credit union for you:

San Diego County Credit Union
Membership eligibility is pretty wide: "Everyone living or working in San Diego, Riverside and Orange counties is welcome."
http://www.sdccu.com/

Here is their rating:
http://www.bankrate.com/rates/safe-sound/memorandums-memos.aspx?cuid=61004

Poet

SailAway wrote:
Poet wrote:

If you do have to bank, may I suggest a local credit union?

Move Your Money
http://moveyourmoneyproject.org

Thanks Poet for the link.  

Does anybody know/use a trust worthy Credit Union in the San Diego Are?

Thanks!

 

ewilkerson's picture
ewilkerson
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Posts: 390
I read all the articles

I read all the articles Zero-Hedge had and the ones referred to Reuters.  It is my understanding that what most of you have said istrue.  There is one thing I believe I need to add. Zero Hedget issaying that the first weak link in the chain has broken (MS Globel) and it has started a chain reaction in Europe causing the lack of liquidity.  The nature of these instruments amplifies the damage exponentially causing many collapses and spreading like a virus.

I am not tied in with insiders or anything.  Nor do I know how much of an insider Zero Hedge is.  What he is ultimately saying though is that the dominoes have started to fall in the entire banking system, and the whole thing will come tumbling down.

Like I say, I interpret it this way but have no way of knowing whether it is accurate.

Ernest

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ewilkerson
Status: Gold Member (Offline)
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Posts: 390
I read all the articles

I read all the articles Zero-Hedge had and the ones referred to Reuters.  It is my understanding that what most of you have said istrue.  There is one thing I believe I need to add. Zero Hedget issaying that the first weak link in the chain has broken (MS Globel) and it has started a chain reaction in Europe causing the lack of liquidity.  The nature of these instruments amplifies the damage exponentially causing many collapses and spreading like a virus.

I am not tied in with insiders or anything.  Nor do I know how much of an insider Zero Hedge is.  What he is ultimately saying though is that the dominoes have started to fall in the entire banking system, and the whole thing will come tumbling down.

Like I say, I interpret it this way but have no way of knowing whether it is accurate.

Ernest

SailAway's picture
SailAway
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Posts: 404
Re: San Diego County Credit Union
Poet wrote:

SailAway

You can search this site to check rankings/safety:
http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx

I did find a credit union for you:

San Diego County Credit Union
Membership eligibility is pretty wide: "Everyone living or working in San Diego, Riverside and Orange counties is welcome."
http://www.sdccu.com/

Here is their rating:
http://www.bankrate.com/rates/safe-sound/memorandums-memos.aspx?cuid=61004

Poet

many thanks Poet, I'll look at it this week-end.

 

 

mman's picture
mman
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Posts: 1
Would Canadian credit Unions

Would Canadian credit Unions be safe?

CalmOne's picture
CalmOne
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Joined: Jan 15 2012
Posts: 2
Canada system

Thanks for your information.  I realize this is a difficult question, but wondering  if anyone has any WILD GUESS as to when this whole thing is coming down? The NWO agenda states that 2015 is their goal for a one world currency ... but their success is unlikely. I believe the MF global scam, among other things, is a good indication of the systemic corruption at the top and the wisdom of NOT trusting these big institutions. But I currently have funds in Canada (in a GIC that will mature in 2013) ... would prefer to leave it there until then (and not even sure they will LET me have it now) ... yet leaving it there could be a BAD IDEA!  Any comments appreciated.

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jumblies
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Posts: 244
The whiteboard presentations

The whiteboard presentations by Paddy Hirsch at marketplace.org are excellent. Here's one on rehypothecation but he covers many topics.

http://www.marketplace.org/topics/business/whiteboard/re-hypothecation-how-its-related-mf-global

 

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