Thursday, December 8, 2011

Bourses around the world fall/gold and silver hit with another raid/A must read commentary on the shadow banking industry/

Dear Ladies and Gentlemen:

Markets around the globe sputtered today into the raid as it seems that no agreement to the Euro crisis is at hand. Zero hedge comments on the shadow banking system which has now ground to a halt. The headquarters for the shadow banking system is London England which allows one to hypothecate customer funds and re-hypothecate this over and over again.  When the daisy chain ends, your funds just disappear.
I will discuss this and other major topics with you tonight but please spend extra time studying the REHYPOTHECATION  story.

Gold finished the comex session at $1709.60 down $31.10 on the day.  Silver fell $1.08 to $31.48.
I want to emphasize that the fall in gold and silver are paper losses.  Real metal is probably trading much higher and as well, difficult to obtain.

On that front, we just received this news that the BIS,  the Bank of England and the Federal reserve was behind the massive gold assault.  The story released by Market News Inc wholly owned by the Deutsche Bourse exchange:


MNI Reports Coordinated Central Bank Intervention Sends Gold Lower Intraday

Tyler Durden's picture




It is one thing for conspiracy websites to indicate that the Fed or the global central bank cartel are doing everything in their power to manipulate the price of gold lower. It is something different when the 'reputable', Deutsche Boerse owned Market News does just that.
  • MARKET SOURCES REPORT BIS, BOE & FEDERAL RESERVE WERE SELLING GOLD AFTER IT POPPED TO SESSION HIGH AT GMT 1335 -MNI NEWS via BLOOMBERG
So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold.
h/t GoldCore

and this release from GATA:

BIS, Bank of England, Fed reported to have sold gold today

 Section: 
1:23p ET Thursday, December 8, 2011
Dear Friend of GATA and Gold:
Tipped by our friends at GoldCore.com via Twitter, Zero Hedge notes that Market News International reports that the Bank for International Settlements, the Bank of England, and the Federal Reserve sold gold today to smash it back down after it spiked up this morning. Zero Hedge observes: "So much for all those sworn testimony claims that the central bankers do not manipulate the price of gold." The Zero Hedge post is here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

end



There is no doubt that we have the official sector behind all of the short gold trades.  This will make the 
class action against the banks very interesting.

Let us head over to the comex and see how trading fared with delivery notices and inventory movements of the metals.


The total gold comex OI fell by close to 800 contracts falling from 422,956 to 422,092.  We are witnessing OI falling for both gold and silver.  The front delivery month of December saw its OI fall from 1095 to 860 for a loss of 235 contracts.  We had 367 deliveries so we again gained in gold ounces standing.  The next big delivery month is February and here the OI fell marginally to 262,297.  The estimated volume today was much higher than what we have witnessed in the past week coming in at 169,454 contracts.  No doubt the raid and massive non backed shorts have something to do with the increased volume today.  The confirmed volume yesterday was extremely light at 112, 589.

The total silver comex OI fell below 95,000 contracts for the first time in years as it registered 94,999 contracts tonight.  The total OI yesterday was 95,684 so we lost 685 contracts today.  Investors are fleeing the silver comex as well as the gold comex.  The front delivery month of December saw its OI fall from 419 to 414 yet we only had 3 delivery notices yesterday.  So we again lost 2 contracts to cash settlements.
The estimated volume at the silver comex was much higher today coming in at 50,227.  The confirmed volume yesterday was much more subdued coming in at 34,030.

Inventory Movements and Delivery Notices for Gold: Dec.  8 2011:


Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
nil
Deposits to the Dealer Inventory in oz

nil
Deposits to the Customer Inventory, in oz
nil
No of oz served (contracts) today
77  (7700)
No of oz to be served (notices)
783  (78,300 oz)
Total monthly oz gold served (contracts) so far this month
17,902 (1,790,200)
Total accumulative withdrawal of gold from the Dealers inventory this month
nil
Total accumulative withdrawal of gold from the Customer inventory this month
2135



When have you seen this in a delivery month.  No activity whatsoever..no deposit
no withdrawal by anybody.  Thus the registered gold remains at 3.34 million oz.

The CME notified us that we had 77 delivery notices yesterday for 7700 oz of gold.
The total number of gold notices filed so far this month total 17,902 for 1,790,200 oz.
Yesterday I think I gave you a wrong total monthly notices but it is now corrected.

To obtain what is left to be served upon, I take the OI standing (860) and subtract out today's deliveries (77) which leaves us with 783 notices left to be served upon or 78300 oz.

Thus the total number of gold ounces standing in this delivery month is as follows:
1,7902,000  (served)  +  78,300 (oz to be served)  =  1,868,500 oz (58.118 tonnes)

the above totals are now correct.
With no activity at the gold comex can someone at the CFTC explain how contracts are settled?


And now for silver 

First the chart: December 8th




Silver
Ounces
Withdrawals from Dealers Inventorynil
Withdrawals fromCustomer Inventory414,234 (Delaware,Brinks,HSBC)
Deposits to theDealer Inventorynil
Deposits to the Customer Inventory1,828,696 (Brinks,Delaware,HSBC,Scotia)
No of oz served (contracts)24 (120,000)
No of oz to be served (notices)390  (1,950,000,)
Total monthly oz silver served (contracts)735 (3,675,000)
Total accumulative withdrawal of silver from the Dealersinventory this month81,659
Total accumulative withdrawal of silver from the Customer inventory this month1,112,667



There was considerable activity in the silver vaults today but still no silver was deposited to the dealer and no silver was withdrawn.

We had the following customer deposit:

1. 592,612 into Brinks
2. 31,396 oz into Delaware
3. 1,196,641 oz into HSBC
4. 3047 oz into Scotia

total deposit:  1,828,696 oz

We had the following withdrawals'

1.  402,848 out of Brinks
2.  1007 oz out of Delaware
3.  10,379 oz out of HSBC

total withdrawal by customer:  414,234
there were no adjustments and thus the registered silver today read 34.21 million oz
the total of all silver reads 109.9 million oz.

The CME notified us that we had only 3 deliveries for 15,000 oz.  The total number of notices for the month reads at 735 for 3,675,000 oz.  To obtain what is left to be served, I take the OI  standing (414) and subtract out today's deliveries (24) which leaves us with 390 or 1,950,000 oz left to be served upon.

Thus the total number of silver ounces standing in this delivery month of December is as follows:

3,675,000 oz (served) +  1,950,000 oz (to be served) =  5,625,000
we lost 10,000 oz of silver standing as these two contracts were probably cash settled.

end

Let us now proceed to our ETF's SLV and GLD and then our physical gold and silver funds:

Sprott and Central Fund of Canada.

The two ETF's that I follow are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
There is now evidence that the GLD and SLV are paper settling on the comex.


Thus a default at either of the LBMA, or Comex will trigger a catastrophic event.



Dec 8.2011:


Total Gold in Trust

Tonnes:1,295.81

Ounces:41,661,622.43

Value US$:71,418,793,239.99





Dec 7.2011:



TOTAL GOLD IN TRUST

Tonnes:1,295.81

Ounces:41,661,622.43

Value US$:72,273,637,041.64






we neither gained nor lost any gold at the GLD.




And now for silver Dec 8.2011:


Ounces of Silver in Trust312,722,751.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,726.76


Ounces of Silver in Trust311,750,133.800
Tonnes of Silver in Trust Tonnes of Silver in Trust9,696.51

we gained: 792,000 oz of silver into the English vaults.


end



And now for our premiums to NAV for the funds I follow:


1. Central Fund of Canada: traded to a positive 1.2 percent to NAV in usa funds and a positive 1.4% to NAV for Cdn funds. ( Dec 8.2011).
2. Sprott silver fund (PSLV): Premium to NAV remained constant at  16.8% to NAV  Dec 8/2011
3. Sprott gold fund (PHYS): premium to NAV rose to a 4.27% positive to NAV Dec 8.2011).



end.

John Crudele of the NY Post delivered this commentary today and it is self explanatory:

Fix was in: Bloomberg mag seconds a scoop

Last Updated: 4:26 AM, December 8, 2011
Posted: 12:49 AM, December 8, 2011
headshotJohn Crudele
So, now do you believe me? The stock market was rigged.
It has been a little lonely telling this story over the past few years.
But now that another news organization has finally gotten off its lazy butt, I’ll tell it again: Under former Treasury Secretary Hank Paulson, confidential government information was regularly leaked to select people on Wall Street.
As I’ve explained many times before, The Post got hold of Paulson’s telephone records back in 2009. And the phone logs show that Paulson, the former head of Goldman Sachs, regularly spoke with influential people on Wall Street with whom he shouldn’t have been communicating. These phone calls could have been — let’s use the word “enriching” — for the recipients.
Among his regular phone buds was Lloyd Blankfein, who, for example, spoke six times with Paulson on Sept. 18, 2008. That was a day of great market turmoil and — while there is no way of knowing what the two men spoke about — the calls did coincide with a major turnaround in stock prices.
That was just one example.
There were many recipients of Paulson’s calls. And the conversations went on for years and were especially frequent when Washington needed a friend on Wall Street.
All an investigator — not to mention a prosecutor — would have to do is check the trading records of the firms on the receiving end of Paulson’s chats to determine if there was any suspicious activity.
And, guaranteed, they’d find it.
That’s what I’ve been writing for the past two years. And it is the biggest story that’ll ever be broken in the history of American financial journalism — the US markets are rigged, with the elite and connected getting a distinct unfair advantage over the rest of us schlumps.
Enter Bloomberg Markets magazine last week with a story headlined, “How Paulson Gave Hedge Funds Advance Word.”
It addresses the morning of July 21, 2008 — a time when both Fannie Mae and Freddie Mac, government-sponsored organizations that buy most of the nation’s residential mortgages, were in serious trouble.
Bloomberg says Paulson met with reporters and editors of The New York Times that morning and told them he expected an audit of Fannie’s and Freddie’s books to give the financial markets confidence.
But he told a different story when he met that same day with hedge-fund managers at the office of Eton Park Capital Management.
“Around the conference table were a dozen or so hedge-fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc.,” according to Bloomberg Market’s January issue.
Quoting a fund manager at that Eton Park meeting, “After a perfunctory discussion of the market turmoil . . . the secretary [Paulson] went on to describe a possible scenario for placing Fannie and Freddie into ‘conservatorship’ — a government seizure designed to allow the firms to continue to operate despite heavy losses in the mortgage markets.”
Paulson explained further how the publicly traded stock of both companies would be wiped out under the move.
Bloomberg Markets said the fund manager in attendance who gave the magazine this information “was shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan.”
The fund manager said he left the meeting, called his attorney and was advised not to trade any Fannie or Freddie stock, because Paulson had given him non-public information.
What else is new?
By giving confidential information to a roomful of traders, Paulson had to understand he’d influence the price of Fannie and Freddie stock and, by extension, the whole market.
He’d also be giving the people receiving that information a chance to cheat — to rob public investors who weren’t lucky enough to be invited to such meetings.
And that brings me to last week.
According to other journalists’ reports, the Federal Reserve voted on Monday, Nov. 28, to approve a financial bailout for Europe using our dollars. That’s the same day that the stock market staged a strong rally, which turned out to be only a preliminary event to the 400-plus point surge the Dow would have two days later — after the rest of us found out about the European bailout.
Was it just a coincidence that the stock market rallied nicely on the day of the Fed vote? Or was information from that Fed’s Open Market Committee leaked by someone to friends on Wall Street?
Only a few people know what happened on Nov. 28.
But this much I do know: Whatever games are being played between Washington and Wall Street must stop, or the American capital markets will cease functioning. Nobody with any sense will participate in a market that’s controlled by greedy people looking out only for themselves.
The second thing I know: Journalists need to start doing their job in rooting out corruption like this.
Bravo to Bloomberg Markets magazine. It’s about time at least one publication woke up.


Read more: http://www.nypost.com/p/news/business/fix_was_in_bloomberg_mag_seconds_t0MKHkjTB8AMZGGj8tAbtJ#ixzz1fywjrOG5.


Today the ECB lowered their prime interest rate as expected by a quarter of a point:

07:45 ECB cuts benchmark interest rates 25bps to 1.00%
* The move was as expected .

They also announced some more QE purchases of bonds on a longer term basis:





* * * *
08:58 ECB's Draghi says ECB to conduct two longer term refinance operations with maturities of 36 months -- press conference * Economic
outlook remains subject to particular uncertainty with high downside risks
+ cites sovereign debt crisis, downside risk to global growth, global imbalances
EuroArea economic activity to recover in 2012
* Inflation
likely to stay above 2% for several months before then declining below 2%
risks broadly balanced
* ECB offers further liquidity measures
two longer term refinance operations with maturities of 36 months have an option to retire early after 1 year
interest rate to be indexed to main rate


end


I want everyone to read this zero hedge commentary on the shadow banking industry.  This brought down Lehman Brothers and MFGlobal and will certainly bring down Jeffries and some Canadian banks.

In simple language, the shadow banking industry with its headquarters in London England allows a firm (a financial firm) to hypothecate funds many times over. (re-hypothecation)  London, England was  the final destination of all of MFGlobal segregated customer funds.  

The IMF states that the re-hypothecation industry has real backing for only one trillion dollars and yet the market is 4 trillion dollars or only 25% backing.  No wonder it is very profitable for the banks (due to the increased leverage) as they provide their shareholders with nice profits when times are good.  However when when get global financial turmoil then chaos reigns (de-leveraging).  This shadow banking industry is all off balance sheet and when the daisy wheel stops the money just disappears off the planet nowhere to be seen.  This is what happened to MFGLOBAL's money and to Lehman Brothers and it will happen to all financial firms that engage in the murky shadowy banking industry.

take your time reading this.  It should help you understand why the MFGlobal money disappeared in London and will never resurface.  The shadow banking industry is now all but shut down.

(courtesy zero hedge)



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 themselvesagainst 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 CDSjust 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 theTelegraph 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 UKWith 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 beenGoldman 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 hypothesisfor 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.

Here is the original source for the zero hedge article on rehypothecation or the shadow banking industry:

(courtesy of Christopher Elias of the UK and Jim Sinclair)

MF Global and the great Wall St re-hypothecation scandal 12/7/2011
By Christopher Elias (UK)
(Excerpts from article)
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).


38 comments:

FunkyMonkeyBoy said...

Harvey,

You have posed this obvious question on your blog:

"With no activity at the gold comex can someone at the CFTC explain how contracts are settled?"

... and yet you state that you are in direct regular communication with Bart Chilton, one of the head honchos, at the CFTC...

... did you not think to ask Bart this very question? Seems an obvious step to me, and would at least be some positive progression.

Anonymous said...

Re:Gold and silver hit with another raid

This is what is being enforced..

What kind of "Cotton pick'n" madness is this.
--------------------------

The U.S. Commodity Futures Trading Commission said Merrill Lynch Commodities Inc. agreed to pay a $350,000 civil fine to settle charges that it exceeded speculative position limits on cotton futures.

The agency alleges that from Jan. 31 through Feb. 3, the Bank of America Corp. BAC -0.18% unit held equivalent positions in cotton No. 2 futures contracts traded on the IntercontinentalExchange U.S. that exceeded the CFTC's speculative limits.
The CFTC found that Merrill Lynch Commodities' positions exceeded the speculative position limit of 5,000 contracts in all months and 3,500 contracts in any single month in Cotton No.2, and violated the Commodity Exchange Act's prohibition against trading in excess of speculative position limits.
A Merrill Lynch Commodities representative wasn't immediately available for comment.

Cotton Pick'n mad

Anonymous said...

Can someone smarter than me (i.e. all of you) explain what Jim Willie is saying here on the MF Global situation in layman terms?

"“Comex was ready to default on gold and silver in November, and rather than honor the notices for delivery, JP Morgan stole the funds in the accounts that were calling for delivery…notices for delivery were replaced by stolen accounts.” The evidence of this according to Jim is that, “JPM increased the amount of silver in their registered vaults by precisely the amount that was suppose to be delivered…JPM effectively averted both a Comex default and a European Sovereign Debt implosion.”

Anonymous said...

Re:Account SWAPS, Delivery notices.

I believe it goes something like this.

You have an account #1. That has money in it. From this account you buy a contract of gold or silver and then "stand" to take delivery of the PM.

Someone else comes along and opens
Account #2.
Takes the money from Account #1 and puts that money in Account #2.
Then the Delivery notice (from account #1) gets changed to account #2.


So then, The owner of account #2 now gets the physical Metal.


This is very very basic, but this is my understanding of what Jim was attempting to say.


This is what the real definition of SWAPS is.....

Anonymous said...

To piggy back on the above comment. Account #2 is owned by JP Morgan. They didn't have the metal to make delivery on their short positions so they stole the accounts that were owed the metal. They now owe the metal (from their shorts, which they don't have) to themselves!!!!
Brilliant!

Icarus

Anonymous said...

It is hard not be discouraged with your country with what is happening before our eyes.

Anonymous said...

Hey Harvey,

Your SLV report was for the Tuesday to Wednesday period. SLV gained 1.362 million ounces today Dec 8th to 314,084,400.200 ounces. The data can be found here:
http://us.ishares.com/product_info/fund/overview/SLV.htm

Cheers

Ramon said...

The Jim Willie post.

@FMB:

Now is not the time for divisively antagonistic behavior. None of your bickering will matter if entire populations' savings are stolen from under their noses.

The highest probability of settlement is by cash because the numbers don't add up otherwise. Where there's smoke, there's fire. Deductive reasoning - do some research to either help or refute instead of harassing those that offer their time.

In case you hadn't noticed, Mr. Organ is ignoring you anyway. Take a hint.

@Anonymii (plural):

Yes, robbing Peter to pay Paul.

Brilliant? Any thug with the means can rob an entire population blind if they're confused or distracted. There's nothing sophisticated anymore, only blatant fraud.

In light of the recent detainmenta legislation, I'd recommend avoiding the EU, Japan, Middle East & US if at all possible - it isn't enough just to protect your assets: you must protect your person.

And if anyone wants to take me with them...

FunkyMonkeyBoy said...

Ramon,

I think you'll find i'm asking common sense questions that any enquiring critical thinking person would ask when present the with the data Harvey presents on this blog daily. Unfortunately, i'm not getting common sense answers. (On a side note, Harvey is using a blog to record daily accounts of data, is this really admissible in court when the time comes, really, a blog, isn't there a more professional format?)

Anyway, like the question i asked above. If Harvey has direct access to Bart Chilton, why is he not asking Bart obvious questions?

Re: Cash settlements.

Actually, i think the most probable answer is that all this standing for delivery data is complete bull and made-up and that no one is using it to stand for delivery of physical metal, and therefore, there is no need for cash settlements. I think speculators just rollover their contract or close it on a given month. THIS IS THE MOST OBVIOUS ANSWER AND THE ONE THAT MAKES THE MOST SENSE.

FIND ME EXAMPLES OF PEOPLE STANDING FOR DELIVERY ON COMEX AND ACTUALLY GETTING THEIR METAL PLEASE, ANY SIZE.

silvergoldsilver said...

"FIND ME EXAMPLES OF PEOPLE STANDING FOR DELIVERY ON COMEX AND ACTUALLY GETTING THEIR METAL PLEASE, ANY SIZE."

So im confused Monkey, you saying that the comex is dry?

FunkyMonkeyBoy said...

silvergoldsilver,

I'm saying, like i stated yesterday, that the COMEX is a 'fantasy sports' type system. Nothing makes sense, because it doesn't need too.

All these figures given out by the CME/CFTC, and which Harvey relays, are to give the illusion that this is some kind of 'real metals trading system'. But, as the figures show nothing adds up. There is no oversight, so the figures don't need to.

I don't think there are any cash settlements because no one actually attempts to use COMEX to obtain physical metal.

ALL THE FIGURES GIVEN OUT BY THE CME/CFTC ARE COMPLETE FANTASY, INVENTORY LEVELS, OPEN INTEREST, DELIVERY NOTICES, ALL OF IT.

The CME/CFTC is no different to a 'fantasy sports' system which just generates data on certain algorithms and metrics.

Understand this, and all make logical sense.

What pains me, is why REAL METAL MINERS AND RETAILERS actually use the COMEX 'fantasy price' as the price to actually sell and buy physical metal at...

... they are just as guilty as the CME/CFTC by acquiescing with this system, thus giving it credibility. THERE IS NO NEED TO USE THIS PRICING SYSTEM, BUT THEY DO!

Anonymous said...

Dear FMB,
Why don't you send him an email yourself? I did and he responded (on a different subject). The email was posted in a Zero Hedge article so I assume it is public information.

Joe said...

Harvey,

Just wondering your thoughts on the following:

1. Will Corzine find himself behind bars?

2. Will MF Global customers be made whole?

Thanks for everything you do!

Steve From Virginia said...

Brent/WTI took a dump around 11am the same time gold/silver collapsed.

Right now looking for a decoupling between PMs and some of the other commodities particularly crude. Also keeping an eye on Hong Kong metals right now Comex/HKME are subject to arbitrage.

Sometime soon I think as crude is in both long- and short-term bear market, gold/silver in a bull ...

Anonymous said...

Harvey, thanks for the rehypothecation article; if that isn't a reason to get out of all paper into gold/silver, I don't know what is. Must assume no accounts are safe.

Harvey Organ said...

re SLV:

I take the data at 6 pm est.

they were late tonight in updating.

you are right..

it is now 314 million oz of silver

Harvey Organ said...

re SLV:

I take the data at 6 pm est.

they were late tonight in updating.

you are right..

it is now 314 million oz of silver

Harvey Organ said...

Funky Monkey:

Nobody takes delivery?

Maybe you should talk to Gerald Celente.

I know of many individuals that take delivery.

With the MFGlobal fiasco, I doubt that they will use this bourse to get their physical

Harvey

TheGilliom said...

Boy FMB, you must really love Harvey's blog. You are first AGAIN. Woot! I'm glad to see you so anxiously anticipate this fabulous blog that Harvey so painstakingly puts together for us every night free of charge. Thanks so much for what you do Harvey!!

Anonymous said...

Hello harvey, Good morning all. I watched the corzine testimony yesterday, And I laughed alot. Opening statement from chairman: "You know how these committee's work" TRANSLATION: You are one of us, don't worry buddy, you will walk. CORZINE: "I do not know where the monry is" TRANSLATION: Yeah, we improperly used(stole)the the gold/silver and costumer funds CORZINE: "I'm really sorry" TRANSLATION: the money is gone, and there's nothing we/you can do about it, and If you guys don't help me sweep this situation under the rug, I will expose the lot of you (insider trading crooks) CONCLUSION: One guy on the "committee" actually askes "whats the name of the company", so again a committeee full of idiots, and crooks, who inside trade themselves. Corzine will NOT go to jail, and his personal wealth will be intact. P.S. one of those idiots was on the committee with Ron Paul (inquiring about the gold in fort knox) and he was asking irrelevant questions then. Our system(actually their system) is BROKEN!

Anonymous said...

Forgot. GENSLERS OUT OF TOWN(COUNTRY!)! hahahahahahah! YOU CANT MAKE THIS STUFF UP!

Harvey Organ said...

Good Morning to you all:

A little heads up for today on the delivery front:

gold: 276 ( out of 783)

silver: zero (out of 390)


Dear Joe:

On Corzine: yes, I feel that they will eventually send him to jail

B) I doubt that MF Global customers will be made whole and that makes me very angry.



see you tomorrow morning.

Harvey

PM Bug said...

Harvey, I'm glad to see that you are highlighting the issue of delivery notice fulfillment / settlement. I have been searching for an answer to this since I first asked you about it back in October. I just sent an email to Mr. Chilton inquiring about the issue. Hopefully he or his office will be able to shed some light on the situation.

Anonymous said...

FMB, you wrote:

"I think speculators just rollover their contract or close it on a given month. THIS IS THE MOST OBVIOUS ANSWER AND THE ONE THAT MAKES THE MOST SENSE."

You do understand how margins work with contracts...correct? When you purchase a future, you put a percentage of CASH down to hold the contract (I think silver is in the 20% range...not sure). When the delivery month comes, you have to then put up 100%. Why in the hell would someone then add 75% to the contract to then roll it over in a couple days? That is the dumbest thing I have ever heard. Obviously, they are getting something in return that makes them decide to release the requirements of the contract for physical metal.

We aren't talking about people who roll over the future contracts. Yea, that is done all the time, but that is not what the issue is.

And someone who drops their future contract so that the OI falls, basically got out of the entire scenario. Maybe they took delivery and left.

Harvey, correct me if I am wrong. I'm just trying to explain it in the simplest terms. I'm sure there is much more to this.

Lets, see. This bible quote seems applicable:

Hosea 4:6
New International Version (NIV)

my people are destroyed from lack of knowledge.

FunkyMonkeyBoy said...

Anonymous,

What the hell are you on about? They roll (close at a profit/loss) and then re-open it for the next delivery month.

bad968 said...

Thank you Harvey.

If you have a brokerage account, better make sure it is not on margin and cannot be hypothecated. I told my TDA broker that I did not want my (non-margin) account to be hypothecated and he emailed back a couple of days later and said the notation had been made and that it was not hypothecated. Doesn't exactly fill me with confidence but it is something.

FunkyMonkeyBoy said...

Harvey,

If you could clarify your statements that would be great:

"Nobody takes delivery?
Maybe you should talk to Gerald Celente.
I know of many individuals that take delivery."


Do you know for a fact that Celente takes delivery on from the COMEX, or is your assumption that Celente WAS going to take delivery this December until his account got stolen as he has been on record as stating? From what he has said, the account was his trading account, which he used to trade gold (contained a 5 figure sum apparently) that he had since the 80s. Why, if celente knows the COMEX is corrupt, is he sourcing his metal at from the COMEX?

So you know individuals that have taken delivery from the COMEX? Have they always been given the requested metal or have they received these alleged 'cash settlements' that you claim?

If they have always received their metal from the COMEX, why is that you claim that so many others are given cash settlements? Is this some kind of lottery system...?

There seems to be a contradiction here... it's not as if you can just stand for delivery for a couple of ounces on the COMEX, they are always sizeable amounts. So, why are the people you know given their requested metal and others are instead given cash settlements with big premiums.

And why would the people you know take the metal when they could take these alleged cash settlements with big premiums and then use that cash to buy more metal elsewhere, getting more than they would by just taking COMEX delivery?

The story doesn't add up, please clarify.

Anonymous said...

FMB:

Great points. I look forward to Harvey's answer!

KS

curt brown said...

FMB...Go Away

Lou said...

Harvey - I wrote to PHYS and asked if the shares can be shorted and what the short interest is. Their investor relations guy wrote back and said the shares could be shorted and that they (Sprott) didn't keep track of it, so they didn't know the short interest. How can you say these funds are "real" if they cab be shorted (obviously creating another buyer for the same 'backed' gold on the other side of the short sale)? What's the deal?

MICHAEL said...

Most shares of any stock can be borrowed from you for a short sale through your broker, especially if you have a margined account. To protect yourself you can tell your broker you want to take posession of your paper shares. If you hold the stock certificates they can not be borrowed and your PHYS shares would be backed. You are not at risk in this situation. If you are buying shares in any company for long term holding you should take delivery of the paper shares. This way in a cataclysmic default you can prove ownership in your investment. Can you say MF GLOBAL?

MICHAEL said...
This comment has been removed by the author.
Anonymous said...

To All:
This is a very fine article posted on


http://www.zerohedge.com/news/gold-rehypotecation-unwind-begins-hsbc-sues-mf-global-over-disputed-ownership-physical-gold


It is about a topic that Harvey is
doing a fine job in keeping us informed about.

The Gold "Rehypothecation" Unwind Begins: HSBC Sues MF Global Over Disputed Ownership Of Physical Gold

Anonymous said...

Anon 10:12: You wrote: "Why, if celente knows the COMEX is corrupt, is he sourcing his metal at from the COMEX?"

The quick answer is, the price is right. You buy and sell at the market price, with no mark-up. (Penoles will sell you 30,000 oz of silver for $0.60 over spot, delivered. That's $18,000 extra, for what might otherwise cost a couple thousand in delivery fees from the COMEX.

There are two kinds of corruption at work here. The trick is, one of them is only a month old and no one knew about it. The first kind of corruption is that the prices are manipulated, people get margin calls, options expire worthless, etc., because the game is rigged (although this is apparently not a crime, at least not a crime anyone is interested in investigating). Even knowing this, it's still possible to come up with strategies to profit from the long-term rise in PM prices anyway. So even in light of the crooked ways of the market makers, it is still possible to earn something, and maybe even enough to buy a whole contract and take delivery. It appears that was Celente's goal.

But the second king of corruption is outright fraud, outright theft, they just simply steal your positions. Not force you out in a margin call and forced liquidation, but rather just plain rob you. That has NEVER happened before in the entire history of the futures markets, that customer segregated positions have "gone missing." No one expected such a brazen crime to occur, and it has taken a lot of people by surprise. There are now lawsuits, including by ex-employees of MF Global, suing Corzine and other execs for fraud and other wrongdoing, and there will be class-action suits against them from customers too. At least one can profit from the manipulated takedowns by BTFD, but there is no protection against outright theft except not to play at all. (That and lamp posts.)

Celente advised others to take delivery, which is exactly what he was planning to do himself. But his account-for-delivery was frozen in bankruptcy and for a while there it looked like recovery was unlikely. But there was a just a hearing today and it is looking better for the customers, so there's some chance Celente will get his entire account back, although it might take a few months.

Anonymous said...

Re: Gold rehypothecation

While the MF Global situation is certainly a clusterf#$k, there are less sinister implications to what has transpired in the circumstances around the lawsuit. With respect to the non-divisibility of gold bars, it is not necessarily the case that two people have the same "clear" claim over the same bar. The trustee has released some fraction of the amount he controls to be returned to customers. It was about 60%, but might be increased to 72%. So someone with $100k cash there can expect to be paid back $72k in the near future. Of course the other $28k are still owed, but he's giving back a portion at this time. Trouble is, if your property was one gold bar, he can't give you 72% of it, he either gives you all of it or none of it. Neither of which is consistent with "fair and equitable" distribution of property, which the trustee desires to do. (So that one person doesn't get back 15% of his account and another 95% of his.) So, what to do with the gold bars?

The second issue pertains to two actual claims. Given that Corzine and the others actually stole customer property and put it up as collateral for a margin call on decaying PIIGS bonds, the lender might have taken the bars as margin. So there are two claims on the bar: The customer's claim, from whom the bars were stolen and put up for collateral, and whoever sold the PIIGS bonds to MF Global, and sought variation margin. The latter could claim, "Hey, we got these bars fair and square for covering our margin requirement" and of course the customer could claim "Hey, those are MINE and Corzine stole them and had no authority to put them up as his collateral!" This lawsuit is not evidence that paper gold is issued at 100x the underlying and the whole system is about to explode. Although both could well be true.

Harvey Organ said...

Gerald Celente has been taking delivery of gold for quite some time.

He bought in April 2011, December gold contracts and then accumulated his earnings and placed it in his trading account ready to take delivery in December.

he has been doing this for many years. He just got re-hypothecated!!!

I know personally of many individuals that have bought gold/silver at the comex and taking delivery of the metal.

Today we have 59.9 tonnes of gold standing for real metal.

this is real metal not fake stuff.

I will be talking tomorrow on the big re-hypothecation scandal.

the events are very scary but I must alert you as to the dangers out there.

all the best.
Harvey

Anonymous said...

Hello all. Hi Harvey, you believe corzine will go to jail, I hope you are right. Let me explain why I believe he is going to walk. Let us look at this from a political view. CORZINE= presidentual advisor. STRONG DOLLAR/LOW GOLD PRICE= National security NATIONAL SECERITY= get out of jail free card. When we(I) look at guys like corzine, we(I) see crooks and corruption, when he looks into the mirror, he(and the power structure) could very well see a patriot(s), doing what is needed to keep the us dollar as strong as possible, keeping the dollars grip on world markets, and protecting our way of life(and making a buck while doing it). CURRENCY WARS, REAL WARS. I believe Kirwin(goldenjackass) is right. This collapse will "HEAT UP" and will end in a "FLASH". Duck and cover? God help us all.

Anonymous said...

1 other point. I believe you are right about this blog(and others) being a record of events, and peoples thoughts, about what is going on right now. If we do not blow ourselves back to the stone age, your(our) great,great grandchildren will be able to have good source material about events of our day. Keep up the good work. God bless.

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