Other People’s Money and (to many people) the new word Re-Hypothecation

It seems many just learnt a new word last week; re-hypothecation, and are truly devastated by the meaning of the phrase. So the funds at your bank can be deposited as collateral for exchange of cash or other assets, that further can be used for speculation?

Yes, this happens every day, or how else do you think people can finance their day to day trading operations? At BIG banks, one can only hope the Risk Manager is doing a good job. At MF Global, it is rather obvious that at least the Risk Manager was not doing a proper job, while the managers all seem confused about where the money is. With this lack of competence at a big bank, you can imagine what the procedures are at a smaller bank. The best piece on OPM we have read lately. By Armstrong Economics;

The shocking collapse of MF Global with the amount of missing client funds now rising to $1.2 billion, is so devastating, we are at the precipice of complete financial disaster. The United States boasts far too much of its greatness and “liberty and justice for all” but its actions reveal nothing but greed, distain, and contempt of the rights of man that include his right to property. Jon Corzine was a bond trader at Goldman Sachs and has been known as an aggressive trader all along. He intervened at the SEC and changed the direction of MF Global. What is at stake now is exposing the political corruption of the New 3York media, courts, Justice Department, Commodity Futures Trading Commission, Securities Exchange Commission, and political process has come together in such a way that the fate of the nation is truly hanging in the balance. Why do I make such a bold statement?

The failure of the clearing houses to step up and honor the trades is devastating. The conduct of the SEC and CFTC is despicable and how can you place ANYONE at the helm of either “regulator” who would EVER be in a position to have to recuse himself as the Commodity Futures Trading Commission’s chairman, Gary Gensler has done for being ex- Goldman Sachs? Gensler can claim he recused himself, but that is bullshit for how can he do that and still run the Commission? He was replaced by Jill E. Sommer who previously worked for Chicago Mercantile Exchange, where her responsibilities included overseeing regulatory and legislative affairs for the exchange and working closely with congressional staff drafting the Commodity Futures Modernization Act of 2000.

So now we have Sommers who clearly has aconflict of interest as to the failure of the CME to conduct auditing and to allow such trading with client’s money in the first place. Finally, the CFTC passed a measure that at long last required brokers not trade with client’s money by a 5-0 vote AFTER THE FACT! The rule was initially proposed by the CFTC in October 2010 and it took MF Global to at last establish this precedent. In my own case, the CFTC made that a primary allegation (failure to segregate) and used this as the justification to ask for a receiver to seize the company. It has NEVER been a crime. In my own case it becomes clear that Bloomberg News simply always refused to EVER even print my defense and ignored the very plea that stated clearly that the segregation of funds was NEVER concerning accounts of Princeton Economics but that Republic National Banks had then too used accounts of its clients for their own benefit precisely as MF Global. Since the CFTC just now is making it a violation to trade with client’s money shows how it has been a COMMON practice all along. Of course anything that tells the truth about New York is not newsworthy in the eyes of Bloomberg News when it exposes the banks – their clients. This bias strips them of any justification to dare call themselves journalists. This is what I had to read in a script written by the government no different from a hostage held by Iran put before the media to read similar scripts. But these were the words the government gave me to read where they could not trace 10 cents to any personal account of mine, but everything was taken by Republic. When they first ran to the government after my lawyers filed notice we would sue on this issue of trading with our funds, they told the government I conspired with the THEIR OWN employees to hide their trading from the Japanese. That would sound good if the accounts belonged to the Japanese. Once they could not get around the fact we purchased portfolios and the accounts did not belong to the Japanese, they would never go to trial.

Full must read OPM report.