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?