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Reply #56: Karl Denninger: MF Global: The SERIOUS Issues Reach Mainstream Media [View All]

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DemReadingDU Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Dec-08-11 09:12 AM
Response to Reply #51
56. Karl Denninger: MF Global: The SERIOUS Issues Reach Mainstream Media

12/8/11 MF Global: The SERIOUS Issues Reach Mainstream Media

As I opined rather quickly when MF Global collapsed, the real risk is not that a futures merchant went under. Brokerages go under all the time -- I went through two "consolidations" after 2000 and in both cases my assets and trading accounts were simply moved over to a new entity. How "forced" those were is open to some question, but from my perspective I went to bed one day with an account at "X" and woke up with one at "Y". Nothing disappeared.

The problem occurs when you wake up and assets have disappeared. This has become a disturbingly-common pattern of late, from Bernie Madoff to Stanford and now MF.

What most people don't understand is that when you open a brokerage account you allow your assets to be used to "borrow, pledge, repledge, transfer, hypothecate, rehypothecate,loan, or invest any of the Collateral"

Absolutely standard boilerplate language.

But here's the problem -- this is "in accordance with Applicable law."

This use, incidentally, is why brokers scream that trades are "just $5!"

Well, yes. But your money is being used by the brokerage, more or less, as collateral.

But there's a difference between earning on your funds and securities (which brokerages do all the time) and stealing your assets. The latter occurs when the law is circumvented -- whether legal or not.



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