It is one of the dirtiest little secrets in the brokerage business. And 99.9% of people have no idea it is even being done to them. It’s called “street name registration” and it’s how the brokerage where you hold your stocks “registers” your shares. To save money and time, and to allow your shares to be included as assets that THEY can use to do what they want with, your brokerage never actually registers you as an owner of the shares.
Street name registration allows your broker to lend your shares to short sellers, thereby driving down the price of your own stocks. Additionally, this method allows your broker to “re-hypothecate” your assets–meaning it allows your broker to borrow money against your shares and speculate in the derivatives market!
These hidden risks are planting the seeds of tomorrow’s ultimate collapse – In which there may be a system-wide collapse of broker dealers, taking down millions of investors, and ensuring permanent non-recoverable losses to an entire generation!
MF GLOBAL WAS JUST THE FIRST TO GO DOWN
MF Global investors found out first hand just how secure their funds were. Most don’t realize it, but MF Global was a clearing house for both stocks and futures. Like many/most brokerages, they “invest” their own funds, often on a highly leveraged basis, to earn income. But, with the recent collapse of Greek Government bonds, and with MF Global’s highly leveraged position in them, MF Global was bankrupted in an instant.
The problem is, they tried to cover their losses with their customer’s own funds! You see, unless your shares are registered in your own name – a process that isn’t that difficult nor costly – your brokerage considers it as assets they can use for their own needs.
Plus, once a brokerage goes bankrupt (which is something we expect to happen very often over the coming years), if you hadn’t personally registered your shares then your shares go down as assets of the brokerage and are used to pay off their creditors.
“Several million private accounts may vanish–Brokerage accounts, Pension funds, Mutual funds, they’re all at risk. We are getting into the middle stages of implosion, where I believe the public will not wake up until at least one million private accounts are stolen, and completely vanish.” -Jim Willie, The Hat Trick Letter
THE WESTERN FINANCIAL SYSTEM IS IN A STATE OF COLLAPSE
The reason for this coming broker-dealer crisis is simple. The entire western financial system is built on debt… it’s an anti-capitalist system set-up to make the rich richer and the poor poorer. It started in 1913 with the founding of The Federal Reserve, it went further down the slippery slope with gold confiscation in the US in 1933 and reached the beginning of the end in 1971 with Nixon closing the gold window, turning the US dollar (officially called the Federal Reserve Note) into a completely fiat currency.
In more recent times, it was the repeal of the Glass-Steagel act that allowed Investment Banks to acquire broker-dealers, and pass the risks of 100-1 leverage downstream to all client accounts. Therefore, your stock investments are now only as safe as the speculative portfolio of your broker-dealer! Considering most Western Investment Houses are leveraged at least 40-1, this means your stocks are no safer than a 40-1 bet on European bonds! (Which most western investment banks are leveraged to the teeth with)
Some believe their stocks will be protected by the Securities Investor Protection Corporation (SIPC), which insures stocks accounts from broker collapse up to $500k for securities, and account cash balances up to $250k. But what if you have more than $250k in cash and/or more than $500k of securities in your account? What if one of the largest broker dealers in the country went bust, bringing down thousands of accounts and depleting the entire reserves of the SIPC? What if the SIPC itself goes bankrupt? What few people are aware of, is that the SIPC only carries about $1 billion in funds to cover investors! This means only one or two high profile broker dealer bankruptcies will be enough to completely wipe out the SIPC.
Some may claim the U.S. government will bail out the SIPC to whatever extent needed. But what if two major broker dealers went bust while at the same time, the U.S. government suffers a major Treasury bond auction failure? This is all but a certainty in the coming years.
And the same thing applies in Canada to Canadian brokerages and Canadian stocks. The Canadian economy is intricately tied to the US. In fact, not many people are aware, but all that backs the Canadian dollar is the US dollar. The Canadian Government sold all its gold decades ago.
The entire monetary & financial system is headed for its final destination – total collapse… and 2008 was just the beginning.
“If you were lucky enough not to be a customer of MF Global … then you should view the MFG episode as a warning shot. You might not get another warning shot.” -Steven Saville, The Speculative Investor
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