Some good info on the subject here.
Posted on 12/17/2011 8:38:03 PM PST by blam
Liquidation Of Customer Stored Gold And Silver Bullion From MF Global
Commodities / Gold and Silver 2011
Dec 17, 2011 - 12:27 PM
By: Jesse
The bottom line is that apparently some warehouses and bullion dealers are not a safe place to store your gold and silver, even if you hold a specific warehouse receipt. In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation.
Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations. This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.
Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted. If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you? Do you think your property claims would be protected based on what you have seen this year?
You always have counter-party risk if you hold gold and silver through another party, even if they are a Primary Dealer of the Federal Reserve. As Ben said, the Fed offers no seal of approval.
If a Bankruptcy Trustee can pool your bullion into the rest of the paper assets and then liquidate it at prices that are being front run by the Street, you will have to accept whatever paper settlement that they give you.
The customer money and bullion assets are not lost, or rehypothecated or anything else. This is a pseudo-legal fig leaf, a convenient rationalization.
The customer assets were stolen, and given to at least one major financial institution by MF Global to satisfy an 11th hour margin call in the week of their bankruptcy, even as MF Global was paying bonuses to its London employees. And now that powerful financial institution does not want to give the customer money back. And they are so powerful that the Trustee and the Court is reluctant to try and claw it back. And so in the great Wall Street tradition they are trying to force the customers and the public to take the loss. The regulators and the exchange are aghast, and are trying to imagine how to resolve and spin this to preserve investor confidence and prevent a run on the system.
'Let them eat warehouse receipts.'
For many this would have been unthinkable only a few months ago. They had been cautioned and warned repeatedly, but chose to trust the financial system. And now they are suffering loss and anxiety, frozen assets, and the misappropriation of their wealth.
How more plainly can it be said? The US financial system as it now stands cannot be trusted to observe even the most basic property rights as it continues to unravel from a long standing culture of fraud.
Get your money as far away from Wall Street as is possible. And if you want to own gold and silver, take delivery and store it in a secure private facility outside the fractional reserve system.
Barrons
The Silver Rush at MF Global
By ERIN E. ARVEDLUND
December 17, 2011
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%.
That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
That has investors fuming. "Warehouse receipts, like gold bars, are our property, 100%," contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. "We are a unique class, and instead, the trustee is doing a radical redistribution of property," he says.
Roe and others point out that, unlike other MF Global customers, who held paper assets, those with warehouse receipts have claims on assets that still exist and can be readily identified.
The tussle has been obscured by former CEO Jon Corzine's appearances on Capitol Hill. But it's a burning issue for the Commodity Customer Coalition, a group that says it represents some 8,000 investors—many of them hedge funds—with exposure to MF Global. "I've issued a declaration of war," says James Koutoulas, lead attorney for the group, and CEO of Typhon Capital Management.
At stake is an unspecified, but apparently large, volume of gold and silver bars slated for delivery to traders through accounts at MF Global, which filed for bankruptcy on Oct. 31. Adding insult to the injury: Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities...
Then of course there is the 1933 “precedent” of raiding US investor safe deposit boxes of their gold, established by one of Barky’s favorite presidents
I linked in Ann’s interview/rant in #59. I assume you’ve listened to it? She was MAD!
Did they shoot in the 1930s when this happened under FDR?
Our histories have been revised, so I really don’t know.
FWIW, I believe all gold and silver should be *industrial* quality, such as bullion. Find a small-time metal smith and have it all turned into link chains. You can trade off a link at a time and it will remain *jewelry*. If you think even personal jewelry will be confiscated, talk to your smith about plating the PM with something base. The problem with that, is you will need to have it melted down and refined in order to use it and there is loss every time the form of metal is changed.
I think the thing no one wants to accept is that anything at all can be made illegal to own or trade. It doesn’t take confiscation or even even a law. It can just take manipulation of the markets to crash the value. If, instead of PMs, someone is hoarding cash, that cash can be devalued through the markets, too.
Think about all the hoards of gold and silver and even brass *currency* that is constantly being found buried in Britain and Europe. Think about Confederate dollars and bonds. Historically, this has all happened over and over again in the past.
And if you can only run as far as the border with it, then what?
ML/NJ
The Bee Gees are from the Isle Of Man, you may like this.(Ellan Vannin)
Buying legal currency, Kugerrands, Pandas and American Eagles, could accomplish the same, eh?
I found a roll of 1/10th oz Chinese Pandas in the curb at the Dallas/Ft Worth airport in the late 80's. They looked sorta like a roll of Life Savers, one was missing.
Good advice IMO.
Financial Panic Sweeps Europe As The Head Of The IMF Warns Of A “1930s Depression”
“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also."-- Matthew 6:19-21
For the record, gold does not corrode and moths can’t eat it.
As sad as it sounds, Corzine conspiring with the COMEX and CME to save their collective butts isn’t as bad as a far more ranging conspiracy to inject a virus of mistrust into the whole market structure. Then again, there is no rule that says the high level liberal Corzine couldn’t be playing both sides, using the COMEX/CME as the wrench for a bigger dismantling and killing two birds with one stone. Wouldn’t be the first time.
What’s not being said loud enough is that we’ve had bankruptcies in clearing firms before and no investor has ever got treated like this. Unless something changed under Sarbanes-Oxley or Dodd-Frank, which is quite possible, the regulators are basically sitting on their hands aiding and abetting this. That of course points to involvement by the Zero admin to let this happen, adding credibility to the idea that they are trying to crash the markets.
The timing with Europe makes it even more suspicious. We are already weak, and this seems like a very timely move to take advantage of that weakness. Personally I think they’re setting us up the bomb.
Neither can you.
Buying legal currency, Kugerrands, Pandas and American Eagles, could accomplish the same, eh?
I am not certain. The government, any government, could enact any controls they like.
More and more, as I watch things unfold, it begins to make me wonder if the end game is going to be a planetary digital credit system. While people would likely acknowledge PMs as currency for a while, eventually, there would simply be ignorance and therefore avoidance. For example, right now, there are so many folks, mostly younger, who never use cash and don’t carry checks. They swipe a debit card or a credit card that awards *stuff* and which they pay off at the end of the month. In some universities and I gather, from reading, in some urban venues, people just let an RF reader log their card number or use a thumbprint.
In the 80s, we were jewelers. When gold and silver got too high for most folks, the trends shifted to reactive metals and glass or enamel. And that was $800 gold and (IIRC) $8 silver.
I see more deflation than hyper-inflation in the medium term, so that could defuse barter, at least for a time.
I also think that with a universal digital credit system, we could easily see the left’s desired Guaranteed Income become reality. A few good harvests anywhere in the world, barring commodity trade wars, and food would become affordable, leaving scant reason to prep or garden, aside from weather-related or personal preference reasons. Presently, we are already seeing energy discoveries deflating the costs and prices of fuel, so transport would be less of a factor, not accounting for environmental controls. Lots of research into alternative materials other than oil-based plastics would also keep energy prices down.
Just trying to look at things from outside the echo chamber and factoring in what the oligarchy might do to protect themselves and tighten their control short of forcing all-out revolution. I am not advocating any specific action for anyone, because we all have different world views. For ourselves, we try, as much as possible, to stay flexible just because we don’t have any real control over the larger picture.
The timing with Europe makes it even more suspicious. We are already weak, and this seems like a very timely move to take advantage of that weakness. Personally I think they’re setting us up the bomb.
They should all hang. For great justice.
Thanks for the headsup-——collateral effect of the MF debcale.....still rolling out as we type.
Excellent interview. Ann B is very good. I’m still a plebe with the lexicon.. so getting an excellent education. Thumbs up!!
Thanks. I appreciate this sort of thinking.
Make Your Time.
TMO article, just like Ann Barnhardt's missive before, is attempting to blame "the system" (CFTC and, particularly CME, implying "systemic failure" just like Sen. Debbie Stebanow tried to do in hearings, to create more regulations and deflect the blame from Corzine, Abelow et al.) for actions that MF undertook.
As the article points out, much bigger outfits, like Lehman, Bear Stearns and Barings went bankrupt without any problems with their segregated trading customers' accounts (whether they held physical or paper assets and trading positions); same goes for smaller entities like Refco, which MFGH (then part of UK based Man Group) acquired from bankruptcy in late 2005.
FTA: Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted. If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you? Do you think your property claims would be protected based on what you have seen this year? You always have counter-party risk if you hold gold and silver through another party, even if they are a Primary Dealer of the Federal Reserve. As Ben said, the Fed offers no seal of approval. Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations. This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.
What in the world does any of this have to do with a banking "fractional reserve system"? And, BTW, so much for the supposed superiority of holding illiquid "physical" assets (gold and silver) instead of "paper" assets!
In real world, this is just about the customers' assets (physical or "paper") that are supposed to be and have always been "untouchable" accounts that were "touched" / misused by the likes of one "Master of the Universe" Jon Corzine, ostensibly to be used as a collateral for margin, for a short period of time, to enable highly leveraged MFGH to be sold to financially stronger entity. J.C. Flowers and Corzine were shopping the company and IBG had agreement "in principle" to acquire MFGH the day after the news of "money missing from customers' accounts" broke.
FTA: If a Bankruptcy Trustee can pool your bullion into the rest of the paper assets and then liquidate it at prices that are being front run by the Street, you will have to accept whatever paper settlement that they give you.
Assets are assets. Where did the confused notion that a "physical" bullion asset should be in any way "safer" than the "paper" asset come from? If the "cash" or gold / silver bullion or antique furniture can be put up as collateral, then it can be "pooled with the rest of the assets" for any purpose.
The answer to the question "If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you?" is simple: you are screwed, unless there is account insurance (which there usually is, provided to the brokerage by companies like Aon, Society of Lloyd's/Lloyd's of London, Marsh & McLennan, Munich Re, Willis Group, etc.) and the insurance companies are solvent.
In fact, there are now proposals under consideration of making insurance fee mandatory for commodity brokerages (similar to SIPC insurance) which will be passed on to the customers and make trading / hedging more expensive - thanks, Mr. Corzine!
72% payout is guaranteed by CME and will be distributed by the trustee for now, until they know how much money they can "recover" and claw back for the customers.
It's explained here:
Corzine: MF Staff Said Fund Transfer Legal - BL, by Silla Brush and Clea Benson, 2011 December 15
..... Investigators are attempting to determine which transactions involving customer funds were illegitimate, Jill E. Sommers, the senior CFTC commissioner overseeing the investigation said in a telephone interview yesterday. "We're far enough along the trail to see the transactions going out" of segregated accounts, Sommers said. Investigators are searching e-mails and other documents to trace the transactions. "Following a trail is not as easy as it sounds because money isn't just transferred from point A to point B and stopping," she said. Sommers said she expects regulators will eventually be able to determine where all the money went. There may still be a shortfall because some money may not be available to be clawed back for customers, she said. < snip > ..... Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected. ..... < snip >
Basically, it takes time to sort out the Corzine's mess, and allocate the funds appropriately.
FTA: And so in the great Wall Street tradition they are trying to force the customers and the public to take the loss. The regulators and the exchange are aghast, and are trying to imagine how to resolve and spin this to preserve investor confidence and prevent a run on the system.
Actually, quite the opposite, as from the above, they are trying to find where the money is and claw back for the customers. In the hearings, everybody confirmed that customers' accounts were first in line to receive the "recovered" money. And there is no run on the "system." Thankfully, only a few are calling for it and not everybody is talking like they 99% losers of OWS.
FTA:The US financial system as it now stands cannot be trusted to observe even the most basic property rights as it continues to unravel from a long standing culture of fraud. Get your money as far away from Wall Street as is possible.
That's the kind of lunacy and idiocy we should expect from ZeroHedge, TheBusinessInsider, TheMarketInsider, TheMarketOracle and other pseudo-financial liberal "Wall Street conspiracy" blogs. Apparently, they have "Jim Cramer envy" (of TheStreet.com and CNBC) and try to outdo him with the scariest phony scenarios they can conjure up.
For some reasons, the richest people on the planet (whether we like them or not) like Buffett, Bill Gates, Soros, Carlos Slim et al. have most of their money "on Wall Street" and mostly in the form of liquid "paper" assets.
From the original Barron's article, that somehow didn't make it into TMO excerpt:
< snip > ..... Investor Gerald Celente says he was hit with a big margin call when the gold contracts in his MF Global account were transferred to another brokerage. "I refused to put up more money," he explains, "so they closed out a number of my open positions at the current market price." ..... < snip >
What did Celente expect would happen when he refused the margin call? Something different from what happens to any "other" customer? Didn't like it - could move the account to another brokerage which will allow a smaller margin collateral... if he could find it. And what difference does it make if the margin call is on "physical" gold or "paper" gold, except that it's a lot more difficult to move gold bars than do electronic "paper" transfer?
CME's stock, which had been as high as $327 over the past year, has slid to a recent $242 as a result of low trading volumes and uncertainty about the MF Global scandal. The Customer Coalition may eventually press its case with the exchange operator. "If it turns out the only way we get customer money back is [to] go after the CME, then we'll go after the CME," says Koutoulas. A substantial portion of MF Global's commodity clients cleared their transactions through the Chicago Mercantile Exchange and Comex, owned by CME Group (ticker: CME). The question now looming over CME's stock is whether the company will be liable for customer losses. CME, which also owns the Chicago Board of Trade and Chicago Board Options Exchange, runs markets for futures contracts and options on futures, interest rates, stock indexes, foreign exchange and actual commodities.
That's it in a nutshell. This is what Erin Arvedlund's article is really all about - whether the self-described Customers Coalition will file a "deep pocket" lawsuit against CME and how it's affecting and may affect in the future its price (for what it's worth, it will be a futile lawsuit, CME has no liability here; in fact CME and Duffy have been a standout). It's not about "run on the system" or "long-standing culture of fraud" that was just now discovered by customers of MFGH and other brokerages.
Speaking of CME, Duffy just got a waiver from increased Illinois business taxes.
From Quinn signs Sears-CME tax breaks into law - CT, by Kathy Bergen, 2011 December 16
Terry Duffy, executive chairman of CME Group, lauded the action, as did William Brodsky, chairman and CEO of the smaller CBOE Holdings Inc., parent of the Chicago Board Options Exchange, which also plans to remain in town now. The new law "addressed the inequitable distribution of corporate taxes currently levied on CME Group," said Duffy, whose company employs about 2,000 people here. "This necessary adjustment to the Illinois corporate tax laws will put CME Group on more equal footing with other Illinois companies and other global exchanges." CME Group, parent of the Chicago Mercantile Exchange and the Chicago Board of Trade, had held its cards close the vest until Friday's signing. Sears Holdings, which indicated earlier this week that it would remain here if the legislation became law, confirmed that stance Friday. ..... < snip > Moments after Gov. Pat Quinn signed tax-break legislation Friday aimed at keeping CME Group Inc. and Sears Holdings Corp. from leaving the state, those two major employers announced they would stay put.
Now that should drive OWS crowd batty.
From Corzine and the Missing Money - WSJ, by Holman W. Jenkins, Jr., 2011 December 17
The money probably did not walk out the door in a brown paper bag. If not, it either doesn't exist — a distinct possibility if account liquidations by customers were not properly recorded in MF's hectic final days — or it's still in the hands of trading partners, who smelled MF's impending bankruptcy and sat on money owed to the struggling firm. A third scenario is sketched by Sen. Pat Roberts, in which MF misused customer funds to cover its own obligations. As he put it in a question to ex-CEO Jon Corzine in hearings this week: "By all accounts, on the Friday before bankruptcy, MF Global thought it had found a buyer to save you. It seems well within the realm of possibility . . . to use your customers' segregated funds to cover the firm's liquidity crunch, thinking that, by Monday morning, everything would be fine, the company would be bought out, an infusion of money from a new owner could replace the missing customer funds. Is this plausible, governor?" Gov. Corzine declined to "speculate." The bombshell, of course, was Terrence Duffy's claim later at the same hearing that somebody at his Chicago Mercantile Exchange was told by somebody at MF that Mr. Corzine had known about a particular transfer of customer money to MF's own account. But this is not the same thing as stealing it. MF was authorized to borrow cash from customer accounts as long as it was replaced with bulletproof collateral like U.S. Treasury bills. ..... < snip > ..... Nor is it unusual for customers to find themselves among the claimants in a bankruptcy. Customers of regulated brokerage firms that go bust, however, are luckier than most. By law, they get first priority ..... < snip > ..... Alas, in a bankruptcy everything must be litigated, since money given to customers is not money to make other creditors whole. But MF appears to have plenty of assets. It also follows that the bankruptcy trustee has every incentive to identify funds in the hands of other parties as possible "customer" monies to facilitate clawbacks. This may explain why, among various estimates of the customer shortfall, the bankruptcy trustee, James Giddens, has pushed the highest at $1.2 billion. In fact, Ms. Sommers of the CFTC told Reuters this week that all MF funds have been accounted for; it's a question now of sorting through each transaction to make sure it was "legitimate." Likewise, Richard Heis, working with the administrator of MF's British branch, says, "We know exactly where the money is." When Lehman, Refco or Drexel went belly-up, customer funds were safe. Customer funds are surely safe at Fidelity, Vanguard and other top-quality firms. So don't shoot yourself just yet. ..... < snip > ..... In the end, MF appears to have blown itself up, as it had every right to do, through old-fashioned miscalculation. Mr. Corzine's leveraged bet on European bonds, however profitable it might eventually prove, spooked the clients, regulators and rating agencies whose backing MF needed to remain a going concern. ..... < snip > ..... At Goldman Sachs, Mr. Corzine was a risktaker, one whose coolness was not always comforting. But at Goldman he operated under the watchful eye of his fellow Goldman partners. At MF, he was monitored only by distant shareholders and the part-timers who made up MF's board. ..... < snip > Where, oh where, did the MF Global customer funds go?
At this point we can be fairly confident that authorities know where the customers' money is. Most likely they are working with JPMorgan, in the U.K. and the U.S. to track the transfers, sales, authorizations and "legitimacy".
They may not know yet exactly how much of it is available for distribution - because there is a discrepancy even within different regulators and trustee as to how much was really "missing" and how much of the transferred money was "legitimate" and how much was "bastardo". Duffy was a little skeptical, but was not going to argue with trustee during the hearing; he already limited his guarantee "liability" so the higher amount of clawback could benefit CME to "recover" its own guarantee in the end, too.
Most people will eventually get most of their money back. Some problems will be with those who had open positions that were liquidated at the then-prevailing price (to satisfy collateral requirements).
Celente, who wouldn't put more collateral for margin call - probably because he was already leveraged to the gills, and/or just decided it was the best way to exit out of losing gold position (smart, as it turns out, considering where the gold is now) and now is making noise and a virtue out of necessity. Maybe he hopes to get the "full value" of his gold position at the time of MF bankruptcy.
In contrast, other people who had open leveraged contracts that were liquidated, simply had no choice in the matter.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.