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Friday, 9 December 2011

The great re-hypothecation credit bubble

Banks and other financial institutions might now own MF Global clients' funds, through re-hypothecation loopholes, which have leveraged the European debt crisis fourfold.

The article "MF Global and the great re-hypothecation scandal":
  • provides further evidence of the great extent to which the financial and banking systems operate extraordinarily free of regulation and prudence;  
  • demonstrates how "segregated" client accounts needn't be segregated;
  • postulates that re-hypothecation "may be the world's largest ever credit bubble";
  • hypothesises that the current liquidity crisis may be due to the high level of re-hypothecation;
  • explains how re-hypothecation could amplify the European debt crisis fourfold;  and
  • argues that very few MF Global clients will likely get their money back.
The fourfold leveraging of the European debt crisis by re-hypothecation probably underpins US eagerness to create liquidity:  to protect broke US banks.  The global financial system relies now upon trust more than ever:  not so much upon prudent oversight.  I acknowledge Thomson Reuters for the article.

Also see ""Why the UK trail of the MF Global collapse may have "apocalyptic" consequences for the Eurozone, Canadian banks, Jefferies and everyone else" for further explanation, opinion and commentary.

To see how I reduce my exposure to broker and systemic risk, see "Don’t let another MF Global ruin you!For more market commentary join our free live market briefings.