Thursday, August 16, 2012

The rule of law in our financial system is effectively over

Readers will remember that last year, after the MF Global bankruptcy, Ann Barnhardt famously closed her brokerage firm and advised all her clients to exit the markets, saying that "The rule of law is non-existent, instead replaced with godless, criminal political cronyism".  She put it as strongly as this:

A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global. Knowing Jon Corzine, and knowing the abject lawlessness and contempt for humanity of the Marxist Obama regime and its cronies, this is not really a surprise. What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette.

There's more at the link.

Gonzalo Lira took matters further, explaining the background to the MF Global bankruptcy and applying its lessons to international financial institutions.  He said:

Now, what does this mean?

It means that nobody’s money is safe. It means that regulators care more about protecting the so-called “Systemically Important Financial Institutions” than about protecting Ordinary Joe investors. It means that, when crunchtime comes, central banks and government regulators will allow SIFI’s to get better, and let the Ordinary Joes get f****d.

. . .

As I write this, a lot of investors whom I know personally — who are sophisticated, wealthy, and not at all the paranoid type — are quietly pulling their money out of all brokerage firms, all banks, all equity firms. They are quietly trading out of their paper assets and going into the actual, physical asset.

Note that they’re not trading into the asset — they’re simply exchanging their paper-asset for the real thing.

Why? MF Global.

“The MF Global scandal has made it clear that the integrity of the system has disappeared,” said a good friend of mine, Tuur Demeester, who runs Macrotrends, a Dutch-language newsletter out of Brugge. “The banks are insolvent, the governments are insolvent, and all that’s left is for the people to realize what’s going on — and that will start a panic.”

Again, more at the link.

Now it looks like Ms. Barnhardt and Mr. Lira were right.

Authorities are winding down their criminal investigation of the failed brokerage firm, MF Global, and despite the lack of oversight and the loss of more than $1 billion in customer funds, it now seems unlikely that anyone at the firm will face criminal charges.

The New York Times is reporting this morning that ... there isn't even enough evidence to charge any of the firm's executives in a criminal probe. The company may have failed spectacularly when it came to oversight and risk management, but the losses cannot be chalked up to outright fraud.

The company placed a grossly outsized bet (more than $6 billion worth) on the health of the European debt market last year and when it went south, the firm "borrowed" money from the accounts of its customers to try and salvage its own losses. Most of the blame for those trades fell on its CEO (and ex-New Jersey governor) Jon Corzine, and while his reputation and firm are ruined, it seems he will escape any legal sanction.

There's more at the link.

The inimitable Karl Denninger puts it in a nutshell, particularly in the light of the recent Sentinel decision.

The problem, of course, is that once you ignore property rights then you've ignored them.  It's the principle of the thing more than the details; whether you get personally boned with "this" particular violation isn't the question.  Rather, the question is this, for each and every one of you:

"What assurance do you have that any property of yours that is not in your personal, immediate and physical possession, is actually protected by the rule of law if someone attempts to steal it?"

The answer?  You have none.

Let that sink in folks, because it does not just apply to futures traders, to people daytrading stocks, or even to people with 401ks and IRAs.  It applies to each and every one of us with a bank account.

That's right folks -- it applies to anyone with any property held by any person other than you, in your personal control within reach of your fingers.  If it is stolen by a wealthy and powerful person they will be found to have conveyed it "within the law" and you will not get your property back.

The customers of MF Global keep being told this lie:

After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.

Money doesn't disappear.  The investigators know where every single penny went.  They know precisely who has it.  And under long-standing and essentially inviolate legal principle, they also know damn well that whoever has it does not have title to it and cannot acquire title as the entity who granted possession (MF Global) didn't have title to those funds and thus could not convey what it did not have.

No matter; your money is gone.

Your money in any brokerage account can be just as easily gone.

Your money in a bank or credit union can be just as easily gone.  The FDIC, incidentally, has a tiny fraction of the total deposit base available; it cannot cover your deposits in any real failure of the system, as it doesn't have it (and neither does Treasury.)

Any property, in short, that you do not personally possess within reach of your fingers..... can be and will be, if a rich and politically powerful person steals it, gone.

One final question: Are you awake yet?

Again, more at the link.  I strongly urge you to go read the whole thing - it's important.

People, I don't know how to put the warnings any more strongly than Ann Barnhardt, Gonzalo Lira and Karl Denninger have put them.  I can only highlight them in a single sentence, like this:


That's the reality of these decisions, folks.  The courts have come out flat-footed in favor of the rich and powerful, and declared that as far as the rest of us, our bank accounts and financial assets are concerned, in terms of the most recent case law and precedents, we have no legal protection or recourse.

Don't believe me?  Go read all the linked resources in the article above, and the links they provide . . . then tell me that to my face.



Wraith said...

Tar. Feathers. For these thieves AND every single SOB in the 'justice' system that are helping them achieve their evil ends.

trailbee said...


tweell said...

I saw the whitewash article before I came here. Yep, we are sheep to be sheared. It is alpha strategy time for sure now. Nowadays those accounts are convenient and such, but keep only enough for general use. Build up a stash of the materials you use and need instead. Have some paper money, but realize that it can be devalued or annulled as well (just not as quickly). May the Lord help us in this our time of need.