How Banks Are Using Your Money to Create the Next Crash
The slimy process of rehypothecation may trigger a global crisis
(investorplace.com) -- by Keith Fitz-Gerald --
In 2008, reckless credit default swaps nearly obliterated the global economy. Now comes the next crisis — “rehypothecated” assets. It’s a complicated, fancy term in the global banking complex. Yet it’s one you need to know.
The term rehypothecation starting coming into more general parlance after the fall of IMF Global. And if you understand it, you’ll get the scope of the risks we currently face — and it’s way bigger than just Greece.
So follow with me on this one. I guarantee you’ll be outraged and amazed — and better educated. You’ll also be in a better position to protect your assets because at the end of this article, I’ll give you three important action steps to take. Here goes. . .
Their Profits on Your Money
Few people know this, but there’s a process through which banks and trading houses are leveraging your money to increase their profits — just like they did in the run-up to the last financial crisis. Only this time, things may be worse, as hard as it is to imagine.
Consider that in 2007, the IMF estimated that this form of “leverage” accounted for more than half of the total activity in the “shadow” banking system, which equates to something in the $5 trillion to $10 trillion range. This is in addition to the bailouts and money printing that’s happened so far.
Wall Street would have you believe this figure has gone down in recent years as regulators and customers alike expressed outrage that their assets were being used in ways beyond regulation and completely off the balance sheet. But I have a hard time believing that.
Wall Street is addicted to leverage, and when given the opportunity to self-police, it has rarely, if ever, taken actions that would threaten profits.
Further, what I’m about to share with you is one of the main reasons why Europe is in such deep trouble and why our banking system will get hammered if the EU goes down.
And what makes this so disgusting — take a deep breath — is that it’s our money that’s at stake. Regulators like the Securities & Exchange Commission and their overseas equivalents are not only letting big banks get away with what I am about to describe, but they have made it an integral part of the present banking system.
Worse, central bankers condone it.
As you might expect, the concept behind this malfeasance is complicated. But it’s key to understanding the financial crisis and to avoiding a possible global recession in 2012 and beyond.
What we’re talking about is “rehypothecation.”...MORE...LINK