Rehypothecation
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Uploaded by marketplacevideos on Jan 4, 2012
The term Re-hypothecation came up a lot during the MF Global meltdown. It's quite a common term in the securities market -- but what does it mean? Marketplace Money senior producer Paddy Hirsch explains.
Follow Paddy Hirsch on Twitter: @paddyhirsch
More Whiteboard: www.marketplace.org/whiteboard
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I think there may be a mistake here. The rehypothecation is not on the car, but on the asset which will provide the regular payment from Helen with the hypothecation.
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subscribed ;)
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Jimmy is pretty stupid to loan that money at that condition
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it isn't magic, it is fraud.
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cheers Paddy good vid.
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@laskji correct - customers weren't aware. There is a legal clause that allows customers' segregated funds to be reinvested by the broker. This only came out recently. However there are US institutions set up to protect market participants that failed in their job. It turns out that almost every financial institution is doing it to one degree or another. Even banks. And because this behaviour is "off balance sheet" it's not reported. You wouldn't know it is happening even if you looked for it.
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@yrebrac Ok, so basically Helen is getting shafted for no reason? Why would anyone ever take alone from someone who was going to use their property as collateral? Or are people not aware of this? For example, was MF Global's customers not aware their property was being used for these purposes? Is it kept secret?
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@pirucreek No. Rehypothecation is a separate profit generating activity of the broker. Not part of a regular margin transcation.
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@laskji yes crucial point that wasn't addressed. the problem is not when the end lender can't get the collateral - clearly they wouldn't lend if they couldn't. The problem is when the end lender claims the collateral. This is what happened when (allegedly) JP Morgan issued a margin call to MF Global - they stole customer property. This shouldn't be legal but it is. Especially in the UK.
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@laskji Or is rehypothecation just a cheap excuse to make a risky loan??
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@gapoom No. Jimmy threatens to kill Billy if he doesn't pay him back so Billy goes and steals Helen's car and gives it to Jimmy.
That's what MF Global did to their customers. MF Global's loan shark was none other than JP Morgan.
zz911wasInsideJobzz 2 months ago 3
@streetmoney21 Hang on here mate... this is only the tip of the iceburg isn't it? For every transaction like this is it not subject to the fractional reserve system whereby they are inflating the monentary base "M-whichever" every time they do it? Is is not the reason that financial London is now ridiculously overleveraged to their GDP?
shawnski001 2 months ago 2