As the financial house of cards collapses around us, investors who think they are holding real assets with the claim ticket being a stock certificate, bond or even precious metal warehouse receipt better wake up.
The latest revelation from the MF Global ponzi debacle proves, yet again, that if it’s not in your possession you don’t own it. Take heed.
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.
Source: Barron’s via Yahoo
The entire paper system – from stocks to bonds – is coming unhinged. There are trillions of dollars in debt across the world, and all of it is nothing but a number on someone’s balance sheet. In essence, the majority of it exists only in the virtual world. While you may think you have claim to a physical asset in exchange for that certificate, receipt or note, what you really have is a promise from an entity that may very well be insolvent and unable to make good.
Financial institutions and brokerage houses like MF Global are just the tip of the iceberg. The accounting practices of our government are far worse, and the consequences of collapse significantly more dangerous. When MF Global collapsed, customers lost access to their precious metals and other investments. When our monetary system, predicated on the same ponzi scheme as insolvent financial companies, crashes, holder of US dollars, much like those MF Global warehouse receipts, will be wiped out in terms of purchasing power, and it will likely be a devaluation much more than just 25%.
But when that happens the holders of those notes won’t be trying to cash them in for precious metals. Rather, they will find that their paper Federal Reserve Notes will buy far less food and gas, if at all.