A lot of Americans do not know how ownership of stocks is handled. They think they personally own the stocks in their portfolios. They don’t.
There were investors in MF Global who thought they owned commodities. They didn’t.
Do you own gold and silver mining stocks? Or any stocks for that matter? Even if you say, “yes”, chances are you don’t really own them.
It is one of the dirtiest little secrets in the brokerage business. And 99.9% of people have no idea it is even being done to them. It’s called “street name registration” and it’s how the brokerage where you hold your stocks “registers” your shares. To save money and time, and to allow your shares to be included as assets that they can use to do what they want with, your brokerage never actually registers you as an owner of the shares.
Street name registration allows your broker to lend your shares to short sellers, thereby driving down the price of your own stocks. Additionally, this method allows your broker to “re-hypothecate” your assets–meaning it allows your broker to borrow money against your shares and speculate in the derivatives market.
These hidden risks are planting the seeds of tomorrow’s ultimate collapse – In which there may be a system-wide collapse of broker dealers, taking down millions of investors, and ensuring permanent non-recoverable losses to an entire generation!
Too extreme? Maybe. But considser this:
MF Global investors found out first hand just how secure their funds were. Most don’t realize it, but MF Global was a clearing house for both stocks and futures. Like many/most brokerages, they “invest” their own funds, often on a highly leveraged basis, to earn income. But, with the recent collapse of Greek government bonds and with MF Global’s highly leveraged position in them, MF Global was bankrupted in an instant.
The problem is, they tried to cover their losses with their customer’s own funds. You see, unless your shares are registered in your own name – a process that isn’t that difficult or costly – your brokerage considers it as assets they can use for their own needs.
Plus, once a brokerage goes bankrupt (which is something we expect to happen very often over the coming years) if you hadn’t personally registered your shares then your shares go down as assets of the brokerage and are used to pay off their creditors.
In normal times, this does not happen. We are heading into abnormal times.
Some believe their stocks will be protected by the Securities Investor Protection Corporation (SIPC), which insures stocks accounts from broker collapse up to $500k for securities, and account cash balances up to $250k. But what if you have more than $250k in cash and/or more than $500k of securities in your account? What if one of the largest broker dealers in the country went bust, bringing down thousands of accounts and depleting the entire reserves of the SIPC? What if the SIPC itself goes bankrupt? What few people are aware of, is that the SIPC only carries about $1 billion in funds to cover investors! This means only one or two high profile broker dealer bankruptcies will be enough to completely wipe out the SIPC.
Some may claim the US government will bail out the SIPC to whatever extent needed. But what if two major broker dealers went bust while at the same time the US government suffers a major Treasury bond auction failure? This is all but a certainty in the coming years.
And the same thing applies in Canada to Canadian brokerages and Canadian stocks. The Canadian economy is intricately tied to the US. In fact, not many people are aware, but all that backs the Canadian dollar is the US dollar. The Canadian Government sold all its gold decades ago.
There is lots more to learn here. Read the full article.
I used to work on Wall Street. All anyone has to do is set up their account so that the investments they buy are registered in their names and delivered to them – hopefully to them at their bank to be stored in a safe deposit box. While everything said in this article is true, the bottom line is this is a scare tactic to get people to buy a report. Shame on you Tea Party Economist!
In addition, if your stocks/bonds/fund shares etc are in street name (the broker's name) you can still call the broker and have them registered in your name.
What reports exactly are the Tea Party Economist selling? I must have missed the advertisements.
After speaking to my broker, I learned that if you hold your stock in Your Name, You have to go with your stock certificates in hand to the brokerage, any time you want to do anything with them. ie. sell, trade etc. Of course, brokers are serving their Own Interests, as well as yours!
I have urged my children and siblings…… 'Wall St. (stocks) is not a place for them to invest.' Cooked books, insider trading, off balance sheet liabilities ad nauseum. When the present administration STOLE the equity of the 'old' General Motors stock holders and gave it to the union thugs (read: union voting bloc) that was all the PROOF I needed to recommend for 'mom & pop' to stay out of the stock market. This is just another way for you to be LEGALLY robbed, ignore this TTPE warning at your own peril if you are in stocks.
ALL THAT BEING SAID IS TRUE THE PROBLEM IS THOSE P/E RATIO'S ARE NOT ANY WHERE REALISTIC …NO RESTUCTURE OF A COMPANY IN TROUBLE IS GOING TO WAIT YEARS TO MAKE IT RIGHT …SO PRICE TO EARNINGS IS BS AT BEST …AND OUT RIGHT FRAUD …..
It is actually pretty crazy. Everyone should read more about it. Google –
Is Panic Inevitable? Repos, Haircuts, and Re-Hypothecation
To see an explanation in layman's terms.
This is what David Stockman said:
The real story of the present is the shadow banking system, the unstable and massive repo market, and the apparent daisy chain of hyper-rehypothecated collateral. It looks like the sound bite version amounts to the fact that the European banking system is on the leading edge of collapse for the whole system. These institutions are by all evidence now badly deficient of the three hallmarks of real banks–deposits, capital and collateral.
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