“As good as money in the bank” is no more.
As it turns out, “as good as money in the bank” has now taken on a new meaning. It’s only good as long as the banks make the right financial decisions. But then, customers can stand at the back of the line to see if they’ll ever receive their deposits again.
Let’s get this straight. Suppose I borrow $100,000 from you. And, in an effort to improve upon my ability to make a profit, I open a margin account with a broker using that $100,000 as collateral. If I blow the investment, who has first right to the $100,000?
Banks have been required to keep this very thing from happening. In fact, that’s exactly one of the things the Glass-Steagall Act protected customers from. It maintained separation between commercial banks and securities firms. However, when Glass-Steagall was repealed in 1999, such protection went out the window.
That does not mean that banks were freed to use customer money for securities trading. In fact, such comingling of funds has been considered fraudulent; that is, until just a week ago. As Reuters points out:
Futures brokers are required to keep customers’ funds in dedicated accounts to protect them from being used for anything other than client business.
Sentinel Management Group is on the hook. Yes, they comingled funds. They used customer accounts as a guarantee against securities interests. But apparently an appeals court didn’t find anything wrong with these practices. Instead, Sentinel is required to use the customers’ cash that it used as security to pay off Bank of New York Mellon.
It doesn’t matter that the finances were borrowed for a venture in a failed Chicago-based futures broker. It doesn’t matter that many Americans entrusted their hard-won earnings to the banks care. All that apparently matters to the courts is that banks get to keep as much of the goods as possible.
So what protection do customer funds enjoy? That is a very good question. And in light of the current shenanigans involving MF Global, this ruling should strike fear into the heart of every person trying to get at least some of their investments back.
Ann Barnhardt, who made headlines last Fall when she closed her investment firm because, as she claimed, the system “is no longer functioning with integrity and is suicidally risk-laden,” had a lot to say about this. Obviously, this is one of the reasons she closed her firm. Her comments on SHTFplan.com are sobering:
Guys, it is OVER. I know that many of you are still cowering in normalcy bias, unable to deal with reality, unable to face the world as it is, but you have GOT to snap out of it. The marketplace is DESTROYED. You CANNOT be in these markets. All legal protections are now officially gone.
…
The federal appeals court ruled yesterday that not only does BNYM stay at the front of the line, but that using customer segregated funds as collateral is NOT a crime, and that co-mingling customer segregated funds with proprietary funds is NOT fraud.
Perhaps her best rant is found on Silver Doctors:
Who was the auditing oversight body for MF Global? Well it was the CME. Again, they weren’t doing any realistic auditing oversight, you know, ‘we’re not gonna mess with Corzine, we’re not gonna mess with MF Global, just sign off on them’ and now the coup de grace is that THE COURTS ARE NOW COMPLETELY COMPLICIT IN ALL OF THIS!! The courts facilitated the fraudulent bankruptcy filing of MF Global, and now the 7th Circuit Court of Appeals- upholding a decision from the District Court- has now made this absolutely MIND-BLOWING decision,setting precedents that say customers have absolutely no right to their segregated funds held in any depository or financial institution!
I don’t know what else people need. MF Global stole $1.6 billion, PFG Best is $225 million gone, who’s going to be next? It’s clear there’s no regulatory oversight. If you’re still in these markets you’re either stupid or on drugs! That’s the only conclusion that I can come to.
The implications of this precedent are staggering. What this means for our readers is that it may very well be that your funds are no longer protected in the bank. We’ve already seen how too-big-to-fail banks are bailed out with taxpayer cash, requiring you to pay interest on it all along. Now we’re watching what amounts to the systematic pillage of American people in order to continue to make up for irresponsible banking practices.
No matter that fraud is involved. No matter that your money is being stretched and leveraged without your consent. No matter that bank officers commit these atrocities, driving their companies into the ground and taking customers with them. No matter that these same officers may only get a slap on the wrist, but still retain their $multi-million walking bonus. What it really seems to come down to is that you, the tax payer with money in the bank, are first in line to divvy up to these crooks when they fail, and last in line to get remunerated in the same event. Talk about getting you coming and going…
Don’t worry though, it only gets worse. As it turns out, money market fund managers are now given the authority to “suspend redemptions to allow for the orderly liquidation of fund assets.” In other words, if too many people decide to close their accounts at once, you may find that your funds cannot be retrieved for a month, locking them into an account that may be losing value daily. Tying them up like this takes away your incentive to pull them and gives the bank more time to avoid an all-out run.
What it comes down to is that “as good as money in the bank” simply isn’t. What are your alternatives? There are credit unions. Unfortunately, as I personally just found out, some of these credit unions are beginning to adopt bankster policies, such as charging for routine services. But they’re still safer than banks and operate within guidelines that hold them much more accountable.
There are also offshore banks. This can be a difficult challenge that may not be worth your effort. But it is an opportunity you might consider.
You can take personal possession of your cash. We’re not advising this, but it is a possibility. And, of course, we’d be remiss if we didn’t remind you that you can take personal possession of precious metals. IRAs are still a safe means of keeping precious metals and enjoy protection that many other accounts do not. Check with your tax advisor and perhaps a lawyer in order to understand personal risks and benefits. And, of course, Goldco stands by ready to help in any way they can. Simply click the link to the right.
For your prosperity,
J. Keith Johnson
The Gold Informant
