March 11, 2012 in Finance
The ramifications of this information shocked me.
Here is a summary.
Most, if not all of the stocks, bonds, and mutual funds traded on the open market go through one source. This trading warehouse is known as The Depository Trust and Clearing Corporation (DTCC). The scope of their control is astounding.
According to their website, they settled 1.66 quadrillion dollars in transactions in 2010. This is more than twenty-seven times the world Gross Domestic Product.
In addition, the DTCC owns all of the stock it trades. If you think you own the stock in your brokerage account, you don’t. Look closely and you will see you are only listed as a beneficiary.
The DTTC ownership is is a matter of convenience that allows the shares to trade quickly. This isn’t a problem when things are going well.
However, what happens when Greece defaults on bonds?
What happens when a new currency comes on board?
Can the DTCC, in cooperation with The Fed, grasp control of the assets you think you own and use them how it sees fit, even if that means you lose everything you have?
What do you think?
Isn’t this what happened on a small scale with MF Global?
I previously documented how the Greek bond situation took down MF Global last October. This vaporized 1.2 billion dollars in investor funds.
This situation is repeating now. It remains to be seen if brokerage houses will fail this week or if the projected bailout will successfully kick the can down the road so the brokerage houses can fail later.
If we suddenly find ourselves in desperate financial times, will the DTCC enact desperate measures? I’m sure it has the legal authority to do what it wants with what it owns if the financial situation turns desperate.
When the world’s currency shifts from the dollar to something else, will the DTCC grasp the assets it owns – the ones that list you as a beneficiary – to balance its books?
Obviously, there is no clear-cut indication of what will happen when a new currency comes online. Financial experts can only guess at how this will impact the value of currencies, stocks, bonds, and mutual funds.
In other words, it will be a mess for a while.
When I talk about this situation with clients, friends, and family, I always hear the following questions:
“What does this mean for me?”
“What should I do to prepare?”
My answers have remained the same.
Acquire and maintain physical control of your assets. If you have large amounts of money in the bank, stocks in a brokerage house, or other paper assets, convert them to something you can own and possess in your hands.
I say this because funds in a bank or brokerage house may quickly disappear when the financial situation shifts.
Now that you know about the DTCC, you can better understand why I say this may happen.
I’ll continue to look at this situation tomorrow.