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by MatthewCCox

The Assets in That Account Are Not Yours

March 11, 2012 in Finance

Along with all the other things I learned Friday, I discovered another piece of information. It came through the Sherrie Questioning All Blog.

The ramifications of this information shocked me.

Here is a summary.

The Depository Trust and Clearing CorporationMost, 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.

This little company is regulated by The United States Federal Reserve.

Their Board of Directors is loaded with Federal Reserve bankers.

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.

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by MatthewCCox

Greece-ing the Wheels of a Financial Collapse – Part 2

February 25, 2012 in Finance

Click here to read part 1 of this story.

Greek coinsMuch of Greece’s current debt is owned by the European Central Bank, the European Union, and the International Monetary Fund. The major investors in this “Troika” are mostly American Banks. This includes JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs.

All indicators say that Greece will not be able to make March’s bond payment. Therefore, the debt will be discounted by fifty to seventy percent. The logic is that some payment is better than no payment.

When this logic was used last October, it took down MF Global.

If it happens again in March, it may take down the entire Troika and its investors.

The Troika, like MF Global did, has a large interest in European bonds. In addition, they have purchased derivatives (insurance) on these investments. JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs willingly took the derivative premiums.

If you think about this situation, you can see the problem.

The American banks insuring the investments of the Troika are the same American banks invested in the Troika.

If Greece discounts its bonds, this will cut the asset base of these three International banks and reduce the asset base of the five American banks.

Then, the Troika will turn to the American banks to cash in on its derivatives. However, the American banks will not have the funds to pay the insurance claims.

If the banks can’t pay the insurance claims, they become insolvent.

They fail.

When this happened to MF Global, the company went bankrupt and its clients lost 1.2 billion dollars. While this may seem like a lot of money, it is just the tip of the iceberg compared to the situation I just described.

The MF Global situation didn’t matter to the banks. Therefore, they changed the rules and didn’t honor MF Global’s claim. They didn’t pay according to the derivative agreements.

They didn’t pay so they could save their own skin.

Now, their skin is on the line.

The last time this happened, Lehman Brothers and Bears Sterns went to The Fed, through the United States Government, and asked for a bailout. President Obama used his State of Union Address to say the answer will be “no” the next time the banks ask.

So, what will happen this time?

No one knows for sure. Anything is possible, including the violation of international law.

In fact, the European Central Bank has already changed the terms on their Greek debt. Their ignoring of the rule of law has contributed to an already unstable environment.

I suspect we will see more of this as bankers do everything they can to add time to this ticking time bomb.

My opinion is that this bomb will explode. When it does, the entire European banking system is at risk and, with it, the largest five banks in the United States.

What is the peaceful response to this? I’ll write about that starting tomorrow.

The following stories provide more information on this situation.

How Greece Could Take Down Wall Street

The Next Global Credit Crisis; Why U.S. Banks and Greek Debt Will be the Toxic Trigger

The Money Masters Are Living in Fear

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by MatthewCCox

Greece-ing the Wheels of a Financial Collapse – Part 1

February 24, 2012 in Finance

I have been writing this week about three news stories that point towards major changes in our financial system. These include massive resignations of financial leaders and the seizure of large denomination United States Treasury Bonds. Today, I focus on the third story, the financial situation in Greece.

At first glance, it seems that Greece’s situation is not that big a deal. Even though its capital, Athens, is called the birthplace of democracy, Greece has lost its position of importance in the 21st Century. Fewer people live there than live on Manhattan Island. It has the world’s 37th largest economy. Those aren’t exactly head-turning numbers.

Greece FinancesHowever, thanks to a combination of factors, the financial situation in Greece has the potential to produce devastating results here in the United States.

The purpose of this article is to explain how we got to this point.

To do this, we need to go back to a previous story on Peace of Mind News. It is the bankruptcy of MF Global, a major global financial derivatives broker. Derivatives were labeled by Warren Buffet as “weapons of financial mass destruction.” They are bets placed on risky financial instruments with huge odds. They create massive profits for banks in an expanding market.

Another way to see derivatives is as insurance purchased against investments that go bad. The premiums on this insurance produce the profits.

These profits are made at great risks. When the market contracts even a little bit, the derivatives, which are so highly leveraged that there isn’t enough money in the world to cover them, become losers and must pay. If they can’t pay, this creates significant problems.

This is what happened in 2008 when banks had to be bailed out by The Fed. The markets contracted and the banks were contractually obligated to pay out on the derivatives. They didn’t have the money to do so and used the “too big to fail” argument to squeeze taxpayer money because that was “best for the country.”

The subsequent regulations now give the banks control over whether or not they pay on their derivatives. It is like giving auto insurance companies unilateral power to say how badly a car must be damaged in an accident before they have to pay.

MF Global became a victim of this situation. They were speculating on European bonds and, according to conservative figures, were leveraged at 40 to 1. This means that they could not withstand a three percent downturn in the market. (Do the math – divide 1 by 40 and you get 2.5.)

They thought they were risk-free on this because they had purchased derivatives (insurance) for these investments.

When last fall’s Greek credit event cut the value of MF Global’s investments by fifty percent, they filed an “insurance claim” for the default. The banks said the credit event wasn’t officially a default since Greece paid half the amount due. Therefore, they didn’t honor the claim.

This is like a bank accepting fifty percent of your mortgage payment each month and not declaring you in default. It is comparable to an auto insurance company saying it doesn’t have to pay a claim because the car was only half destroyed in the accident.

MF Global was toast and its clients’ money was gone in a puff of smoke.

This brings us to the present and an amazingly tenuous situation that threatens to take down JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs.

I’ll describe the details tomorrow.

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by MatthewCCox

Daily Bread

January 14, 2012 in Finance

In previous articles, I referenced the Universe’s perfect accounting system. Everything that shows up in our lives is part of this system. This includes money, time, and relationships.

From my perspective, this is the only system that works. It is the only system that has ever worked. Every other functioning system is a part of the Universe’s perfect accounting system.

This belief is why I claim saving money is not necessary, especially long-term savings. Long-term savings provides the illusion of security. As I have shown in previous articles, there is no security in any type of savings.

Banks and brokerage houses can swipe your funds. Real property can fall apart in an earthquake. Buildings can be destroyed by a fire. Insurance companies can fold overnight, taking your premiums with them, and leaving you without recourse. Businesses can fail because of regulation change, a product malfunction, or a change in the marketplace.

I’ve recently had conversations with two new clients who lost all of their retirement money when they placed it into safe investments with reputable companies.

I believe MF Global’s theft of client funds and Anonymous’s hacking are just the tip of the iceberg. I anticipate similar actions will take place in the near future within our flawed financial system.

Furthermore, the dollars we use for currency today are not assets. They have no intrinsic value beyond what we assign to them. They may soon not have any value at all when we shift to a new economic system. Today’s money may not be worth anything this afternoon, tomorrow, or next week.

I suspect there will be some type of conversion rate within the new financial system. I don’t know how that will change the value of your savings. I don’t know what that will do to your debt.

This is why I encourage my clients to acquire real things, including systems for basic necessities like food and water. I’m encouraging them to release attachment to what is currently in their lives and learn creative problem-solving skills.

Remember, those who put their money with MF Global, lost all it. Those who used their credit cards with certain companies had their information hacked and exposed to the public. My clients’ retirement accounts disappeared with trusted, safe investments.

Many of us still believe that we can put our money to work. We have 401ks. We have investment portfolios. We buy gold and silver. We want to see the value of those accounts go up.

We have placed our assets under the control of banks and brokerage houses. This gives away responsibility for those funds. We attempt to quit work by putting our money to work instead.

We must understand that money doesn’t work. It is an abstract concept created to allow a more efficient exchange between human beings. This idea that you can make money from money has been derived essentially from the concept of gambling. This is a deception built upon our current accounting standards and financial markets. Money does not work because it is an inanimate tool. Furthermore, it can disappear in an instant.

Sliced BreadI’m not trying to create a panic. I’m just pointing out that the only security any of us have is in understanding the expression “give us this day our daily bread.”

The acquiring of daily bread requires each person to take responsibility for his or her sustenance. This means building relationships, taking responsibility for livelihood, living on day to day provision, and developing marketable (i.e. useful) skills.

This is good advice even if the new financial system doesn’t arrive for a while.

For example, my new clients are no longer retired. Each person is now working again and contributing to society. By their own admission, they are experiencing greater fulfillment than ever before while receiving their daily bread.

It is a peaceful response of acquiring and using what is needed today with an eye towards helping others acquiring what they need as well.

I encourage you to practice it.

Tomorrow, I take you into an otherworldly experience that I’m still trying to understand myself.

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by MatthewCCox

Responding to Theft

January 4, 2012 in Finance

Two days ago, I told you how MF Global stole client money to pay operating expenses.

Yesterday, I reported how Anonymous is hacking websites and swiping lots of credit card and other personal information.

What is the peaceful response?

Shift perspective about money and abundance.

Understand that the money we use today does not have real value. Therefore, a change is coming in our financial system.

Realize that abundance is no longer about creating wealth. It is about maintaining sustenance.

One hundred dollar billsMF Global’s clients bought into the message that saving money is important. Once someone believes this, it is a short leap to convince them to invest in the stock market or some other asset they can’t see, can’t touch, and often can’t control. The results are reported on pieces of paper or online statements that tell how much money is in the accounts.

Once someone believes this about assets, it is easy to believe this about debt too. Credit cards and debit cards become magical pieces of plastic that allow someone to buy everyday necessities, eat at lavish restaurants, and travel the world. The results are reported on pieces of paper or online statements that tell how much money is owed to the accounts.

For years, we have believed these numbers actually represented value. Many people still believe this.

This illusion was shattered a few years ago when banks and institutions “too big to fail” mismanaged their funds. Government decided it was in the best interest of society to bail out those institutions and to make commitments to support others. The result, according to the New York Times, was a 12.2 trillion dollar commitment, with speculation that it could be twice that amount.

Where did that money come from?

The United States Treasury sold bonds.

That is code for, “They created it with computers.”

The first time I heard this, I didn’t believe it. I kept saying, “There has to be a basis for creating money, right?”

I wrote numerous articles on this site trying to figure out how it worked.

I discovered there is a system for creating these funds. However, when you get to the bottom of it, the funds are created out of thin air.

Our society treats them as valuable. We call them Federal Reserve Notes. However, there is no real value to them. This is the world we have lived in for years.

It works if all play by the same rules. However, the bailouts were a severe abuse and manipulation of the system.

Therefore:

  • MF Global feels comfortable taking their clients’ money because, as far as they are concerned, it isn’t real.
  • Anonymous is hacking websites and using the credit card data to demonstrate that money isn’t real.

As more and more people take this viewpoint, we all need to shift our perspective about money if we are going to thrive in this new economy.

I’ll write about the practical steps of doing this tomorrow.

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by MatthewCCox

Once More, With Urgency

January 2, 2012 in Finance

I’ve written this article before.

This time, I write it with great urgency.

MF Global LogoA few weeks ago, I told you about a broker, Ann Barnhardt of Barnhardt Capital Management, Inc, who closed her business because she said she would no longer put her clients’ assets at risk because, as a result of MF Global’s practices, she could no longer trust those people who were managing the funds.

I realize now that I may not have been as clear as I needed to be because I didn’t completely understand what happened at MF Global. This article is my attempt to try again.

MF Global managed investment funds until they went bankrupt.

The rules state that, during a bankruptcy, financial brokers are supposed to keep clients’ funds segregated from their business funds.

Yeah, MF Global didn’t do this.

When I wrote a few weeks ago, I didn’t have the specific information I have today. Here is what they did.

They took their clients’ funds and used them to pay their debts to JP Morgan.

I’ll say that again.

MF Global took client funds, which are supposed to be segregated and, by law, untouchable, and used them to pay business debts. That is like a bank raiding your safe-deposit box to pay its electric bill. The details are laid out for you in this well-written article.

Once again, I have some advice for you. Before I give the advice, let me put my disclaimer in here: I’m not a CPA or attorney or financial advisor. I have provided tax and accounting services for more than twenty years. At one time, I was licensed as an insurance agent and securities representative. However, I have none of those credentials today. I’m just a consultant, a researcher, and a writer with lots of life experience.

With that out of the way, here is my advice.

I am begging you.

If you have money in the market, find a way to pull it out and gain control of it. Put it into a real asset that you can touch. Whether that is real estate, gold, silver, or something else of value to you (like a home for your adult child), determine what it is and use your money for that.

I believe the next financial crisis is just around the corner and if you don’t do this, you may lose that money.

Granted, the next financial collapse may not hit your bank or brokerage house and you may be OK.

However, you have no guarantee that the next financial collapse won’t be your bank or brokerage house. In addition, in spite of all the promises made to you, you have no guarantee that your bank or brokerage house will follow the rules and not use your money to pay its debts in the midst of a financial challenge.

When you pull your money out of the market, you may need to deposit large amounts of cash somewhere. If you do, limit it to $250,000 per FDIC or NCUA insured institution. That offers some protection although, in my opinion, even that isn’t guaranteed.

This sounds like it isn’t peaceful. It sounds like I’m in a panic.

I’m not.

I’ve acquired knowledge that tells me that if you want to keep the money you have, this is the time to act if you haven’t acted already. Of course, even your best laid plans may not allow you to keep it.

I’ll tell you why tomorrow.

In two days, I’ll give you the peaceful response.

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