New Year, New Words
Hypothecation and Rehypothecation.
According to wikipedia, "Hypothecation is the practice where a borrower pledges collateral to secure a debt." My mortgage is one such example.
According to wikipedia;
Rehypothecation is a practice that occurs principally in the financial markets, where a bank or other broker-dealer reuses the collateral pledged by its clients as collateral for its own borrowing.
Apparently brokerages such as MF Global in the United States have the freedom to use any money clients put up as collateral against the clients own borrowing and simultaneously put 40% of that very same money up as collateral a second time against the brokerages borrowing.
It is as though there is 40% more money being put up as collateral than actually exists.
Apparently brokerages such as MF Global in Canada do not have that freedom.
So while Canadians do not get to enjoy all the freedoms we have here in the United States, the clients of MF Global in Canada do have the consolation prise of still having all of their money.
PS. Corzine is a politician and probably a big mouth who blabbed the idea to all of his brokerage buddys. It is not like only one investment bank was involved in derivatives, or only one mortgage broker was involved in no doc loans. How safe is your money?