In the wake of the collapse of MF Global, and the evaporation of funds in customer accounts, even ones with no margin lending, investors big and small have become duly concerned about the safety of their funds. For those of you who are not brokerage customers, one of the big achievements of the 1930s security law reforms was their success, up until now, in putting rules in place that protected customer assets. Numerous broker/dealers have failed but their clients’ funds were recovered.
Needless to say, old market hands like Jesse have reacted with alarm:
One would think that the customers should be paid first out of all MF Global creditors. But I suspect that where it is possible, their loss will be subordinated to the unsecured creditors like JPM who have a powerful influence with this Trustee and the courts. The customers of consequence, like the Koch brothers, appear to have been tipped off weeks in advance.
This is the perversity of law without justice.
If that happens, then nothing is safe. If a customer in cash and Treasuries can be robbed, and then be made to stand in line with unsecured creditors, then your 401(k)s are not savings but loans to the custodians of your plans.
Now may be the time to exit all arrangements not specifically guaranteed directly by the government, and bring your money home. And better yet if no guarantees are required, and no parties standing between you and your wealth.
If they steal from one unpunished, they can steal from any and all almost at will. You are not an insider, and there is no honor among thieves. You are prey.
And what are a few customers, and the stewardship of funds, to a group of financiers intent on taking down whole nations and their Treasuries?
But it is always easier to steal with a pen than via more complex means. In support of our consumer protection efforts, reader Don H has sent evidence that the banks are keeping their rights to misuse customers firmly in place in the wake of MF Global:
Just got a 20 page ‘client agreement’ from from Wells Fargo for a security account which contains some amazing (to me) stuff.
“This is your Client Agreement. It includes the terms and conditions and is the contract that controls your securities accounts.”
“Each account opened by you is a margin brokerage securities account, unless otherwise prohibited by applicable law or…” (so one can opt out but has to make a special request to set up a cash account. I wonder how many people who never deal in futures or short selling will realize they have a margin account?)
“We may, at our sole discretion and without prior notice to you, prohibit or restrict your ability to trade securities and/or other property.” (They can shut you out of the market at their whim)
“We may at any time and without giving you prior notice, use and/or transfer any or all securities and/or other property in any Account in which you have an interest, without regard to us having made any advances in connection with such securities and/or other property” (They can “MF Global” account holders without any further ado.)
You can see the relevant sections for yourself: