If It’s Happening In China, It For Sure Happens In London and NYC

Hypothecation:      Hypothecation is the practice where (usually through a letter of hypothecation) a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, or has a third party (usually an affiliate) pledge collateral for the borrower.

Rehypothecation:    Rehypothecation is a professional financial market practice, where counterparty reuses a security pledged as a collateral for its own use.

By now everyone who follows the real news in the financial markets (as opposed to the zombie drool masquerading as news that is regurgitated by CNBC, Bloomberg, CNN and Fox Biz/News) knows that there seems to be a lot copper – “a lot” as in “tens and hundreds of thousands of tons – missing from several Chinese metal warehouses:  News Link.   If you use google to find news, you’ll see that there’s not one U.S. media outlet (besides Zerohedge) reporting this.  Yet, big U.S. banks will turn out to be inextricably involved in this.

What is happening is that elaborate financing schemes were devised in order to create sources of financing.  The scheme initially involved the counterparty to the loan (the borrower) issuing a note of security interest against copper collateral sitting in a warehouse in some Chinese port (in this case, copper).  This is a collateralized loan if the chain of events stops there.    However, the enterprising lender would than take the securitized note and use it as “collateral” – i.e. rehypothecate the note – to borrow funds from another source.

See where this is going?  What turns out as a legitimate securitized loan travels through the fraudulent global fractionalized banking system meat grinder and comes out the other end as a giant Ponzi scheme.   Now there’s several “legitimate” claims on the same pile of copper.   When one party decides to grab the collateral, the scheme collapses.

This is a simplified explanation of what is happening in China but it captures the essence of the situation.

Here’s the problem.  This same scheme is being applied to the gold and silver sitting in London LBMA and Comex warehouses AND in big bank custodial gold/silver vaults  (read into this:  the GLD and SLV vaults/HSBC and JPM).

I can guarantee this is going on with gold and silver.  All it will ever take is a legitimate independent audit of all of the custodial vaults mentioned.  This is why Putin issued a statement on behalf of both Russia and China expressing concern for the security of each country’s gold:  LINK.

Don’t think for a second that Putin and China don’t know what’s going on in London and NYC with gold.  And don’t think for any more than a second that the U.S. won’t go to war before the truth is exposed about its missing gold.   Ask Ukraine, Libya and Iraq what happens to their gold when the U.S. invades…

8 thoughts on “If It’s Happening In China, It For Sure Happens In London and NYC

  1. Astute observations, as always.

    As you noted, the MSM is mum on this story, but since you wrote the piece, at least these guys – Reuters, Bloomberg, WSJ, FT, Businessweek et. al. – have run with it.

    We’ll see how long this important (and potentially tipping point type) story stays in the “trending” news cycle, what with Google’s top business stories (as of this hour) being about Dunkin’ Donuts, RadioShack and “Tomatoes”, and with the school shootings and cop killings making headlines.

  2. ….rehypothecate the note – to borrow funds from another source.

    Didn’t something similar to this happen during the housing bubble? Mortgages were used as collateral and were sliced and diced in Mortgage Backed Securities.

    This rehypothecating, much like the housing bubble, will not end at al well.

  3. When this story broke a few days ago and the MSM scum
    tried to spin it as bearish for metals because according
    to their twisted logic there was going to be massive
    unloading of positions I reasoned TPTB must be
    getting desperate because it seems obvious this news
    has to be bullish because inventory that was suppose to be in
    storage simply doesn’t exist.

    http://blog.milesfranklin.com/and-its-gone

  4. The problem is not the hypothecation and re-hypothecation of the traded instrument. The system works as follows you can only assign rights not obligations and buying and selling an LBMA security is just like buying and selling any other bill of exchange on any other traditional trade bill type market. The exchange has margins for the participants that reduce your risk to the risk for the industry. Essentially the instrument can be sold and resold hundreds of times and there is in place an economic chain of one seller and one buyer- no more no less.

    The problem arises when you go one step further and sell off the gold bars and claim you still own them. The risk first occurs when you un-staple the security and define gold as a monetary asset class which means you have originally sold a financial trade debt masquerading as a genuine commodity. Then if you go a step further and loot all the depositories and as of course as the gold doesn’t really exist you can settle in paper these obligations. Then you have a serious problem, the hypothecation, re-hypothecation issue can always be settled in a ring out. Selling off the bars can’t or at least not easily.

  5. You have the missing metals affecting bank balance sheets, and we have the China real estate market collapse all at the same time. Looks like flufraud contagion is in the air. I wonder how many U.S. banks will be standing in a year.

  6. Russian companies are preparing to switch contracts to renminbi and other Asian currencies amid fears that western sanctions may freeze them out of the US dollar market, according to two top bankers.

    “Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times.

    “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

    http://www.cnbc.com/id/101741727

    Looks like its happening very rapidly due to the US “my-way-or-no-way” behavior.

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