The MF Global bankruptcy from a few years ago revealed the little known truth about Wall Street today, which is that brokers can and do use customer funds and accounts for their own profit to the detriment of their clients. And while a futures trading firm is a little bit different than a standard broker like Bank of America, the SEC does not take putting customer accounts at risk lightly and investigating the major bank for breaking a 40 year old law against it.
Bank of America may have put retail brokerage funds at risk in order to increase profits thus breaking a 40-year-old rule, the Wall Street Journal reports.
The Securities and Exchange Commission is investigating the bank amid claims the financial giant broke rules designed to safeguard the accounts of clients, the paper reported on Tuesday this week.
Specifically, the Journal alleges BofA may have run afoul of a provision from 1972 that requires investment banks and trading firms to have enough cash and securities set aside to easily repay customers in the event of failure. – Russia Today
Re-hypothication, or the using of customer money and accounts for purposes not designated by the account owner, is just one of the many ways banks and brokerages manipulate their clients to achieve profit in what are often considered risky investments. When MF Global suddenly filed for bankruptcy in 2011, and clients discovered that John Corzine had re-hypothicated over $1 billion of their funds to purchase of all things, toxic Greek bonds, there was no security net available for these clients and many waited years before receiving back all or a portion of their money.
It is also sad to believe that a broker, and one who is also a commercial bank, would even think about using customer funds or positions when they have access to the Federal Reserve’s lending window and can borrow as much money as they want at near zero interest rates. And if the allegations against Bank of America are found to be correct, then it will only add to the incredible greed consuming Wall Street where the need for infinite capital drives the financial system to the brink of collapse.
It has been seven years since the banks nearly collapsed the Western banking system, and it took a taxpayer funded bailout, along with tens of trillions of dollars from the central bank, to save the economy from their risky bad bets. And it appears now that not only did the banks fail to learn the lessons of 2008, but because no one was ever indicted and jailed over the past decade, the need for more and more profit at all costs now includes putting customers and their money at risk.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.