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In the wake of the MF Global disaster, as Jon Corzine testifies before Congress and 400,000 accounts have gone missing, banks, specifically large banks, are being questioned as to the safety of their customer’s money.

December 19, 2011 – In the wake of the MF Global disaster, as Jon Corzine testifies before Congress and 400,000 accounts have gone missing, banks, specifically large banks, are being questioned as to the safety of their customer’s money. For any who do not yet know, the CTFC issued a ruling that allowed MF Global to use customer funds in a $6.3 billion bad bet on European sovereign debt. When the bet lost, the bank mysteriously lost its customer’s money to the tune of $1.5 billion.

This is indicative of what many in the field fear will become, or already has become, a far-reaching trend of banks using customer capital to back the ever-riskier investments they must make to chase diminishing returns. As such, the financially vapid term “rehypothecating” may be here with us to stay. All it means, of course, is, “other people’s money,” but robbery by any other name seems more professional.

By definition, it consists of the commingling of accounts, which is financial heresy. Since time immemorial the commingling of accounts has been a punishable offense for a business. If lawyers can manage to keep accounts separate or face losing their license to practice law, why is the CFTC, a governmental body, specifically issuing rulings that allow banks to commingle customer accounts?

As for gold and silver investments, they, too, are not safe in the hands of big banks who can and do use them as collateral for the same type of risky investments that took down MF Global. Right now a lawsuit is pending between MF Global and JP Morgan concerning which bank actually owned tens of thousands of contracts representing customer gold and silver.

This is over and above the $1.5 billion that MF Global has customers “may” see again. Banks are using customer accounts to finance questionable debts. If you’re currently holding gold and silver in a customer account with a big bank, it too is being used and can very easily be lost, just as the customers of MF Global are discovering.

The solution is to make investments in gold and silver with a trustworthy company that won’t be using your account to finance outrageous speculation and bad bets. Further, it is highly advisable in this day and age to take physical delivery. Understanding some investors want their money a little closer to institutions, the more modestly sized the organization, the better, generally, for your gold and silver investments.

Shannon King

Senior Staff Writer – GoldSilver.org

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