THE VERDICT IS IN - WALL STREET HAS WON

My friend and mentor Walker Todd of AIER, who worked as a legal counsel at the Federal Reserve Banks of New York and Cleveland, states the situation succinctly:

“Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender’s takings of customers’ funds from client commodity firms that were used (inappropriately) to secure the firms’ borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers’ funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms. Spread the word.”

Walker goes on to say that this decision does rise to the level of “what were they thinking’ when the Powers That Be think that somehow this is saving or strengthening the financial system. He refers to the now infamous 2005 bankruptcy reform legislation, where the banks made themselves senior to the very customers and savers they are supposed to protect. Pollock summarizes the situation nicely in the article:

“The way I read it was that basically you no longer have property rights. If you have your money in any (US) financial institution, you now have no property rights because in a crisis situation a bankruptcy judge now has the right to say that all of this speculation (by the banks and brokers) takes precedence over your savings.”

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