Is That A Sentinel -- Or A Siren?
I've been studying the Sentinal Decision for about a week now, trying to find an analytical corner that wasn't immediately pounced on by the mainstream media and various bloggers. In short this held:
A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost in the 2007 failure of the suburban Chicago-based futures broker.
The appeals court affirmed an earlier district court ruling that the bank had a "secured position" on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.
The problem with this decision is rather simple -- it eviscerates the general principle in the law that one cannot grant a thing one does not have.
This is why, if you buy a stolen car, you don't get to keep it when the theft is discovered. You can't be prosecuted for unwittingly buying the car, but the seller has no title to the vehicle to convey, and therefore he conveyed nothing. You thus have no claim to the property.
Back in 2009 you all sat for this very same sort of violation, because it didn't risk being your money. I'm speaking of the GM and Chrysler bailouts in which senior bondholders, who had a contractual claim on the assets of the company and thus literally owned the property (as a secured interest) were boned for the benefit of the UAW -- that is, their property was stolen.
The courts allowed it.
Now it has happened here with Sentinel, but this is not news; it is merely continuation of what began, and what you, the people, allowed to occur without retribution or recompense.
This morning we find that it's likely that those who were involved in the theft of customer funds at MF Global, including Corzine himself, are likely to not face criminal charges. And why not? That's just an extension of the Sentinel decision.
The problem, of course, is that once you ignore property rights then you've ignored them. It's the principle of the thing more than the details; whether you get personally boned with "this" particular violation isn't the question. Rather, the question is this, for each and every one of you:
"What assurance do you have that any property of yours that is not in your personal, immediate and physical possession, is actually protected by the rule of law if someone attempts to steal it?"
The answer? You have none.
Let that sink in folks, because it does not just apply to futures traders, to people daytrading stocks, or even to people with 401ks and IRAs. It applies to each and every one of us with a bank account.
That's right folks -- it applies to anyone with any property held by any person other than you, in your personal control within reach of your fingers. If it is stolen by a wealthy and powerful person they will be found to have conveyed it "within the law" and you will not get your property back.
The customers of MF Global keep being told this lie:
After 10 months of stitching together evidence on the firm’s demise, criminal investigators are concluding that chaos and porous risk controls at the firm, rather than fraud, allowed the money to disappear, according to people involved in the case.
Money doesn't disappear. The investigators know where every single penny went. They know precisely who has it. And under long-standing and essentially inviolate legal principle, they also know damn well that whoever has it does not have title to it and cannot acquire title as the entity who granted possession (MF Global) didn't have title to those funds and thus could not convey what it did not have.
No matter; your money is gone.
Your money in any brokerage account can be just as easily gone.
Your money in a bank or credit union can be just as easily gone. The FDIC, incidentally, has a tiny fraction of the total deposit base available; it cannot cover your deposits in any real failure of the system, as it doesn't have it (and neither does Treasury.)
Any property, in short, that you do not personally possess within reach of your fingers..... can be and will be, if a rich and politically powerful person steals it, gone.