The Great Taking

David Rogers Webb

The Great Taking

by

David
RogersWebbedited by Michael Palmer, MD© David Rogers Webb (2023)
All rights reserved.
This is version 1.4 (February 12, 2024). To check for updated versionsof this book, visit its homepage:https://thegreattaking.com/
Printed versions of this text can be ordered from Lulu.com via
https://tinyurl.com/the-great-taking-paperpackor
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Cover photograph by Billy Soden (https://billy-soden.pixels.com/)

For DadIn memory of DavidContents

List of Figuresvii

Prologueviii

I.

Introduction

1

II.

Dematerialization

7

III.

Security Entitlement

9

IV.

Harmonization

16

V.

Collateral management

25

VI.

Safe Harbor for Whom, and from What?

31

VII.

Central Clearing Parties

35

VIII. Bank Holiday

42

IX.

The Great Deflation

57

X.

Conclusion

62

Appendix: NY Fed’s reply to the EC Legal Certainty Group

68

References

99vi

List of Figures

I.1. Annual velocity of money, from 1900 to 2021 . . . . .

5

V.1. Multiple jurisdictions, ICSD as collateral management
service provider with links to other CSDs . . . . . . .

29

A.1. Cover letter of the New York Federal Reserve’s responseto the New York Federal Reserve reply to the European
Commission Legal Certainty Group Questionnaire . .

69

vii

Prologue

I count false words the foulest plague of all.
Aeschylus, Prometheus BoundIf you prefer, consider this a work of fiction, or the ravings of a madman.
Perhaps I am crazy.
I know that you will not hear what I am struggling to tell you—not yet.
But, perhaps as things unfold, this writing will offer some explanationof what is happening.
In my mind as I write this is the small hope that my children might one
day come to understand me a little, and, perhaps, forgive me for being
who I have been. It has been unavoidable for me to see and know about
unpleasant things, which are now becoming manifest.
Presently, as we well know, families are divided. People are experiencing a kind of isolation, perhaps not physically, but in spirit and mind.
This has been made to happen through the dark magic of false news
and narrative. This alone has been a great crime against humanity.
The tactical purposes are many: to confuse and divide; to cause disengagement; to demoralize; to instill fears and to introduce false focal
points for these fears; to manipulate the historical narrative; to createa false sense of the present reality; and ultimately, to cause people toacquiesce to what has been planned.
Facing this onslaught how can one know anything? Direct knowledge
acquired through ones own experience and the personal experiencesof others may be used to pierce these false narratives. Living memory
contains clues. What has been done before can be done again.
If exposure of the personal history in this Prologue grows tedious,
please go to the meat of the matter in the chapters ahead. But if you
will continue reading here, perhaps you might discover that I am a
viii

ix

Prologuehuman being, like you. Perhaps it will be of some use to you, to knowthat I have worked a lifetime to understand the forces hurting us.
For me, “being known” has never been a wise or desirable objective,
unless it has been to accomplish some essential purpose. And now mypurpose is this: it is so that what I am trying to tell you might be heard
and understood. We are in danger. And so I will risk telling you mypersonal story.
How have I come to know what I am trying to tell you?
I am old enough to remember the JFK assassination. I was sitting in
the little basket in the front of a shopping cart at Fazio’s grocery store
on Lee Road when the announcement was made over the speaker. A
woman standing nearby burst into tears.
Within a few years of the assassination, we were living the industrial
collapse of the U.S. For a boy in a family of engineers, in the crane andhoist business, in Cleveland, the years ahead would be very much likeliving through the Great Depression. In the summer of 1966, a portionof the city was burned in the Hough Riots. The National Guard wascalled in and placed machine gun nests on roofs. On top of the riots,
little Webb Equipment was being targeted by the Teamsters Union;
windshields were smashed with baseball bats. Due to the threat of
Molotov cocktails, records were moved out of the office, and roofs were
hosed down at night. It was like living in a war zone, and it was goingto get much worse. There would never be a “recovery.” There would becomplete destruction of everything we had known.
Our extended family had been benevolent, close and happy. In just a
few years, death consumed the entire older generation and some of thenext. The patriarch, Grandpa Webb, died at 79. The following year, myfather’s older brother, died of a heart attack at 51. As a young man,he had been captain of the Case Western Reserve wrestling team, andlooked something like a god. He had left a successful career at ALCOA,
to help his aging father in business, as had my father. Shortly before
his death, he had confided in his wife of struggling to keep the men
employed, bidding for contracts near cost. He was a man who careddeeply and felt responsibility keenly.
However improbable it seems now, Cleveland had been one of themost vital industrial centers of the world. In the 19th century and intoProloguexthe 20th , it was like all of industrial America in one city. I remember
reading that, at one time, the Cuyahoga Valley was producing 2% of theworld’s industrial product. The early days of the iron, steel, aluminum,chemical, automotive, aeronautics, and oil industries were all in Cleveland. Standard Oil was formed there. Rockefeller’s first refinery was
there. John D. is buried in Lake View Cemetery, as are both sides of
my family, who were descended from early English settlers. Some ofthese forebears had arrived with the first settlements in Jamestown andPlymouth. William Bradford was an ancestor. The Webbs had common
ancestry with John Adams, Samuel Adams, and John Quincy Adams.
We had Masonic swords and little porcelain statues of Washington andFranklin dressed in their Masonic regalia. Dad, his brother, and theirfather and grandfather had been Masons. Despite this, it seems they
did not get the memo about what was coming.
By the early 1970’s, the family business, which had once had eighty
men in “the shop”, was down to one, Ladislaus Horvath, earlier known
as “Little Laddie”, being the son of the elder of the same name who
had worked for my grandfather. Laddie, who had been a helicopter
mechanic in Vietnam and could do absolutely everything, later told methat he had thought he would go crazy, there having been absolutely
nothing even for him to do. The business activity had gone to zero.
Under extremely difficult and worsening circumstances, my father had
been left without the support of his father and brother, but with full
responsibility for everything, which he had never wanted. Stress was
slowly killing him. He developed chronic asthma, became depressed
and angry, and often stayed in bed.
Sometime after my uncle’s death, my older brother nearly lost several
fingers in the lawn mower. Dad then gave me the job of cutting thelawn. I was happy and proud to be entrusted with such a big job, as
indeed it was. I was nine.
In the years ahead, I discovered that something in my father necessitated that I be put to work under increasingly unpleasant and evendangerous circumstances. When I was twelve, I became seriously ill
after being pressed to work when I was already ill. By thirteen, I was“the low man on the totem pole” at the shop, as described by one of theguys at my father’s funeral. It was hot, dirty, and sometimes quite dangerous. I could easily have lost fingers, my eyesight or worse. Excellingxi

Prologuein school remained a given, but hard labor marked the remainder ofboyhood.
I recall being tasked with sifting dirt from a gravel pile in the fullsummer sun and humidity. I was to then use the dirt to fill holes where
I had pulled weeds. I was hard at work when Dad came home. Saying
nothing, he kicked over the wheelbarrow, and threw tools as far as hecould. There were tears in his eyes. Knowing that I had done nothing
wrong, I don’t think I felt afraid so much as something else. It was myfather who was in some kind of trouble. I “saw” him. I think what I felt
was an intense need to understand what was happening, and why.
And so, even though Dad was hard on me, I was perhaps the only
person intensely interested in what he had to say. It was the silence,and not having things explained that got to me the most. And so, I
asked questions. He was an intelligent guy, and he had filled his roomwith stacks and stacks of books. He was trying to understand what was
happening. And so was I.
Consequently, by the age of twelve, I had become a student of the Great
Depression and of the mysteries of the Federal Reserve (the “Fed”). I
knew then that the Federal Reserve System had been secretly planned
at a meeting on Jekyll Island, that gold owned by the public had been
confiscated in the Depression, and that Nixon had recently taken thedollar off the gold standard.
Coincidentally, Dad had also been twelve at a traumatic time when,in March of 1933, they closed the banks and confiscated gold. He
was named for his maternal grandfather, who, in the weeks before the
Panic of 1907, the crisis atmosphere of which was used to justify thecreation of the Federal Reserve System, had been shot from behind,in the neck, in the middle of the night, on the staircase of his homenear Euclid Avenue. The murder was never solved. While it had been
mentioned in newspapers from New York to Alaska at the time, thehistory had been kept from my father. Dad went down to the public
library and dug into microfiche of these old articles, which he copied.
He showed me a shoebox full of them. His grandfather was described
as a “wealthy coal operator.” I have seen records of his accumulationand sale in 1905 of coal rights on more than 800 acres in Mahoning
County, having retained rights to drill through the coal seam for oil(which his descendents theoretically have still).

Prologuexii

Dad was interested in what had happened on Jekyll Island, so much sothat we drove there. I have the post card with a 1960’s era photographof a large white building and the inscription, “The Club House”, withthis further explanation on the obverse:
The Club House was the heart of interest of the Jekyll Island,
Georgia, Club during the years 1886-1942. This was the most
exclusive club in America, known as “The Club of Millionaires.”
Such illustrious names as Astor, Vanderbuilt, Morgan, Rockefeller,
Baker and others were found among the club roster.
Paul Warburg, a member of the most prominent and ancient Germanbanking family had led the meeting on Jekyll Island in which the Federal
Reserve was planned. He later openly acknowledged that this had been
done in secret. Also at that meeting was “Colonel” Edward M. House,
who in subsequent years laid the groundwork for the establishment of
the Council on Foreign Relations. In the quiet of Christmas Eve, 1913,
The Federal Reserve Act was signed into law. The Great War followedby just seven months.
Despite boyhood years of trauma, and perhaps because of them, I
went on to do some things. Early childhood formation had saved mefrom being crushed. This was largely thanks to Grandma Rogers, mymother’s mother. She was a Montessori School. By the age of three,
I was sharpening knives and making tea. At night, she sat by mybedside, helping me drift off to sleep. She spoke softly in the darkness,remembering things to me from her childhood, and from the Great War.
I realized only as an adult that they had been warnings.
She had gone with my grandfather into the Great War, she as a nurse,
and he as a surgeon. They were not yet married. The U.S. had not yet
entered the war. Their field hospital in Rouen had 3,000 beds, but thecasualties were more than this each day. Even the cooks were attending
the wounded. In the darkness at my bedside she had recalled the soundof the big guns and of the shells exploding, which she could hear fromthe hospital tents.
She and my grandfather were married after the war, and honeymoonedin Quebec City. They were the same age, thirty-eight. She had her firstchild, my mother, at forty-two. To have come through so much, tomarry, and to have children—it must have seemed a miracle.

xiii

Prologue

Grandpa Rogers was named for a cousin who had joined the army to getaway from working in his father’s shoe store; he ended up at Little Big
Horn. Grandpa’s grandfather, born in 1816, had also been a surgeon.
As a boy, I was allowed to handle his grandfather’s surgical kit. It
is identical to one in the Gettysburg Museum. Grandpa’s great uncle
is buried there; he was a Cavalry officer. Surviving 50 engagements,
captured when his horse was shot in the head, he later escaped througha swamp, pursued by hounds, from a Confederate prison where themen were dying of starvation and smallpox.
My grandfather taught surgery after the war until his untimely deathin 1945. We had a chair in the house that someone had given to him.
It was explained to me that, in the Great Depression, he did surgeries
without payment, because no one had money. They had a “Dutchman”
living on the third floor of the house; he had lost his job with thefactory closures, and simply had nowhere else to go.
I liked Grandma and often visited her room. She had been born on
the Canadian side of the lake in 1883. She told me about riding in asleigh wrapped in buffalo robes, with bricks warmed in the fireplace
under her feet. She had a picture of Queen Elizabeth on the wall in her
room. With the Lakeside Unit, she and Grandpa had met King George
and Queen Mary in a reception at Buckingham Palace. I learned aboutthat from a newspaper I found among her things.
She somehow conveyed to a small boy that medicine is a profession, as
distinguished from pursuits for one’s own purposes, and that, in theoriginal sense of the word, business is not a profession. I struggled withthis last bit for some time, as my Dad’s family was clearly in business.
Nevertheless, I understood that one’s work should be about something
more than making money.
I was welcome in her room. One day, I wandered in as she was gettingout of the bathtub. I wondered at the wrinkles. She was unperturbed—
completely natural, having a quiet dignity at all times. She died of aseries of strokes when I was seven. I did not understand death. Half acentury later, I came to understand that I had lost then the best friend
I would ever have.
I would have gladly followed the certainty she had given me, that I
should become a physician, as did my brother. However, in the remain-

Prologuexiv

ing years of my boyhood, the way before me became not only uncertain;
it became the unknown. I did not know how to do it, but I needed tosomehow understand and get control over what was destroying ourlives. I had accepted the burden of my father.
We lived in East Cleveland, which was crumbling due to the loss of
its industrial base. At about the time of my uncle’s death, my older
brother and his friends, playing baseball in Forest Hill Park (a former
Rockefeller estate), were surrounded by a huge crowd, beaten up, andhad their bicycles and baseball mitts stolen. My father reacted to thisby pulling him out of the local public school and sending him to a
private school. While moving out of East Cleveland was considered, it
was not undertaken. So, as conditions worsened further, I eventuallyfollowed to the same private school some years later. But by this time
the financial resources of the family were running thin. Each summer
the uncertainty of whether I could return to school was obliquely madeknown to me.
Being told about bad things did not bother me so much as not being
told. I needed to know. The silence was terrible. Life is more difficult
if people can’t talk. Things go undiscovered, or misunderstood. If it
is possible to talk, outcomes might be changed. The future might beshaped for the better.
The summer before my senior year was particularly uncertain; mymother told me that my Dad would not apply for financial assistance.
I had no idea if I would be returning to school. But at the end of thesummer, I started back to football practice, as no one told me I couldn’t.
I delivered newspapers before school, worked as a busboy at night
and as a janitor on the weekends, drove a delivery truck, and painted
houses. I was reading business books, and missing no opportunities,
managed to set-up an internship in marketing research at a fortune
500 company.
Many years later, after my mother’s death, I found a copy of the lettershe had sent the school, which had apparently secured my final year.
Perhaps due to some embarrassment, this had never been explained
to me. Without Mom, I might have suddenly had no recourse but tocomplete high school in East Cleveland, which was then quite ahead of
the times; they already had police and metal detectors in the hallways.

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Prologue

When I told my father that I was interested in studying business, hetold me that this would not prepare me to do anything, and that I
should study engineering. I had, however, observed that the engineers
in our family hadn’t seemed to fare so well. And so, against my father’sadvice, I chose to attend a state business school, studying finance andcomputer science. In my mind these pursuits were dignified with theidea that business is the science of meeting unmet human needs, andthat this can only be done sustainably if it is done profitably. It latercame as a difficult realization for me that people in business haveno greater purpose than making money. Nothing else comes close tothat, except perhaps, being important, and sexual escapades. I was an
outlier. I was extremely focused on pursuing things I sensed I needed
to understand. This gave me an advantage. I would come to know
things that others did not know.
Coming from a family of engineers and medical people, I then knew
nothing about the world of “high finance”, and had no one to guideme. I invested in a subscription to the Wall Street Journal, which inthose days was actually a factual business publication. Sometimes I
forced myself to go through a stack of them, page by page. I noticed
the “Tombstones”, published to announce major deals. These weresomehow important. The firms involved, were in New York, for themost part. I knew I needed to go there.
My wife, Valerie, and I were married two weeks after my graduation.
Two weeks after that, I started work with a computer services firm. I
had some experience with programming, and after a further 90-day
training program, I chose to go to their office at 44 Wall Street, as aTechnical Representative rather than as a salesman. The cost of themonthly rent and train pass were so high, and I was being paid so little,
that we could not afford a telephone or meat. But over the next year,
supporting the sales teams, I was able to go into a huge number ofentities in New York working with financial information—investments
banks, commercial banks, brokerage firms, bond houses, investment
partnerships, rating agencies, and even Depository Trust Corp. I wasallowed to be there to show them how to get the information theyneeded, and to make it happen. I went to meetings every day andprogrammed applications late into the night. Eventually, I could see
where I was going.

Prologue

xvi

Within a year, I somehow talked my way into a Mergers and Acquisitionsgroup, which was a client. After a series of high-stress interviews, I wastold by the head of the group, Mad Dog Jeff Beck, “If you turn out to bea psychopath or a pathological liar, we give you a bonus!” Jeff knewof what he spoke. He may not have been the former, but years later
he proved to have been struggling with the latter in a big way. Lies
are a trap, and perhaps especially to those who tell them. It eventuallydestroyed him. He once said to me in a self-deprecating way, “You area real person!”
The people my age were the son of a billionaire, the daughter of a
fantastically wealthy Hong Kong family, and the son of the chairman of
a fortune 500 company. I was allowed to be there for only one reason:
I could figure out how to do what needed to be done. There was a bitof pressure. I had been told by a senior vice president, “You better besure you want to do this, because if you fuck up, you’re gone.”
For the following five years, it was a regular occurrence to work sevendays a week, and for several days without sleep. Our first child wasborn. We were then living in Brooklyn Heights, in a tiny apartment,
just one subway stop from the office at 1 New York Plaza. If I had
been home and had to return to the office, reaching the elevator bankmy heart would start racing, because I did not know how many days I
would be there without leaving.
I thought of it as a crucible. It is through reactions under uncomfortable conditions that one comes to know oneself and others. I had
encountered many such reactions, and could maintain focus under
great pressure and with little sleep, when a headhunter approached
me to go to work for Ivan Boesky, later dubbed, “Ivan the Terrible.”
The starting compensation would have been roughly ten times what I
was being paid at the time. I was considering doing it, but it was notreally about the money. Through those years, I was living by Nietzsche’s, “That, which does not kill me, makes me stronger.” I was alreadyworking around the clock for extreme personalities; why not do it? I
would have been on a three-man team sitting directly outside of anopen window into Boesky’s office, through which he could bark orders,
but which he could close for his private and sensitive conversations.
They wanted me there to do quick break-up models and valuations of
big companies, which I was capable of doing overnight. Fortunately

xvii

Prologuefor me, that discussion suddenly went cold. He was arrested shortly
after that. And so I learned a bit about the lure of money, and of being
careful about one’s choices and associations.
We had moved to a big old house in Chatham, New Jersey, and had
invited my mother, and my wife’s mother, with her youngest son, tomove in with us. I was still in survival mode, and wanted to take care ofeverybody. The commute into the city was an hour and a half, each way,
three hours a day. One twelfth of the year was commuting. I made useof that time, but little remained to simply be at home with the family.
In 1987, I had an offer to join the Mergers & Acquisitions group at L. F.
Rothschild. Instead, I chose to move for half the compensation to a
private equity firm. I knew about the agency side of the deal business;
I needed to know about the principal side. I also somehow sensed that
there would be a crash. One month later on Black Monday, the capitalof L. F. Rothschild was wiped out and the firm soon ceased to exist.
I had joined what was at that time the largest private equity firm in theworld, having just raised a $1.3 billion fund (that used to be a lot ofmoney). Most of the partners were attorneys, and were dependent uponan accounting firm to do their financial analysis. That was amazing
to me, as I had experienced that the very process of doing one’s own
financial analysis is critical to developing an understanding. Within a
few weeks, it was noticed that I could find major errors in the financial
models done by the accountants.
The first year, I managed the acquisition of a long distance telephonecompany, building the financial model, designing and running the due
diligence, negotiating the financing, and running the legal teams. It
was a complex process, requiring coordination of hundreds of people.
The responsibility for all of this was crushing. The partner on the deal,
having a difficult time with stress, went home and stayed in bed for six
months.
Sometimes it was unavoidable that I work through the night, perhaps
sleeping briefly on the floor. More regularly, I took a waiting limousine
to our house in Chatham, to sleep for a few hours, only to get up
again to take the train back into the city. Saturday mornings beganwith negotiations at 8 a.m., extending until 3 a.m. Sunday morning,and beginning again at 8 a.m. Sunday morning. This pace went on forPrologue

xviii

nine months. The due diligence, filling a bank of file cabinets, andsummarized in a single notebook, was selected to demonstrate thecapabilities of the firm to the limited partners. This deal was to produce
the largest capital gain in the history of the firm. The “deal books” fill ashelf. I signed every document. I was twenty-eight. Sometime after theclosing, I was called down to the corner office and told that I could doanything at the firm.
However, my family was suffering from these many years of my intense
focus. The move to the private equity side had only increased theintensity, as I could not escape the encompassing responsibility. Our
second child was born in the first months of this deal. I had to be on
the telephone outside the delivery room for an hour and a half, handing
things off so that I could be with my wife and newborn son for twodays. Some months after this deal had closed, my wife told me that
if she had known that our life would be this way, she would not havesigned up for it. This came as quite a blow. I had thought I was a hero
to my family. I told her that we could go anywhere and do anything,and got out the road atlas of the U.S. We paged through it state by state,trying to imagine where we could be happy. Ultimately, I simply left
the firm and we moved back to Cleveland in an attempt to find a morebalanced way of living.
We moved to a house built in 1920 in Cleveland Heights. Two of ourchildren were born in that house. It was within the sound of church
bells I remembered from childhood visits at Grandpa Webb’s house.
The intensity remained. Eventually, I started with partners in a small
investment management business. I had developed the view that the
public markets offered greater inefficiencies and better opportunities toboth buy and sell than the private markets. I knew how to do deep research and analysis. I needed to know how the markets and the broader
financial system worked. From the beginning of my involvement, I
handled all trading, and went on to develop the trading processes,
strategies and teams. At first I managed long only equity, and thenlong/short equity. The firm grew from $2 million to $2 billion in assets
over nine years.
While it was not then and is not now generally understood, decline
in the Velocity of Money marked the beginning of the Asian Financial
Crisis, eventually leading to the Ruble Crisis and failure of Long Term

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Prologue

Capital Management. Through direct handling of all trading, I could seethat something significant had changed in the internals of the market.
It was plain to me that this was not just an atmosphere of crisis but
the beginning of a real crisis. Few had the same sense, and this was thecause of conflict within our firm. It is best in a turbulent time to sell
the peaks and buy the dips. Some people like to do it the other way
around. At about this time, our third child, a pre-reader, picked up thestock listing from the newspaper and exclaimed, “This says oh no!”On Thursday, August 27th , I left with my children for a long-weekend
canoe trip in Canada, this being our only vacation for the summerof 1998. I called into the office Thursday morning from the canoelivery, and was then without access to telephones. While I was away,
instructions were given to remove the entire short position protecting
the hedge fund from loss, and the employees were called together toannounce that I would be leaving the firm. This was all unbeknownst
to me as I was enjoying a tiny bit of life with my family.
Arriving early in the office on Monday, August 31st , I was stunned
to learn of what had transpired while I had been in the wilderness.
To my further amazement, I was informed that there had been a“palace revolt”, and that from that moment going forward I would haveunquestioned, sole responsibility for the hedge fund. Perhaps thiswas due to the grim fact that all of the hedges had been removed, in
combination with the imminent possibility of a full-blown market crash.
This day would see the largest ever point declines in all market indices,other than the Dow 30, which suffered the second highest point decline
in history. Our hedge fund would have lost 10% on the day. However,at the open, I shorted the entire value of the fund. Late in the day, I
could see sheer panic selling. We were then in a position to buy into
the panic. I covered the entire short position at the low. Only throughthese extremely stressful moves was the fund miraculously protectedfrom loss, ending flat on the day. The NASDAQ composite finished
down 8.6% on the day.
At this time, the assets in the hedge fund were approximately $60
million. Over the next three years, this grew to more than $1.3 billion.
By the late 1990’s, I had understood that money creation by central
banks was dwarfing real economic activity, and that the actions of theProloguexx

Federal Reserve were determining the direction of financial markets.
This was considered to be conspiracy theory at the time, even by mypartners.
I developed a way to anticipate changes in the direction of the financial
markets based on changes in the rate of growth of the money supply.
This was being driven by open market operations of the New York Fed.
By the time of the Dotcom Bubble, I knew that the velocity of money
had begun collapsing; I saw incredible escalation in money creationengendering little growth. I believed that, in some great unfolding
over many years, there would be a major depression, and that the only
question was whether or not there would be a global war. This wasprior to 9/11.
I developed a way of using hundreds of carefully selected positions
on the short side, dubbed “the cream of the crap.” Using this system,no one position could hurt us badly, and, if I did it right, it would
work much better than an index. The long side was more concentrated.
Altogether, at any moment, we typically had on more than 350 positions.
Working such a large number required a specially designed trading
desk and team technique. We regularly positioned on the other sideof trading flows, patiently drawing size to us across the bid/asked
spread. Observing and probing this many positions gave us broad, realtime market sensitivity, or “granularity.” We could move size without
moving the market, utilizing available liquidity across many positions.
The trading desk functioned as a newsroom, seeing everything as it
was released, and conducting continuous research. If a position was
moving without news, we moved to find out why with urgency.
It was necessary to carefully and continuously feed and challenge
an integrated model of how the world was working, and of all of ourpositions. This model was not on paper; it was in my head. This allowed
us to act immediately when confronted with significant developments.
But it was absolutely vital to focus immediately on any information
or development which did not comport with the mental model. Whensifting new information, I did not focus so much on things that fit myideas as on those that did not, that threatened my understanding.
The intuitive mind, when adequately and correctly informed, can be
miraculously powerful, knowing immediately what the rational mind

xxi

Prologuecannot yet see. On the other hand, if it is given bad information,and if incorrect assumptions are not surfaced and challenged, it is adysfunctional disaster. The rational mind can be employed to informthe intuitive with vetted information, and to continuously test what
the intuitive mind thinks it knows. With cooperation between these
aspects of the mind, one can drill down to examine detail, zoom out tosee bigger implications, and vice versa.
Ultimately, deep due diligence requires spelling out one’s own assumptions and rigorously testing them. Primary source documents may
provide irrefutable information. Biased sources can be used, but one
must recognize the bias and account for it in vetting the information.
A statement that is consistent with the bias is of little significance.
However, something acknowledged which runs counter to the bias is
likely factual. To really know something, one must go directly to people
with immediate experience of the situation. You can’t really know by
talking with someone who has only read about it. If I suddenly realizedthat I needed to know something critical, I sometimes went directly tothe airport with just the clothes on my back, flew across the country,
and waited for the person with whom I needed to speak, even though I
had no meeting scheduled. That actually worked rather well. It helps
to hear things directly from people when they are a bit surprised andoff-script.
Dad had told me that understanding terminology is the key to functioning in any field. I had found through my due diligence work that it waspossible to become conversant within a surprisingly short period oftime even in technical issues with leaders in a field. It was done by doing it. After the first conversation, I was better equipped for the second.
With each conversation, I was able to better hone in on the substantive
questions. By the third conversation, the other person actually became
interested in speaking with me, because I had just spoken with two
people in their field about some interesting issues. And it built fromthere. I could do this with physicians, chemical engineers, and evenneuroscientists. They sometimes asked if I had trained in their field.
There was a small medical device company growing at a high rate, on
which I had done a great deal of deep due diligence work. We had alarge position. It was thinly traded, and so I monitored the situation
very carefully. I had a detailed model of the monthly sales ramp built

Prologuexxii

up by the reorder rate at individual hospitals. One day, the company
reported sales which missed my projection. They were still growing
at a high rate, but in adjusting my model, I could see that the reorder
rate must have fallen at some hospital. No one else seemed to havenoticed this, and the company was acknowledging no issues. I started
cold-calling into hospitals. I managed to get an OR nurse on the phone
who had just come out of surgery. She told me all about why they had
stopped using the device. I knew then that the sales of this company
would go to zero.
I now had a big problem: how to get everybody out. Not only did thehedge funds have a big position, but also a large number of accounts
for individual clients, which I still handled at that time. On top of that,close friends were also heavily in the shares, as well as a school I had
supported. It took weeks to patiently work down positions and get
everyone out without loss. We handled it all from our trading desk,
including coordinating sales for friends and for the school. I made sureit was all done. Then the people at our desk could sell their shares.
When that was done, the second to last sale was for my mother. The lastshares sold were those of my immediate family. I made sure everyone
on the desk saw how I had handled it. To front-run your clients andeveryone you say you care about—that is trashy. Some people operatewith the certainly that they should help themselves first, especially inimportant matters. I know it is done, but it is something I would not
do. I would not allow it.
In the course of this, I flushed out certain institutional brokers at a
certain prime broker who had arranged to be secretly copied on mytrades and were piggybacking them. I now suspect that, toward theend, the prime brokers were allowing traders to front-run my monthend liquidations.
We used the entire balance sheet. On days with big market moves,
we traded millions of shares, and might have gained or lost tens of
millions of dollars. Handling this required emotional calm and intense
focus. I have told my wife that it was like performance art. The ego
clouds judgment, and particularly when much is at stake. I made apractice of focusing outside of myself, and of actually placing duty andresponsibility to others ahead of my own interests. For me, my work

xxiii

Prologue

was not about making money. It had to be about more than that, or I
could not have carried the immense burden of it all.
My clients included a former U.S. Treasury Secretary, a former president of the New York Federal Reserve Bank and some of the largest
institutional investors. People from Switzerland flew into Cleveland.
They were trying to understand the secret of how I was doing what I
was doing. But there was no secret algorithm. It was a way of thinking.
My mother asked what courses I had taken or books I had read to teachme to do what I was doing. I responded, “Mom, there are no books
explaining this.”
Busying oneself with absorbing the pronouncements of media, government officials, business executives, and such mouthpieces, creates anillusion of being informed. As Samuel Clemens said, “It’s not what you
don’t know that kills you; it’s what you know for sure that isn’t so.”Through hard experience, I came to know that, while it may be quitedifficult to know the truth, it is fairly easy to detect lies.
People behave in disappointing ways when large amounts of money orunrestrained ego are involved. With both, there is sure to be trouble.
When I discovered that I had been the target of a long-planned betrayal,
I was dismayed and chose to begin again.
Starting over meant liquidating the hedge funds I had been managing.
Between September 1, 1998 and November 9, 2002, when I liquidated
the funds, the total return on these funds was 258%, net of fees (thegross return was over 320%). In comparison, the S&P500 and the
NASDAQ indices had declined over this period, which spanned theextremes of the dot-com bubble and bust. If there were any funds inthe world that did as well through this period as did mine, they were
few.
These results were audited. Further, they were now cash on cash
returns, and so clients knew them to be absolutely and stunningly
real—it’s one thing to receive statements; it’s quite another to actually
have received the funds. One client called immediately and offered toback me with $1 billion, explaining that I then would not need to raisemoney. It was an extraordinary moment for me. I was hugely flattered,but ended-up declining the offer when I learned of a side-letter thatwould have put other clients at a disadvantage.

Prologue

xxiv

While the dot-com bust was underway, I was asked to meet with George
Soros at the offices of Soros Management in New York. I carried into
the meeting a single piece of paper. This was a graph showing that thegrowth rate of U.S. capital spending had blown through five standard
deviations above the mean, having never in history broken above threestandard deviations. I explained that this meant there would inevitably
be a historic bust.
Soros looked closely at the piece of paper, looked up at me and said,“This is good!” He studied the paper further, looked up at me again
and said, “This is very good!” He did not disagree with me about thebust, but said “They cannot allow the equity culture to fail.” I said,“What can they do that they haven’t already done.” He said in answer,“You don’t know what they can do.” So, in such a moment, even George
Soros spoke of a they.
He then smiled and said “Thank you!” meaning this was the end of themeeting. One of his handlers followed me out of the room and said,“How did you do that? I have never seen anyone do that!”
I was amazed and flattered to have anything to do with George Soros,
and that he took me, this kid from Ohio, seriously. He certainly knew
a great deal that I did not know. But on the other hand I knew things
he did not know. Early in 2003, I met with him again at his office,showed him a one-page chart of the astounding growth in Asset-Backed
Securities, and predicted that this would be the basis of the next bubble
and crash. He said, “You’re crazy.” But he was very interested in how I
was doing what I was doing, and I explained it to him. He said, “Youhave rhythm. Other people can get rhythm too.”
I started again in January of 2003 with about $300 million in assets anda further $300 million in commitments, taking with me twenty-four
employees, which meant that nobody lost their job due to my departure.
Through the peak of the Dotcom bubble, I had been able to “fight theFed”, because I could see the acceleration and deceleration in theirliquidity injections. I could already see that there would be anothereven bigger bust. I felt I had the responsibility to protect people, tokeep going, and to do it again. But it would be different this time. The
next couple years nearly killed me.

xxv

Prologue

The markets had always functioned largely as a closed system (excepting the open market operations of the New York Fed, which I had
learned to monitor and interpret). I could see flows from one sector of
the market to another. In order for some areas of the financial markets
to rise significantly, other sectors were being sold to provide the funds.
I looked for opportunities to work opposite to these flows and rotations,buying what others had orders to sell, and selling what others wanted
to buy, but drawing them through the bid/asked spread.
In March of 2003 I started seeing a phenomenon I had never seen
before. On individual days, everything went up, with no apparent
source of the fund flows. There was no rotation. All sectors went up,
as did bonds. This was not being driven by open market operations
because money supply growth was falling. Something unprecedented
was happening in the internals of the market. The only explanation wasthat created money was now being directly injected into the financial
markets; I wrote about this at the time. It is not understood even now
that this was the actual beginning of “Quantitative Easing” (QE), morethan five years before it was officially announced during the Global
Financial Crisis. I saw it as an act of desperation, and again felt myresponsibility to protect people.
Money supply growth was falling sharply. Commercial and industrial
loans were falling. I suspected that the growth in Asset-Backed Securities and derivatives was highly unsound, and that inevitably there
would be an epic bust.
By the end of the year, despite easy availability of credit, signs of
economic stress were growing, but people did not understand this, withthe exception of those being hurt directly. One could not have known
from listening to the media narrative. And, if the stock market can bemade to go up, people think things must be good.
The number of people late in paying their utility bills was increasing.
Foreclosures as a percentage of total residential loans outstanding
were going straight up to record levels. In the spring of 2004, I was
preparing to write about this in my quarterly letter when I found thatthe DLQTFORE Index on the Bloomberg system had been changed toinstead show that foreclosures were going straight down. I asked oneof the guys on the desk to dig into what had been done to the data
series. He called into the agency responsible for the data. Eventually heProloguexxvi

was told that, while the data series had been calculated consistently
in the same way since the 1970s, the methodology had recently beenchanged, and that this change had been applied retroactively; indeed
the methodology was now being tweaked with each data release. Doingso made it possible to publish any desired trend line.
Post 9/11, other important economic data series were being similarly
corrupted to fit the script of economic strength and growing prosperity.
An unprecedented level of deliberate government disinformation was
being implemented. Having been a “God and Country” Republican
who had voted for George Bush, I was shaken. Why would our own
government work to give the public a false understanding of what was
happening?
Bush gave a televised speech in a Texas warehouse, standing in front ofwhat appeared to be shipping boxes stamped “Made in America.” Theimage was a fake backdrop, and so, it inadvertently symbolized the epic
fraud which was then being perpetrated. I regularly called businesspeople with insights into the real economy. Some ran industrial businesses. A bankruptcy attorney, who had been a friend since we were
twelve, was handling workouts for one of the biggest middle market
lenders. Viewing their database of more than 2,000 middle market
companies, he told me the commonality was that they were all shutting
down U.S. manufacturing as quickly as possible and outsourcing to
China. Tens of percentage points in gross profit could be picked-up by
doing so. It was about chasing short-term profits; but then you’ve lostyour industrial base and more.
In Senate testimony, Alan Greenspan was talking about the “productivity
miracle” supposedly being driven by technology investment. In thosedays, “The Maestro” was implicitly regarded as possessing superhuman
wisdom, which he, of course, used benevolently in his role as theguardian of the U.S. economy. Perhaps then he was smart enough toknow that Productivity is simply calculated as Sales/Hours Worked.
As Fed Chairman, and as an economist, he must have known that thiswas being driven by falling hours worked, by people losing their jobs
as U.S. manufacturing was being shut down and outsourced, and thatspending was only being maintained through massive money creationand debt expansion. People were permitted and invited to go deeper
into debt while losing their livelihoods; that was the “miracle.”xxvii

Prologue

While the tax bases of state and local governments were being gutted,
the Fed’s monetary policy was inflating a massive bubble in financial
assets. In recognition of these two facts, what could The Maestro haveadvocated? If the objective had been to serve the interests of the public,
one would have recommended taxing the windfall financial gains thatwere driven by the monetary policy, and cycling the proceeds into fiscal
support to communities, which were losing their tax base. The opposite
was done. Taxes on dividends and capital gains were cut substantially.
State and local governments were forced to increase taxes while cutting
services. This deliberate choice would destroy cities, towns, communities, and the people in them. This is why home foreclosures andutility delinquencies were going to record levels. And this is why thecalculation of economic data was being changed, including that of the
DLQTFORE Index.
What is the job of the Fed Chairman? In the case of The Maestro it
seems to have been to obfuscate what was really happening. Why would
he do that? Answer: The Fed chairman does not work for the public; heworks for the people who own and control the Fed. You are not allowed
to know who these people are. Why would the people who control the
Fed wish to obfuscate what was happening?
Now we are getting somewhere. There is something much, much bigger
behind this. That’s what this book is about.
How was debt expanded while credit conditions were deteriorating? It
was necessary to create a massive, audacious illusion: that there wasno risk, specifically that there need be no concern about the abilityof borrowers to repay financial obligations. The scheme worked sowell that banks discontinued their risk underwriting functions, while
offering mortgages for more than the purchase price of a home, so thatborrowers received cash back at the closing. Loans could even be given
to people who were unemployed and had no income—just what wasneeded.
The entire global financial system was moved aggressively to originationand securitization of loans into Asset-Backed Securities, and to fillingbalance sheets with these securities. With the illusion of risk-free
return, demand for these Asset-Backed Securities was so high thatthey were sold many times over on a synthetic basis, i.e., as derivativePrologue

xxviiiinstruments. There was a Dilbert comic in which the evil Dogbert said,“’Prospectus is Latin. It means close your eyes and open your mouth.”This was enabled with remarkable sophistry, and with Credit Default
Obligations (CDOs), “miracles of modern finance”, as Greenspan called
them. When questioned about the risk exposures, he said, “Presumably,
the risk will be born by those best able to bear that risk.” In laying
the groundwork for this, Robert Rubin and Larry Summers had joined
Greenspan, billed by Time Magazine as the “Three Marketeers” andas “The Committee to Save the World.” They had presided over the
repeal of key sections of the Glass-Steagall Act, which had separated
commercial and investment banking since 1933. By 2002, the notionalamount of derivatives outstanding had reached twice the size of the
global economy; just six years later it had reached ten times global
GDP. About 10% of this was Credit Default Obligations; CDOs alone hadreached the size of global GDP.
Invented in the 1990s, Asset-Backed Securities were created by forming
a pool of financial obligations (e.g., mortgages, credit card receivables,
boat loans) and then carving up the pool into a series of trancheswith ascending risk ratings. The idea was that any defaults would beabsorbed by the lowest-rated tranches. This would allow the highest
tranche to be rated AAA. But there was a problem. Wall Street had
difficulty selling the lower-rated tranches, which bore the risk of default.
This is why the Credit Default Obligation became so important. It was
the linchpin. With a swap of the default risk, the entire pool could be
rated AAA.
I wondered at the time, who, in their right mind, was signing up to
take any of that default risk? Eventually, it was possible to know thatit had been the biggest banks themselves, and that these had been
allowed (or directed) to form hedge fund subsidiaries. These entities
had apparently enthusiastically taken on the default risk, knowing thatthey would be allowed to use valuation models at year-end showing
there was no default risk, based on the simplistic logic that there had
never been a default. The General Partner of one of these funds would
have pocketed 20% of the resulting paper profits each year. This was
being done on an enormous scale.
With a significant short side in the rising market, we were losing money,
but I felt it was my responsibility to continue. I knew that if we could

xxix

Prologuejust be positioned when the intervention ran its course, we would beamong the very few able to survive the bust. I could see that thiscoming global collapse would be much bigger than the dot-com bust,and I began to worry that the insolvencies would be so enormous
and widespread that the prime brokers, the custodians for our hedge
funds, would fail. If you are using shorts, your assets are pledged in acollateral account. There is no way to be hedged without being exposedto the failure of the prime broker. I often awoke in the middle of thenight, and, knowing that I could not get back to sleep, would simply
get up and continue working. I had chronic heartburn, which may leadesophageal cancer, the disease which had killed my father. Like myuncle before me, I was being crushed by my sense of responsibility.
Sitting on the trading desk, and seeing everything as it happened,
I had assembled documentation of the many bizarre disconnects in the
media narratives around 9/11, The War on Terror, and the economic“recovery.” It was the size of a telephone book. I thinned this down to asmaller package, which I used to try to communicate with friends andneighbors. I might as well have been talking to the wall. I needed tounderstand how to get through to people. Eventually, I went door-todoor after working all day on the trading desk. People in the wealthyneighborhoods did not want to hear about it. I tried it in a place where
the houses were small. I walked past a guy sitting on the front stepsof a house. He seemed to be interested in what I might be doing there(I was still in my suit). I gave him the thumbnail summary. He simply
said, “Good luck, man”, in the voice of someone who had already givenup.
I decided I could not go on after George Bush, instead of being repudiated, was re-elected. I did not think that possible. This is how much I
had changed: In desperation I had voted for John Kerry. I went on towork as a “Team Captain” for the Obama campaign. But there was nochange coming with “Change you Can Believe in” Obama, whose cabinet
oddly came to conform to the candidate list of Citigroup. After that, I
stopped voting.
In the aftermath of the Global Financial Crisis it eventually became
known that tens of trillions in losses in derivative positions were housedin the biggest banks, which were then bailed out with newly createdmoney. The prime brokers would have failed, but to prevent that theyProloguexxx

were made banks and also received direct injections of created moneyfrom the Fed. No one was prosecuted. On the contrary, the perpetrators
were rewarded with enormous bonuses. It was almost as if it had allgone according to plan.
I had expected widespread failures of financial institutions and had
watched closely for the first signs. In 2008, I noticed the failure of asmall broker dealer in Florida, and I was shocked to learn that client
assets owned outright with no borrowing against them were swept
to the receiver and encumbered in the bankruptcy estate. I had tounderstand how this could possibly have happened, and eventually
uncovered that ownership right to securities, which had been personal
property for four centuries, had somehow been subverted. This would
be born out further in the bankruptcies of Lehman Brothers and MF
Global.
I had owned Swedish Government bonds since 2003, but I owned themin the U.S., and therefore had exposure to the failure of the U.S. subcustodian. I needed to find a way to own them directly in Sweden
with property rights. I flew to Stockholm in March of 2009. Withouta Swedish personal number, I had to buy an apartment in order to beallowed to open bank accounts. Then it was possible to open a special
securities account to which I could transfer my Swedish government
bonds, and then own them directly; they could not be lost if a custodian
became insolvent (this has now been subverted as well).
The Swedes were very interested in why I had made the decision tomove to Sweden. In April of 2011, I was asked to speak at an investment
conference in Stockholm. The title of my presentation was “Paradigm
Collapse.” It was the first time I spoke publicly about the gutting ofinvestor protections, including ownership rights to securities, and of
the context for understanding why this was happening,
I first spoke publicly in the U.S. about the subversion of property
rights to securities at an investment conference in 2012. There wasa tremendous response from the audience of some hundreds. When
my time was up, there were shouts of “Let him keep talking.” Theorganizers said that had never happened before. The conference waspolitically connected in some way. Their head of research told methat the CIA was certainly there. The next day there was an article inxxxi

Prologuethe online Wall Street Journal rebutting what I had said, but without
mentioning me.
My Dad’s cousin was married to a fellow named Bob, who had been in
the Office of Strategic Services, the forerunner of the CIA, during WWII.
They were unusually close members of our family, living next door
to my father’s brother in Shaker Heights, and having every Christmas
with us. My cousin, who used to play in their house as a boy, has told
me of finding original photographs of German submarine pens anda Japanese military sword. Bob was in Skull and Bones at Yale. Hisroommate at Yale had been William Bundy, who became an intelligence
analyst with the CIA, and is said to have had key roles in planning
the Vietnam War in the administrations of both John F. Kennedy andof Lyndon B. Johnson. William’s brother, McGeorge Bundy, served as
National Security Advisor to both Kennedy and Johnson; he was on theCouncil on Foreign Relations at the age of forty.
After Bob’s wife, my father’s cousin, died young of cancer, Bob left
a successful career with Cleveland Cliffs and began systematicallytraveling the world. Dad had said Bob would have soon been made CEO.
He kept in touch with our family. He was at our house for a family
dinner in 1976. He explained that he had decided to make Rhodesia
his base. We asked him why, and he said, “I just like it there.” Dad, forsome reason, then said openly at the table, “Bob is in the CIA.” This wasfollowed by complete silence for some time, until Bob began speaking
again. Rhodesia became Zimbabwe three years later. Members of mywife’s family were living there at that time.
Less than a month after speaking at that conference in the U.S., a
man contacted me who asked to meet in Stockholm. He had been the
Chairman of a U.S. political party, and had a long career related to thedefense establishment. He stayed at a hotel within a short walking
distance from my apartment. We had lunch. He suggested a pint ofale. He asked me to explain the subject of which I had spoken at theconference. I went through the evidence and implications. The odd
thing is that he then asked no questions about the subject. Instead, he
fixed me in the eye and said, “Does your family know you are doing
this?” He said nothing more; that was the end of the meeting. I paid thebill and left. Perhaps it had been a “courtesy call.” We all have to die
sometime, and being assassinated must be among the most honorable

Prologue

xxxii

ways to do it. One must have been doing something right! Made a
difference! No classier way to die, really. I always wanted to be likeJohn Lennon!
I have not wanted to write this book, or have anything to do with this,but is has become unavoidable. It is like exorcising a demon, which has
plagued me and my family. It must be done. And then, I will be done. I
am self-publishing this because I don’t want to involve a lot of people.
I just need to get it out. I expect that there will be efforts to criticize
me personally and this work.
We have been overwhelmed with unpleasant and contradictory media“information.” This is by design. It is an intentional strategy, highly
effective in shutting down critical thinking. I hope not to add to thisburden. And so, a goal here is to be focused and concise, so as to not
sap the attention of the reader. A further and more important goal isto provide not just information, but a synthesis of key information,
allowing the reader to understand what is happening, why it is happening, why it is happening now, and what grand objective stands behindseemingly unrelated developments and events.
It is important to note that what is exposed here is not conjecture. It isfound in authentic primary source documents, in which the planners
themselves lay out their plans. I wish to acknowledge the important
contribution of my extraordinary friend, who found key documentationof the Legal Certainty Group in one of his many sleepless nights. I
thank the miraculous people who have helped me and kept me alive.
I wish to thank the many, many heroic people working to expose thisglobal takeover, one of whom said, “Wars are not won without courage.”
You are about to be confronted with quite shocking, depressing material.
You don’t want to know about this. I don’t even want to know about it.
Charles Dickens had his character Scrooge (an investment banker) say,when faced with his own gravestone:
Are these the shadows of the things that Will be, or are theyshadows of things that May be, only?
Men’s courses will foreshadow certain ends, to which, if persevered
in, they must lead . . . but if the courses be departed from, the ends
will change. Say it is thus with me.

xxxiii

Prologue

Why show me this, if I am past all hope?
It is my hope that in making this unpleasantness explicit, and doing
so at this time when developments are becoming more apparent, thatawareness might spread, and that the worst might be averted. Perhaps
this Great Taking might not be allowed to happen if we each hold up
our end—even the investment bankers—and say forcefully: we will notallow this. It is a construct. It is not real.

David Rogers Webb
Stockholm, Sweden
May 28, 2023

I. Introduction

Supreme excellence consists of breaking
the enemy’s resistance without fighting.
Sun Tzu

What is this book about? It is about the taking of collateral, all of it, theend game of this globally synchronous debt accumulation super cycle.
This is being executed by long-planned, intelligent design, the audacity
and scope of which is difficult for the mind to encompass. Included are
all financial assets, all money on deposit at banks, all stocks and bonds,
and hence, all underlying property of all public corporations, including
all inventories, plant and equipment, land, mineral deposits, inventions
and intellectual property. Privately owned personal and real property
financed with any amount of debt will be similarly taken, as will theassets of privately owned businesses, which have been financed withdebt. If even partially successful, this will be the greatest conquest andsubjugation in world history.
We are now living within a hybrid war conducted almost entirely bydeception, and thus designed to achieve war aims with little energy
input. It is a war of conquest directed not against other nation states
but against all of humanity.
Private, closely held control of all central banks, and hence of allmoney creation, has allowed a very few people to control all politicalparties, governments, the intelligence agencies and their myriad front
organizations, the armed forces, the police, the major corporations,and of course, the media. These very few people are the prime movers.
Their plans are executed over decades. Their control is opaque. When
George Soros said to me, “You don’t know what they can do,” it wasthese people to whom he referred. Now, to be absolutely clear, it isthese very few people, who are hidden from you, who are behind thiswar against humanity. You may never know who they are. The people1

I. Introduction

2

you are allowed to see are hired “face men” and “face women.” They
are expendable.
One might seek comfort in thinking that this must be crazy; nothing
like this has ever happened before . . . but it has. The precedent for
the intent, design and horrific execution of such a plan can be foundby examining the early 20th century, the period of the great wars andthe Great Depression. The proclaimed “Great Reset” now in progress,
however, includes major innovations, which will allow unprecedented
concentration of wealth and of power over humanity through deprivation. How might it come to pass that you will own nothing, as so boldly
predicted by the World Economic Forum? It certainly is not about thepersonal convenience of renting.
With the collapse of each financial bubble and the ensuing financial
crisis, a story is rolled out which should by now be familiar to you. It
goes like this: All of us are at fault. We just wanted too much, andwe were living beyond our means. And now, our collective greed has
caused this terrible global crisis. The “Authorities”, the “Regulators”
had struggled mightily to protect us from our own “animal spirits”,
their great and elaborate efforts having been demonstrated throughdecades of work. Despite their good intentions, however, they failed,and can’t be blamed (or prosecuted) for that. After all, we are all toblame. In any case, let’s look forward. The financial system must be
restarted, so that we can provide credit to you again, create jobs andget the economy growing, whatever it takes!
This time, what it will take is all of your property, or what you thought
was your property. Here is your Central Bank Digital Currency deposited
on your smart phone, so that you can buy milk. Noblesse Oblige!
Money is an extremely efficient control system. People order themselves upon money incentives, and thus difficult, dangerous and energy
intensive overt physical control need not be employed broadly. But themoney control system breaks down at the end of a monetary “supercycle”, with collapse in the Velocity of Money (Velocity, or VOM). Thisis a multi-decade process.
Velocity is the number of times that a unit of currency is spent to buy
goods and services in a period of time. This is measured by comparing
the value of all goods and services produced in a period of time (Gross

3

I. Introduction

Domestic Product, or GDP), with the value of all cash and deposits
which can be used nearly as easily as cash (Money Supply).
Velocity =GDP
Money Supply

Thus, Velocity × Money Supply = GDP. Lower Velocity results in lower
GDP.
Milton Friedman was an economist noted for the study of monetaryhistory. In his book A Monetary history of the United States, 1867-1960[1], co-authored with Anna Schwartz, we find the following observation:[W]e know enough to demonstrate rather conclusively that . . .
velocity [of money] must have declined sharply from 1880 to WorldWar I . . .
Collapse in VOM is exactly what was unfolding from the 19th century
and leading up to the Great War. Within a few years, the Russian,Austro-Hungarian, and Ottoman empires ceased to exist, as did the
Qing Dynasty. The German economy was destroyed. Then followed theGreat Depression, the Second World War, and the slow collapse of the
British Empire. No populations were unscathed. There were no winners.
Or were there?
While there was widespread deprivation, selected banking interests took
the collateral of the thousands of banks which were forced to close,
as well as of a great many people and businesses large and small—theindebted. In the U.S., gold held by the public was confiscated. But mostimportantly, closely held secretive private control of central banks andmoney creation was maintained, as was the aforementioned control
over society’s key institutions, including political parties, governments,
intelligence agencies, armed forces, police, major corporations, andmedia.
The heirs to this control position have known for many decades thatsuch a collapse in VOM would come again. They have been preparing.
For them, it is an absolute imperative to remain in control throughthe collapse and “Great Reset”; otherwise they risk being discovered,investigated and prosecuted. They are not doing it for us. There is nonoble purpose.

I. Introduction

4

We are now living within a replay of this monetary phenomenon, i.e., aprofound decline in VOM, which began when Velocity peaked in 1997.
This was coincident with onset of a major global financial crisis, known
as the Asian Financial Crisis, and it was followed within a few years by
the Dot-Com Bubble and bust.
Throughout this period, I was managing long/short equity hedge funds,
and I developed the insight that the Federal Reserve was influencing
the direction of financial markets (this was considered conspiracy
theory, even by my partners). At that time, it was done through Open
Market Operations conducted by the New York Fed using repurchaseagreements on treasury securities.
I began, systematically, following the rate of growth in M3, the broadest
measure of money at the time (which is no longer published). I studied
what was unfolding incrementally, and I saw that in individual weeks
new money created was more than 1% of annual U.S. GDP. This waswhen it first occurred to me that the Fed was getting less “bang for thebuck”, in that GDP was not responding to money creation. This meantthat the velocity of money was inverting, and that money growth was
now much higher than any GDP growth. The money being created was
not going into the real economy, but it was driving a financial bubble
with no relationship to underlying economic activity. I understood
this, not with hindsight, but in near real-time. If I could know it, Alan
Greenspan and the people he worked for knew it, too. So why did they
do it? If something does not make sense, it is necessary to change one’s
perspective and aim for a larger understanding. Crises do not occur byaccident; they are induced intentionally and used to consolidate power
and to put in place provisions for measures that will be used later.
By the 4th quarter of 1999, when the Dot-Com Bubble was reachingextremes, I saw that the money supply was being increased at more than
a 40% annual rate. I understood then that the Velocity of Money wascollapsing. Such a collapse occurs when the economy is not growing
despite very high rates of money creation.
Please observe the extremely important chart in Figure I.1, which was
prepared by Hoisington Management. For once, one can see a true
underlying determinant of the sweep of history.

5

I. Introduction

Figure I.1: Annual velocity of money, from 1900 to 2021. Source: Hoisington
Management.

Profound decline in VOM lead to the Financial Panic of 1907, which wasused to justify the establishment of the Federal Reserve System. The
Federal Reserve Act was passed by Congress in the quiet days before
Christmas, 1913. Archduke Ferdinand was assassinated six months
later.
Following a brief recovery in VOM during the Great War, it collapsed
further, leading up to the closure of banks and the confiscation of gold
in 1933. VOM recovered somewhat into the Second World War and thencollapsed to a low in 1946, unprecedented until now.
VOM has now contracted to a lower level than at any point during theGreat Depression and world wars. Once the ability to produce growthby printing money has been exhausted, creating more money will not
help. It is pushing on a string. The phenomenon is irreversible. And so,
perhaps the announcement of the “Great Reset” has been motivated notby “Global Warming” or by profound insights into a “Fourth Industrial
Revolution”, but rather by certain knowledge of the collapse of thisI. Introduction

6

fundamental monetary phenomenon, the implications of which extend
far beyond economics.
Something has been planned for us, but not for the reasons you havebeen given. How might we come to know something about the intentions of the planners? Perhaps, by examining their preparations?

II. Dematerialization

All warfare is based on deception.
Sun Tsu

There are now no property rights to securities held in book-entry formin any jurisdiction, globally. In the grand scheme to confiscate allcollateral, dematerialization of securities was the essential first step.
The planning and efforts began over half a century ago. That there wassome great strategic purpose behind dematerialization is evidenced by
the fact that the CIA was assigned the mission.
The project leader was William (Bill) Dentzer, Jr., a career CIA operative[2]. By his admission in his own written memoir [3], he started his
career working to establish anti-communist student organizations in
Europe with the backing of the CIA. The CIA had arranged his draft
deferment. He was then specifically assigned to the CIA and worked
there openly for five years. Subsequently, he was “transferred” fromthe CIA to the task force which created the Agency for International
Development (AID). He became Special Assistant to the first head of
AID, and thereafter Special Assistant to the U.S. Coordinator of the
Alliance for Progress, which was active in Latin America. He was thenappointed Executive Secretary of the Clay Committee, which lobbied forCongressional appropriations for AID. After three years as Director of
AID in Peru, he was named Deputy U.S. Ambassador to the Organizationof American States. He states in his memoir:
Given events in the United States in the late 1960s, including theassassinations of Martin Luther King Jr. and Robert Kennedy, myinterests had begun to shift from the international to the domestic
front.
Then, strangely, even though he had no background in any aspect ofbanking or finance, he was appointed New York State Superintendent7

II. Dematerialization

8of Banks by Nelson Rockefeller. This came after his nomination to
the newly-formed New York State Council of Economic Advisors by its
Chairman, former head of the World Bank, Eugene Black. Interestingly,Black’s father had been Chairman of the Federal Reserve in 1933.
Within two years of assuming his position as New York State Bank
Superintendent, Dentzer was named Chairman and CEO of the newly
formed Depository Trust Corp. (DTC), a post he held for the next
twenty-two years, i.e., through the entire process of dematerialization.
In the late 1960’s, something called the Banking and Securities Industry Committee (BASIC) had been formed to find a solution to the“paperwork crisis.” It seemed the burdens of handling physical stock
certificates had suddenly become too great, so much so, that the New
York Stock exchange had suspended trading some days. “Lawmakers”
then urged the government to step into the process. The BASIC report
recommended changing from processing physical stock certificates to“book-entry” transfers of ownership via computerized entries in a trust
company that would hold the underlying certificates “immobilized.”
This trust company would develop the necessary computer and othersystems. I happened to meet with network engineers of DTC forty years
ago, in my first job out of school.
Was this “paperwork crisis” manufactured in order to provide an imperative for dematerialization? Consider that DTC did not begin operations
until 1973, and that no significant degree of dematerialization wasachieved for many years. However, somehow during this intervening
period, stock exchanges continued to function, in spite of escalating
trade volumes, without the elimination of certificates. Especially withthe aid of computerization, it could be done, and was done.
DTC eventually became the model for the Central Securities Depository(CSD) and Central Clearing Counterparty (CCP), the purposes of which
will be explained later.

III. Security Entitlement

Never attempt to win by force
what can be won by deception.
Niccolo Machiavelli

The greatest subjugation in world history will have been made possibleby the invention of a construct; a subterfuge; a lie: the “Security
Entitlement.”
Since their beginnings more than four centuries ago, tradable financial
instruments were recognized under law everywhere as personal property (perhaps that is why they were called “securities”). It may come asa shock to you that this is no longer the case.
In order to convey to you what has been done, let me start with ananalogy:Let’s say that you have purchased an automobile for cash. Having
no debt against the vehicle, you believe that you now own it outright.
Despite that, the auto dealer has been allowed by a newly invented
legal concept to treat your car as his asset, and to use it as collateral toborrow money for his own purposes. Now the auto dealer has becomebankrupt, and your vehicle along with all of the others sold by the
dealer are seized by certain secured creditors of the dealership, withno judicial review being necessary, as legal certainty was previously
established that they have absolute power to take your car in the eventof the bankruptcy of the dealer.
Now, to be clear, I am not talking about your car! I am illustrating thehorror and simplicity of the lie: You are led to believe that you own
something, but someone else secretly controls it as collateral. And they
have now established legal certainty that they have absolute power totake it immediately in the event of insolvency, and not your insolvency,
but insolvency of the people who secretly gave them your property as
collateral. It does not seem possible. But this is exactly what has been
9

III. Security Entitlement10

done with all tradable financial instruments, globally! The proof of thisis absolutely irrefutable. This is wired to go now.
Essentially all securities “owned” by the public in custodial accounts,
pension plans and investment funds are now encumbered as collateral
underpinning the derivatives complex, which is so large—an orderof magnitude greater than the entire global economy—that there is
not enough of anything in the world to back it. The illusion of collateral backing is facilitated by a daisy chain of hypothecation andre-hypothecation in which the same underlying client collateral is reused many times over by a series of secured creditors. And so it isthese creditors, who understand this system, who have demanded evenmore access to client assets as collateral.
It is now assured that in the implosion of “The Everything Bubble”,
collateral will be swept up on a vast scale. The plumbing to do this isin place. Legal certainty has been established that the collateral can betaken immediately and without judicial review, by entities described incourt documents as “the protected class.” Even sophisticated professional investors, who were assured that their securities are “segregated”,
will not be protected.
An enormous amount of sophisticated planning and implementation
was sustained over decades with the purpose of subverting property
rights in just this way. It began in the United States by amending
the Uniform Commercial Code (UCC) in all 50 states. While this required many years of effort, it could be done quietly, without an act ofCongress.
These are the key facts:• Ownership of securities as property has been replaced with a newlegal concept of a "security entitlement", which is a contractual
claim assuring a very weak position if the account provider becomesinsolvent.
• All securities are held in un-segregated pooled form.

Securities used
as collateral, and those restricted from such use, are held in thesame pool.

• All account holders, including those who have prohibited use of

their securities as collateral, must, by law, receive only a pro-rata
share of residual assets.

11III. Security Entitlement• “Re-vindication,” i.e. the taking back of one’s own securities in theevent of insolvency, is absolutely prohibited.
• Account providers may legally borrow pooled securities to collater-

alize proprietary trading and financing.
• "Safe Harbor" assures secured creditors priority claim to pooled

securities ahead of account holders.
• The absolute priority claim of secured creditors to pooled client

securities has been upheld by the courts.
Account providers are legally empowered to “borrow” pooled securities,
without restriction. This is called “self help.” As we will see, theobjective is to utilize all securities as collateral.
I assure you that this is not conjecture. You would be greatly mistaken
in dismissing this as “conspiracy theory”, which is a common reaction
to so much unpleasantness. It is possible to really know about this.
The documentation is absolutely irrefutable.
In April of 2004, The European Commission Internal Markets andServices Director General proposed [4]the setting up of group [sic] of legal experts, as a specific exercise
intended to address problems of legal uncertainty identified in thecontext of considering the way forward for clearing and settlementin the European Union.
This became the Legal Certainty Group.
Legal uncertainty sounds like a bad thing, and legal certainty sounds
like a good thing. However, the objective was merely to make it legallycertain that secured creditors would be empowered to immediately
take client assets in a failure of a custodian.
In March of 2006, the Deputy General Counsel for the Federal Reserve
Bank of New York provided a detailed response to a questionnaire
prepared by The Legal Certainty Group, which was looking to the Fed
to tell them exactly how to do it [5]. The following are excerpts fromthat response, which is also included in full in this book’s appendix:
Q (E.U.): In respect of what legal system are the following answers
given?

III. Security Entitlement

A (N.Y. Fed): This response confines itself to U.S. commercial law,
primarily Article 8 . . . and parts of Article 9, of the Uniform
Commercial Code (“UCC”) . . . The subject matter of Article
8 is ‘Investment Securities’ and the subject of Article 9 is‘Secured Transactions.’ Article 8 and Article 9 have been
adopted throughout the United States.
Q (E.U.): Where securities are held in pooled form (e.g. a collective
securities position, rather than segregated individual positions per person), does the investor have rights attaching toparticular securities in the pool?
A (N.Y. Fed): No. The security entitlement holder . . . has a pro rata
share of the interests in the financial asset held by its securities
intermediary . . . This is true even if investor positions are‘segregated.’
Q (E.U.): Is the investor protected against the insolvency of anintermediary and, if so, how?
A (N.Y. Fed): . . . an investor is always vulnerable to a securities
intermediary that does not itself have interests in a financial
asset sufficient to cover all of the securities entitlements thatit has created in that financial asset . . .
If the secured creditor has “control” over the financial asset it
will have priority over entitlement holders . . .
If the securities intermediary is a clearing corporation, theclaims of its creditors have priority over the claims of entitlement holders.
Q (E.U.): What rules protect a transferee acting in good faith?
A (N.Y. Fed): Article 8 protects a purchaser of a financial asset
against claims of an entitlement holder to a property interestin that financial asset, by limiting the entitlement holder’s ability to enforce that claim . . . Essentially, unless the purchaser
was involved in the wrongdoing of the securities intermediary,an entitlement holder will be precluded from raising a claim
against it.
Q (E.U.): How are shortfalls [i.e. the intermediary’s position with an
upper-tier intermediary is less than the aggregate recorded

12

13

III. Security Entitlement

position of the intermediary’s account-holders] handled inpractice?
A (N.Y. Fed): . . . The only rule in such instances is that the security
entitlement holders simply share pro rata in the interests heldby the securities intermediary . . .
In actual fact, shortfalls occur frequently due to fails and forother reasons, but are of no general consequence except in
the case of the securities intermediary’s insolvency.
Q (E.U.): Does the treatment of shortfalls differ according to whether
there is (i) no fault on the part of the intermediary, (ii) if fault,
fraud or (iv) if fault, negligence or similar breach of duty?
A (N.Y. Fed): In terms of the interest that the entitlement holders
have in the financial assets credited to its securities account:regardless of fault, fraud, or negligence of the securities intermediary, under Article 8, the entitlement holder has only a
pro rata share in the securities intermediary’s interest in thefinancial asset in question.
That’s how it works directly from “the horse’s mouth”, i.e., the mostauthoritative source possible—lawyers working for the Fed.
Further exposure of the purpose of the invention of the security entitlement can be found in a discussion paper concerning “legislationon legal certainty of securities holding and dispositions”, prepared by
the European Commission’s Directorate General Internal Market andServices in 2012 [6]:Where securities are concerned, the standard has always beenthat a custodian has to hold sufficient securities in order to meet
all its clients’ claims. In most EU jurisdictions, such a standard isguaranteed by giving investors ownership rights towards securities.
Some markets, however, treat securities like money. The US andCanada based their law on the concept that investors do not own’securities’, but they own ’securities entitlements’ against theiraccount providers instead.
The advantage of this concept is the potential increase in theamount of assets available as collateral, but critics view it as aIII. Security Entitlement

14

threat to stability of the system, because the assets concerned are
based on the same underlying resource.
Concern has been voiced by market participants, regulators, central banks, and international institutions about potential collateralshortages . . . There is pressure to broaden the range of securities
eligible as collateral.
As a result of the demand for collateral, securities are increasingly
regarded by market participants as a funding tool. These trends
reinforce the market trends to treat securities like money . . . withsignificant implications for ownership.
The risk of unauthorised use of clients’ assets is increased by theemployment of omnibus account structures. Omnibus accounts
pool assets so that individual securities cannot be identified against
specific investors.
This works well until a bankruptcy occurs. If the account provider
defaults, a client with a mere contractual claim becomes an unsecured creditor, meaning the client’s assets are, as a rule, tied in
the insolvency estate and it is obliged to line up with all the otherunsecured creditors to receive its assets back. . . .
[R]e-use of security interest collateral carries greater risk to thefinancial system because multiple counterparties may compete forthe same collateral in default (so called ’priority contests’).
Clearly, the European Union Directorate General Internal Market andServices, fully knew the above in 2012.
In the next global financial panic, what are the chances that there will
be much of anything remaining in these pools of securities after the
secured creditors have helped themselves?
There will be a game of musical chairs. When the music stops, you will
not have a seat. It is designed to work that way.
It is time to ask: cui bono? Who benefits? It is certainly not the citizens,
who have lost their property rights, who have been betrayed in thisdeception by their own governments.
The reason given for this legislation on legal certainty is “demand forcollateral” by “market participants.” They are not referring to you andme, the public. “Market participants” is a euphemism for the powerful

15

III. Security Entitlement

creditors who control governments. They have worked for many years
to establish their legal certainty worldwide.

IV. Harmonization

Those skilled at making the enemy move do soby creating a situation to which he must conform;
they entice him with something he is certain to take,and with lures of ostensible profit, they await him
in strength.
Sun Tsu

What was the purpose of seemingly out-of-control financialization? The
threat of financial collapse, and the promise of continued financial
profits have been used to herd the nations.
An imperative has been created that certain secured creditors must be
given legally certain claims to client assets, globally, without exception,with the further assurance of near instantaneous cross-border mobilityof legal control of such collateral. The global push for conformance tothe U.S. model for achieving such legal certainty and mobility began inearnest more than twenty years ago in the aftermath of the dot-com
bust. Financial instability and the threat of “collateral shortages” wereused as justification. Deliberate efforts were sustained, globally, overmany years. People were paid to do this, to betray the vital interestsof their own people. It was done first in the U.S., and then demanded
globally under the name of “harmonization”; perhaps the emphasisshould be on “harm.”
The “Hague Convention on the Law Applicable to Certain Rights in
Respect of Securities Held with an Intermediary” [7] was drafted in 2002
and signed in 2006. It is an international multilateral treaty intended
to remove, globally, legal uncertainties for cross-border securities
transactions.
The Convention introduced a newly invented conflict-of-laws rule tobe applied to security transactions, especially collateral transactions,
namely the “Place of the Relevant Intermediary Approach” (or PRIMA).
This was designed to avoid problematic national law, which might allow
16

17

IV. Harmonization

owners to recover their assets taken by a creditor as collateral, by
setting the place of law in the account agreements with intermediaries.
One of the people most involved was James S. Rogers (perhaps a distantcousin of mine), who, according to his own biography [8],served as one of the United States delegates to the Hague Conference on Private International Law project to negotiate and drafta Convention on Choice of Law for Securities Holding ThroughSecurities Intermediaries and as a member of Drafting Group forthat Convention.
Interestingly, Rogers also notes that he hadserved as Reporter (principal drafter) for the Drafting Committee
to Revise UCC Article 8, which established a new legal framework
for the modern system of electronic, book-entry securities holdings
through central depositories and other intermediaries.
Very few people were involved in the drafting of the 1994 revisions
to articles 8 and 9 of the UCC. A report by the Financial Markets Law
Committee (a “charity” affiliated with the Bank of England) contains
this illuminating quote [9]:Professor Rogers, Reporter to the Article 8 1994 revision Drafting
Committee, recalls how “at the outset of the Article 8 revision one
could probably have counted on one hand—with a few fingers
unused—the number of people among those appointed to the
Article 8 Drafting Committee, or among the full membership of thesponsoring organisations that would ultimately have to approve
the work of the Drafting Committee, who had any familiarity witheither old [1978 version] Article 8 or the modern securities holding
system.”If Professor Rogers was one finger, Professor Egon Guttman was theother. As the author of Modern Securities Transfers [10], he was theforemost expert on security transfers and secured transactions under
Articles 8 and 9 of the UCC. Professor Guttman passed away in 2021,
and so, descriptions of his activities are disappearing. But I have savedreferences to his work dating back to 2012: 1
1 This quote was taken from Prof. Guttman’s faculty profile page at American University
at the time. The page still exists, but its content has since been removed.

IV. Harmonization

18

Professor Guttman has been involved in the revisions of various
Articles of the Uniform Commercial Code, and as a member of U.S.
Department of State Working Groups in the drafting of conventions
relating to international commercial transactions.
And so, Harmonization of this regime giving control globally to a selectgroup of secured creditors was pushed from the highest level of the U.S.
government. The Department of State was the first administrative armof the U.S. executive branch, with Thomas Jefferson becoming the first
Secretary of State in 1789. It is the foremost executive power globally.
After years of effort, the Hague Securities Convention was signed byonly the United States, Switzerland and Mauritius. The EU did notsign the Convention due to the identification of problematic European
law, which assured property rights to the owners of securities in somejurisdictions. Europe has the ancient legal principle of lex rei sitae(the law where the property is situated), and could not easily accept
the work-around of “Place of the Relevant Intermediary Approach” (or
PRIMA), invented in the Hague Securities Convention.
However, the manifest objective of providing legal certainty to creditors
was not in dispute and was clearly accepted by EU authorities, asevidenced by Directive 2002/47/EC of the European Parliament and of
the Council of 6 June 2002 on financial collateral arrangements [11].
This document, which was published roughly contemporaneously withthe drafting of the Hague Securities Convention, contains the following
statements:
In order to improve the legal certainty of financial collateral arrangements, Member States should ensue that certain provisionsof insolvency law do not apply to such arrangements, in particular, those that would inhibit the effective realization of financial
collateral . . .
The principle in Directive 98/26EC, whereby the law applicable
to book entry securities provided as collateral is the law of thejurisdiction where the relevant register, account or centralized
deposit system is located, should be extended in order to create
legal certainty regarding the use of such securities held in a crossborder context and used as financial collateral under the scope of
this Directive.

19

IV. Harmonization

The objective of Legal Certainty for creditors was to be pursued byother means. Where they could not easily change problematic local law
in which investors had property rights to securities, they structured
around it. This is what lawyers, investment bankers, and, apparently,
government officials are paid to do.
Euroclear is one of two European International Central Security Depositories (ICSD), the other being Clearstream. The Brussels officeof Morgan Guaranty Trust Company of New York (Morgan Guaranty)
founded the Euroclear System in December 1968. Morgan Guaranty
began operating as JP Morgan in 1988.
In 2004, the Deputy General Counsel of Euroclear, Diego Devos, sent amemorandum with “Preparatory information regarding European Legal
Harmonisation” to ”DG Internal Market” [12]. Here are some excerpts:
This note describes Euroclear’s recommendations with regard to
the legal barriers that should be addressed as priority items by
the Legal Working Group that the Commission intends to set up
as a follow-up of its Communication on Clearing and Settlementin the European Union dated April 28, 2004 . . . In particular, we
identify issues that complicate and prevent the full implementationof major initiatives that the market is undertaking on platform
consolidation and harmonization. . . .
Recommended . . . Removal or modification of requirements that
do not recognise the multi-layer holding structure that is the normin cross-border activity, including:• recognition in the EU of the pooled holding of registered assets

through a nominee structure (and the different nature of legal
and beneficial ownership) in order to keep registered securities
on a fungible basis at local level and protection of the rights of
the nominee;• elimination or modification of requirements that directly or

effectively require the maintenance of individual records or
accounts per beneficial owner . . .
Recommended . . . Eliminate impediments to free use of collateralcross-border . . .

IV. Harmonization

20

Diego Devos went on to be appointed General Counsel of the Bank forInternational Settlements (BIS) in 2009.
As noted in the preceding chapter, in April of 2004, The European
Commission Internal Markets and Services Director General proposed
setting up a “group of legal experts, as a specific exercise intended
to address problems of legal uncertainty identified in the context ofconsidering the way forward for clearing and settlement in the European
Union.”
It took ten years of conniving, but in 2014 the way forward was madecertain with the Central Securities Depository Regulation (CSDR).
I had arranged to speak at a hedge fund conference in Zürich in Januaryof 2014 to warn the “professionals” about the undermining of property
rights to securities, and of the implications. I thought perhaps thetide could be turned in Europe. Believe it or not, this was in large partmy purpose in moving to Europe. Prior to the conference, I had sent
personal emails with the outline of my points to all of the attendees.
While I was speaking, by the bright light of the projection screen, I
could see that the eyes of the people in the room were as wide assaucers. When I finished, there was complete silence. In the coffee
break that followed, I asked people what they had thought about what I
had said. I asked if they understood what I was explaining. One person
merely replied, “Oh, yes.” I asked him what he would do about it. He
simply said, “Nothing.” I asked him why he would do nothing. His reply
was, “My clients don’t care about this.” I said, “They don’t care about it,
because they don’t know about it.”Six months later, the Central Securities Depository Regulation (CSDR)
was implemented by the EU directive No. 909/2014 [13].
A Central Security Depository (CSD) operates a book entry system forelectronic settlement of trades and maintains a record of “ownership.”
An International Central Security Depository (ICSD) is linked to national
CSDs, and it handles securities lending and collateral management. As
noted by the European Securities and Markets Authority [14]:CSDR plays a pivotal role for post-trade harmonization efforts in
Europe, as it enhances the legal and operational conditions forcross-border settlement in the EU.

21

IV. Harmonization

And thus, the desired goal of cross-border mobility of collateral has
been achieved. How was that engineered?
CSDR provides for links between CSDs. National CSDs, which hold therecord of ownership, are linked to the International Central Security
Depositories; the transfer of legal title to customer collateral from thenational CSD to the ICSD, and the use of customer collateral are thus
enabled. The customer has “ownership” in the book-entry system of
the national CSD, while the collateral is held in pooled form at the ICSD
level. This allows the “cross-border services”, i.e. the use of customer
collateral. This is essentially the U.S. model, in which all custodians
have accounts at DTC, which holds all securities in pooled form. DTC
functions as an ICSD.
We will see how that has worked in looking specifically at Euroclear anddevelopments in Finland and Sweden.
Once upon a time, Finland and Sweden had legal systems and national
registries of securities ownership, which assured owners that theirsecurities could not be used as collateral without express agreement.
It had been possible to own and hold Swedish government bonds, forexample, with absolute certainty that they could not be lost in an
insolvency of a custodian. In 2006, the Legal Certainty group identified
Sweden and Finland as having problematic law.
In 2008, Euroclear was allowed to acquire one hundred percent of
Nordic Central Security Depository (NCSD), which owned the central
security depositories of both Finland and Sweden, Suomen Arvopaperikeskus Oy (APK) and VPC AB (VPC), respectively. These are now
local CSDs linked to Euroclear Bank SA/NV which operates as an ICSD
under Belgian law.
CSDR requires an account provider to publicly disclose the levels ofprotection and costs associated with the different levels of segregationof securities accounts at the central securities depositories. Skandinaviska Enskilda Banken AB (SEB) makes such a disclosure with respect
to central securities depositories in Sweden, Denmark, Finland, Norway,
Euroclear Bank SA/NV and Clearstream Banking S.A. [15]. Here are theshocking key passages from that disclosure:In the unlikely event of a shortfall of securities the client in question
will not be able to claim a right of separation but will likely beIV. Harmonization

22

considered as an unsecured creditor without priority to the assetsof the bankruptcy estate.
In the case of securities held at Euroclear Bank SA/NV Belgianlaw (the Royal Decree no 62) applies provisions following theprincipal [sic] that all securities deposited by Euroclear Bank SA/NV
participants (i.e. SEB) with Euroclear Bank SA/NV are deposited
on fungible basis. By virtue of the Royal Decree, Euroclear Bank
SA/NV participants have been given by law a co-ownership rightof an intangible nature on a pool of book-entry securities of thesame category held by Euroclear Bank SA/NV on behalf of all
Euroclear Bank SA/NV participants having deposited securities ofthe same category. The said Decree provides for a loss sharing
provision for the underlying clients of a Euroclear Bank SA/NV
participant in case such Euroclear Bank SA/NV participant goes
into default. Furthermore, Belgian law gives the National Bank of
Belgium privilege over Euroclear Bank SA/NV’s own proprietary
securities to cover e.g. a situation where securities that are heldby Euroclear Bank SA/NV with any depositary on behalf of its
participants are not enough to cover the actual holdings of suchsecurities by the participants.
Thus, over a period of six years, property rights to securities in Sweden
and Finland were deliberately subverted. These countries went fromhaving the strongest property rights to securities to having no property
rights to securities beyond an artificial appearance of ownership.
In 2014, coincident with the EU directive on central securities depositories, shocking changes were made to Swedish law. Very few know
about this, other than the people who did it.
I tracked this down through a cryptic reference in a Euroclear document,
General Terms and Conditions Account Operations and Clearing [16].
Buried in there, on page 38, is the following clue:
14.2 PREVAILING LAW RELATING TO THE DISPOSAL OF VPCACCOUNTS AND FINANCIAL INSTRUMENTS REGISTERED IN A
VPC ACCOUNTThe real right consequence of disposals relating to VPC accounts
and financial instruments registered in VPC accounts are governedby the provisions in Chapter 6 of LKF.

23

IV. Harmonization

This quote refers to Sweden’s law on central security depositories andaccounting for financial instruments [17]. Chapter 6 of this law is titled,
in translation, “Legal effect of registration, Presumption of ownership.”Buried at the bottom of this chapter is found the further direction:
Special provisions on pledging of financial instruments are foundin the Act (1991:980) on trading in financial instruments.
[Särskilda bestämmelser om pantsättning av finansiella instrument
finns i lagen (1991:980) om handel med finansiella instrument.]
Within Act (1991:980), Chapter 3 is titled, “Disposal of financial instruments belonging to someone else” [Förfoganden över finansiellainstrument som tillhör någon annan].
Now we are getting warm!
The first paragraph states that, “The intended disposal must be specified carefully.” That seems like a good thing, but it goes on to state thefollowing:
The first paragraph does not apply if the company’s counterpartyor the parties to an agreement in which the company participates
is another company that is under the supervision of the Financial
Supervisory Authority or a foreign company within the EEA thatis allowed to run comparable activities in its home country andthat is under the reassuring supervision of an authority or othercompetent body.
This gives the local CSD legal authority, and broad latitude to passlegal control of customer assets as collateral to the ICSD without theknowledge or approval of the account holder.
The implementation of this is now so thorough that a Swedish citizen
cannot hold Swedish government bonds in Sweden as property without
exposure to insolvency of the account provider, the local CSD, or of
the ICSD. The securities of Swedish citizens are certainly pooled withsecurities being used as collateral elsewhere.
I came to Sweden in 2009 in order to be able to hold Swedish government bonds in Sweden with property rights. I was able to do that usinga VP konto (account) at Handelsbanken. However, following the legal
changes made in 2014, Handelsbanken completely discontinued the VP
konto structure, and offered clients only custody accounts.

IV. Harmonization

24

SEB also discontinued its long-standing VP konto structure, which had
assured direct ownership of specific securities, but then introduced
something they called a Service VP konto, which is held with the local
CSD, Euroclear Sweden. I called into SEB about this, and was told that a
VP konto specialist would call me. When I received the call, I asked two
simple questions:
1. Are securities held in a Service VP konto specifically identified under
the name of the account holder?
2. Can the securities held in a Service VP konto be re-vindicated in theevent of the failure of SEB or of Euroclear?
The VP konto specialist put me on hold for a long time while heinvestigated my questions. When he came back, his answer was simply
that, while there might be a small risk of failure of Euroclear, theaccount was insured for 250,000kr. He confirmed that holding of
securities at Euroclear was the change made with the new Service
VP konto structure, and he confirmed that there is a risk of loss of
securities with the new structure. He seemed shocked himself to havelearned this.
In 2011, a friend who had been a State Secretary in the Swedish government arranged for me to meet with the Minister and the State Secretaryfor Financial Markets. I was so moved when I received the email informing me of this, tears came to my eyes; it gave me hope that in
Sweden it might be possible to make a difference, and thus to turn thetide somewhere. I am forever grateful to them for that meeting; such athing would never be allowed in the land of my birth. They heard meout about the implications of conforming to the U.S. model, and did not
disagree. They said it might be possible to avoid this if the Germans
would stand against it, the implication being that little Sweden could
not do it alone.
The juggernaut rolled on. We are all in its path.

V. Collateral management

People should either be caressed or crushed. If you do them minor
damage they will get their revenge; but if you cripple them there isnothing they can do. If you need to injure someone, do it in such a
way that you do not have to fear their vengeance.
Niccolo Machiavelli

Associated with the imperative that certain secured creditors must be
given legal certainty to client assets, globally, without exception, is thefurther assurance of near instantaneous cross-border mobility of legal
control of such collateral.
Derivatives are financial contracts on everything imaginable and evenunimaginable for most of us. They may be modeled on real things, but
are not the real things themselves. They are un-tethered from physicalreality . . . but can be used to take real things as collateral.
As we will see, the objective is to utilize all securities as collateral,and hence to have the real practical means to take all securities as
collateral. Comprehensive “collateral management” systems have been
implemented, which assure the transport of all securities cross-borderthrough the mandated linkage of CSDs to ICSDs and on to the CCPs,
where the risk of the entire derivatives complex is concentrated. The
supposed “demand” for this enormous undertaking is not being driven
by true market forces, but by regulatory contrivance.
A report published in 2013 by the Committee on the Global Financial
System at the Bank for International Settlements entitled Asset encumbrance, financial reform and the demand for collateral assets [18] states
the following:
Regulatory reforms and the shift towards central clearing of derivatives transactions will also add to the demand for collateral assets.
25

V. Collateral management

26

But there is no evidence or expectation of any lasting or widespread
scarcity of such assets in global financial markets.
Another report by the same committee, entitled Developments in collateral management services [19], states (on page 16):
. . . some changes that may raise demand for collateral have notbeen phased in yet, since jurisdictions operate on different timelines for mandatory central clearing and margin requirements for
non-centrally cleared trades. Multiple market participants notedthat implementation of mandatory clearing requirements has not
yet advanced to the point where those market participants areexperiencing shortfalls in collateral readily available to pledge . . .
and furthermore (on page i):
Motivated by expected increases in demand for collateral stemming from regulatory changes . . . collateral management service
providers are evolving their service offerings in an effort to improve efficiencies and enable market participants to meet collateraldemands with existing and available securities.
Thus, while there was no evidence of scarcity of collateral and market
participants were not experiencing shortfalls, “demand for collateral
assets”, was being artificially created and intensified by regulatory fiat.
It was absolutely not market-driven.
This was designed and deliberately executed to move control of collateral to the largest secured creditors behind the derivatives complex.
This is the subterfuge, the endgame of it all.
On its pages 8-11, the cited report [19] discloses the objectives of thesecollateral management systems, providing further confirmation that itis the linking of CSDs and ICSDs which provides cross-border mobilityof collateral from the “collateral giver” to the “collateral taker” (yes,they really explicitly use those terms):
First, many of the largest custodians have implemented, or haveplans to implement, a custodial platform that is global in nature.
This will be a single system or set of connected systems that allows
a customer a single view of all its available collateral held by thecustodian, regardless of location. . . .

27

V. Collateral management

The desired end goal of all these efforts is to get as close as possible
to a single view of all available securities, regardless of where they
are held, in real time. This aggregation of supply information isa necessary prerequisite for the efficient deployment of available
securities to meet collateral obligations. . . .
ICSDs enable their participants to obtain aggregate views on theentirety of the latter’s [sic] securities holdings held with the ICSD,
including securities held by ICSD participants via link arrangements.
The report illustrates the relationships between the ICSD and its participants in a diagram, which is included below as Figure V.1 on page 29.
The text continues:
Diagram 5 [Figure V.1] illustrates the services available at ICSDs,
whereby a customer (collateral giver) is a participant in the ICSD
and holds its securities in the ICSD, including via link arrangements
between the ICSD and local CSDs. The ICSD, as CMSP [CollateralManagement Service Provider], having established direct or indirect (ie via a custodian participating in the local CSD) links withlocal CSDs, has information on and can access the entirety of aparticipant’s securities for collateral management purposes.
At this point, the report clarifies in a footnote:
The entirety of a participant’s securities includes the participant’ssecurities that were issued and are held at the ICSD and the participant’s securities that were issued and are held, via ICSD linkarrangements, at a linked CSD.
The report then turns to the role of the “collateral takers”:
The collateral takers are also participants in the ICSD. Both thecollateral giver and the collateral takers provide information to
the ICSD as CMSP regarding collateral obligations. With this information, the ICSD runs its optimisation process and may automatically generate collateral allocation instructions for the collateralgiver/takers based on the results . . . the ICSD will also process
the movement of securities on the books of the ICSD, since counterparties included in the optimisation and allocation process are
participants in the ICSD. If the collateral giver does not have suffi-

V. Collateral management

28

cient securities in the ICSD environment, it can source collateral by. . . transferring securities from its own account at the linked CSD
to its securities account in the ICSD with a free-of-payment (FoP)
settlement occurring in the linked CSD.
Note that transferral of the people’s assets is to be made free-ofpayment (FoP)! They meant not just “free mobility of collateral”, but,quite literally, “free collateral.” How nice!
Through collateral transformation, the objective is to utilize all securities as collateral [19, p. 15]:
As supply and demand dynamics for collateral continue to evolve,
it is possible that efforts to make more efficient use of existing
collateral will not be sufficient to fully satisfy individual obligations.
If that is the case, some market participants may need to exchange
available, but ineligible, securities for other securities that meet
eligibility criteria in order to fulfill their collateral obligations.
Undertaking transactions to achieve this outcome has been definedas “collateral transformation.”
Collateral transformation is simply the encumbrance of any and alltypes of client assets under swap contracts, which end up in the derivatives complex. This is done without the knowledge of the clients, whowere led to believe that they safely owned these securities, and serves
no beneficial purpose whatsoever for these clients.
And here it is! Here is the automated, market-wide sweeping of collateral to CCPs and central banks in a time of market stress [19, p. 19]:
In times of market stress, rapid deployment of available securities
may be crucial in mitigating systemic issues. For instance, with
better visibility of available securities and better access to them,firms may be better positioned to rapidly deploy securities to meetmargin needs at CCPs in times of increased market volatility or topledge to central banks in emergency situations to gain increased
access to the lender of last resort. . . .
The automation and standardisation of many operations related tocollateral management . . . on a market-wide basis . . . may enable
a market participant to manage increasingly complex and rapid
collateral demands.

29

V. Collateral management
Seoul(Branch)Equities Desk

1

London(Home Office)Derivatives Desk

CSD
London

New York(Branch)Fixed Income Desk

CSD
New York1

Link(single firm and
ICSD Participant)

1

Link

International Central Securities Depository as
Collateral Management Service Provider (CMSP)
2Collateral Giver’s Account1

Supply:Collateral Giver

1

Aggregatorand Optimizer

Collateral Taker's account1

Repo counterparties; securities lending counterparties; bilateralderivatives counterparties; counterparties for other trading activity;
CCPs for margin requirements; etc.

Demand:Collateral Taker

Figure V.1: Multiple jurisdictions, ICSD as collateral management service
provider with links to other CSDs. Adapted from Diagram 5 in [19]. Explanations provided in the original: Link = The ICSD has direct or indirect links
with other CSDs. Securities held by ICSD participants via these link arrangements are included in the respective collateral pool of the ICSD participant andavailable to the ICSD as CMSP. 1 = The collateral giver and collateral takers send
notification to the ICSD regarding their triparty transactions. 2 = The ICSD will
determine the optimal use of available securities and generate the underlying
collateral allocation instructions; collateral transfer is settled on the books of
the ICSD.

And so as we have seen here irrefutably, the objective is to utilize all
securities as collateral and hence to have the real practical means totake all securities as collateral.
Comprehensive “collateral management” systems have been implemented which assure the transport of all securities cross-border throughthe mandated linkage of CSDs to ICSDs to the CCPs (where the riskof the derivatives complex is concentrated), and on to the anointed
secured creditors which will take the collateral when the CCPs fail,having assured for themselves that their taking of assets cannot be“legally” challenged.

V. Collateral management

30

Inevitably following the “Everything Bubble” will be the “Everything
Crash.” Once prices of essentially everything crash and all financial
firms rapidly become insolvent, these collateral management systems
will automatically sweep all collateral to the Central Clearing Counterparties (CCPs) and Central Banks.
The trap, into which all nations have been herded, is ready and waiting
to be sprung.
There will be an epic end point to the decades of seemingly out-ofcontrol financialization, which served no beneficial purpose for humanity, but the devastating effects of which are apparent even now.
It has been a deliberate strategy executed over decades. This was the
purpose of inflating the global bubble entirely out of proportion withany real world thing or activity, which must end in disaster for so many,with no pockets of resilience allowed to remain in any country.

VI. Safe Harbor for Whom, and from What?

All animals are equal, but some animals
are more equal than others.
George Orwell, Animal Farm

In 2005, less than two years before onset of the Global Financial Crisis,“safe harbor” provisions in the U.S. Bankruptcy code were significantly
changed. “Safe harbor” sounds like a good thing, but again, this was
about making it absolutely certain that secured creditors can take client
assets, and that this cannot be challenged subsequently. This was about“safe harbor” for secured creditors against claims of customers to theirown assets.
Here are some explanatory excerpts from the online article The Effectof the new Bankruptcy Code on Safe Harbor Transactions [20]:On October 17, 2005, the provisions of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 (the 2005 act) became effective, amending various provisions of the U.S. Bankruptcy
Code . . . Of particular significance are the provisions of the 2005
act that address the bankruptcy treatment of various “safe harbor” transactions, such as forward contracts, commodity contracts,
repurchase agreements and securities contracts.
Historically, under U.S. Bankruptcy Code, a bankruptcy trustee could
avoid transfers, i.e. force disgorgement or repayment, if• the transfer was ‘constructively fraudulent’, i.e. less than ‘reasonableequivalent value’ was received, and the debtor in bankruptcy– was insolvent,– became insolvent as a result of the transfer,– was engaged in business for which the debtor had unreasonably
small capital,
31

VI. Safe Harbor for Whom, and from What?

32– intentionally incurred debt beyond his ability to pay, or– made such transfer to or for the benefit of an insider;or• the transfer was made within 90 days of a bankruptcy filing (oneyear if the transferee was an insider). Transfers that meet any of theabove criteria are referred to as ‘preferences’, ‘preference transfers’,or ‘preference liabilities.’
So now, with the new “safe harbor” provisions, the transfer of customer
assets to creditors previously considered to be fraudulent can no longer
be challenged. That was exactly the point. Further, it is now quite OK
for the transfer of the public’s assets to be made free-of-payment (FoP),
as there is no requirement to show that reasonably equivalent value
was received.
Stephen J. Lubben is the Harvey Washington Wiley Chair in Corporate
Governance & Business Ethics at Seton Hall University and an expert in
the field of corporate finance and governance, corporate restructuring,financial distress and debt. Below are some excerpts from his book The
Bankruptcy Code Without Safe Harbors [21]:Following the 2005 amendments to the Code, it is hard to envisiona derivative that is not subject to special treatment.
The safe harbors cover a wide range of contracts that might beconsidered derivatives, including securities contracts, commodities
contracts, forward contracts, repurchase agreements, and, mostimportantly, swap agreements. The latter has become a kind of‘catch-all’ definition that covers the whole of the derivatives market,
present and future . . .
A protected contract . . . is only protected if the holder is also
a protected person, as defined in the Bankruptcy Code. Financial participants—essentially very large financial institutions—are
always protected.
The safe harbors as currently enacted were promoted by thederivatives industry as necessary measures . . . The systemic riskargument for the safe harbors is based on the belief that the inability to close out a derivative position because of the automatic staywould cause a daisy chain of failure amongst financial institutions.

33

VI. Safe Harbor for Whom, and from What?

The problem with this argument is that it fails to consider the risks
created by the rush to close out positions and demand collateralfrom distressed firms. Not only does this contribute to the failure ofan already weakened financial firm, by fostering a run on the firm,
but it also has consequent effects on the markets generally . . . theCode will have to guard against attempts to grab massive amountsof collateral on the eve of a bankruptcy, in a way that is unrelated
to the underlying value of the trades being collateralized.
The new safe harbor regime was cemented into case law with the court
proceedings around the bankruptcy of Lehman Brothers. In the lead-up
to the failure, JP Morgan (JPM) had taken client assets as a secured
creditor while being the custodian for these client assets! Under longstanding bankruptcy law this would clearly have been a constructively
fraudulent preference transfer benefitting an insider. And so, JPM wassued by clients whose assets were taken.
I will cite the following memorandum filed in defense of JPM by the law
firm Wachtel, Lipton, Rosen & Katz, with the U.S. Bankruptcy court of
the Southern District of New York [22]:The purpose of the safe harbors, from their inception, has been
to promote stability in large and inherently unstable financial
markets by protecting transactions in those markets from being
disturbed during a bankruptcy. As explained in the legislative
history of the original safe harbor, “the financial stability of theclearing houses, with often millions of dollars at their disposal,
would be severely threatened by” exposure to avoidance claims; aswell, actions to avoid margin payments made by clearing houses
could set off a “chain reaction” of insolvencies among all othermarket participants, “threatening the entire industry.”
Now here is the decision of the court [23] :UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF
NEW YORK In re: Chapter 11 Case No. 08-13555
The Court agrees with JPMC that the safe harbors apply here, and
it is appropriate for these provisions to be enforced as written andapplied literally in the interest of market stability. The transactionsin question are precisely the sort of contractual arrangements thatshould be exempt from being upset by a bankruptcy court underVI. Safe Harbor for Whom, and from What?

34

the more lenient standards of constructive fraudulent transfer or
preference liability: these are systemically significant transactions
between sophisticated financial players at a time of financial distress in the markets—in other words, the precise setting for which
the safe harbors were intended. . . .
The Court first must consider whether JPMC is eligible for protection under section 546(e). That subsection, like the safe harbors
generally, applies only to certain types of qualifying entities. . . .
JPMC, as one of the leading financial institutions in the world, quite
obviously is a member of the protected class and qualifies as botha “financial institution” and a “financial participant.
And so, only “a member of the protected class” is empowered to takecustomer assets in this way. Smaller secured creditors are not similarly
privileged.
In the aftermath of the 2007-2008 Global Financial Crisis no executive
was convicted of a crime for the use and subsequent loss of client
assets. Quite to the contrary! The bankruptcy of Lehman Brothers
was used to establish case law precedent that the “protected class” ofsecured creditors have an absolute priority claim to client assets, andthat, potentially and practically, only they will end up with the assets.

VII. Central Clearing Parties

Humpty Dumpty was pushed.
Mr. Potato Head, Toy Story

Central Clearing Parties (CCPs) take on counterparty risk between parties to a transaction and provide clearing and settlement for trades inforeign exchange, securities, options, and most importantly derivative
contracts. If a participant fails, the CCP assumes the obligations of
the failed clearing participant. The CCP combines the exposures to all
clearing members on its balance sheet.
Is there a risk that CCPs might fail?
Euroclear is an International Central Securities Depository (ICSD), which
was designed to channel customer collateral to CCPs. In 2020, Euroclear
published an article discussing the possibility of failures of CCPs Regulating the risks of CCPs [24], in which we find the following remarkablestatements of panelists at Euroclear’s Collateral Conference:
Regulators around the world have demanded more capital, morecollateral and more clearing. And to a large degree they now havewhat they wanted. . . .
And yet despite the huge efforts undertaken by market participants
there are still two major concerns. The first is that financial
regulations from different jurisdictions are not fully aligned with
one another. And secondly that the risks in the financial systems
have been concentrated into central clearing counterparties (CCPs).
These two issues come together in the upcoming regulatory push todevise resolution and recovery regime for CCPs around the world.
...
The EU’s push to create a recovery and resolution regime for
CCPs . . . has also created tensions between the clearing houses
themselves and their clearing bank and asset manager members,
35

VII. Central Clearing Parties36

as to who should pay what in the event of a collapse of these criticalmarket infrastructures. . . .
But, for the EU-institutions, the redline [sic] is that if a CCP fails,
then the taxpayer will not be expected to pay.
The last paragraph is a subterfuge assuring that in the “resolution” thesecured creditors will immediately take the underlying assets; that isthe plan, i.e., nationalization must not be allowed.
The report goes on:
In whatever way the final text [of the regulation] is balanced, it
does not detract from the fact that risk is now heavily focused
within these institutions. One of the Euroclear panellists suggested
that there is resistance to the ever-increasing march toward central
clearing as it is a risk management function, and functions do
occasionally fail.
Indeed, just because CCPs have not failed in the past, there isnothing to say that there will not be a CCP crisis in the future.
Panellists were concerned that with the small capital base CCPs
currently have, any recovery and resolution of a failing CCP will
involve direct clearing members standing up to support themthrough a number of difficult actions for the firms involved. . . .
One of the key requirements of the draft paper will be a requirement for the CCPs to undertake scenario planning. And for a CCP
to fail, it will likely have been triggered by the simultaneous defaultof two major members. “If a large CCP is in trouble because ofits members [sic] default, then we will be having a banking crisis”
says Benoît Gourisse, Senior Director, European Public Policy at
ISDA.
In 2022, the Financial Stability Board (FSB) and the Committee on
Payments and Market Infrastructures at the BIS published the report
Central Counterparty Financial Resources for Recovery and Resolution[25], in which we find the following statements:
In November 2020, the Chairs of the FSB, the Committee on Payments and Market Infrastructures (CPMI), the International Organization of Securities Commissions (IOSCO) and of the FSB Resolution
Steering Group (ReSG) publicly committed to collaborate on and37VII. Central Clearing Parties

conduct further work on CCP financial resources in recovery andresolution. Such work would consider the need for, and develop
as appropriate, international policy on the use, composition andamount of financial resources in recovery and resolution to further
strengthen the resilience and resolvability of CCPs in default andnon-default loss scenarios.
Under the subheading “System-wide and contagion effects and interconnectedness”, the same report states:
Because the scenarios were specific to each CCP, the results cannot
be aggregated to simulate total losses at the level of the financial
system for any particular scenario. Therefore, system-wide effects
were not considered. The analysis did not take into account theunderlying economic circumstances that could cause the simultaneous default of four clearing members at each of the seven
CCPs, the likelihood of such circumstances, or the potential impactof the same clearing members defaulting in multiple CCPs. Neither did the analysis endeavour to model second and later ordereffects of the scenarios that might result in wider market stress,
including potential increases in margin requirements, liquidity
pressure and collateral scarcity. Finally, the analysis assumed that
all non-defaulting participants continued to perform as they had
committed to.
Thus, this analysis provided by the “Financial Stability Board” of the BIS
absolutely avoided contemplation of exactly what happens in a global
financial crisis!
The Depository Trust & Clearing Corporation (DTCC) operates two
CCPs, both of which have been designated in the U.S. as Systemically
Important Financial Market Utilities (SIFMUs).
The following excerpts are from an article published by DTCC [26] :With three of DTCC’s clearing agency subsidiaries declared as“systemically important financial market utilities” (SIFMUs), Pozmanter [the DTCC Head of Clearing Agency Services and Global
Operations] said there has been significant effort and discussions
this year to update the clearing corporations’ and the depository’s
recovery and wind-down plans. . . . He asked panelist Stephen
Pecchia, DTCC Managing Director, Recovery and Resolution office,VII. Central Clearing Parties

38

about the updated wind-down rules as well as some of the changes
to the clearing agency loss allocation rules.
“The Covered Clearing Agency standards require plans for orderly
recovery and wind-down,” Pecchia said. “We would seek to winddown the failed entity and concurrently, shift our services to athird party that has either stood up within the DTCC enterpriseor would be some other third-party acquirer. What will happen isessentially a transfer of services: there would be some assignmentof assets, there would be service agreements put in place between
the failed clearing agencies as well as between the DTCC holding
company and this new entity.” . . .
“Hopefully this is something we will never have to do, but we doneed to be prepared,” he said. “As many of you know, what will
drive this potentially happening may not be something we’ve seen
historically—but the value comes in the planning.”
So, something which has not been seen before will drive the imperative
to start up a new CCP, and they are planning for it to happen.
DTCC has provided a video clip titled Perspectives on CCP Risk Management [27], in which Murray Pozmanter makes the following statement:
We believe the level of capitalization of a CCP is a key component of
its overall resiliency. CCPs must be sufficiently capitalized in order
to withstand losses from both member default and non-member
default loss events. In response to this, we have implemented a comprehensive capital framework to effectively measure and mitigate
risk, and to support the resiliency of DTCC and our subsidiaries.
What then is the capitalization of DTCC?
This is an excerpt from the DTCC’s consolidated financial Statements
as of March 2023 [28]:The Depository Trust & Clearing Corporation (DTCC) is the parent
company of various operating subsidiaries, including The Depository Trust Company (DTC), National Securities Clearing Corporation (NSCC), Fixed Income Clearing Corporation (FICC), DTCC ITPLLC (ITP), DTCC Deriv/SERV LLC (Deriv/SERV), DTCC Solutions
LLC (Solutions (US)), DTCC Solutions (UK) Limited (Solutions (UK)),

39

VII. Central Clearing Parties

Business Entity Data, B.V. (BED); Collectively, the “Company” or“Companies.”
This is all of DTCC, consolidated, i.e., the whole enchilada.
As of March 31, 2023, the consolidated Total Shareholder’s Equity wasa tad over $3.5 billion (that’s with a “b”).
Now realize that this is the entire capitalization underpinning theCentral Security Depository and CCPs for the entire U.S. securities
market and derivatives complex.
Contrast this with the cited statement:
We believe the level of capitalization of a CCP is a key component of
its overall resiliency. CCPs must be sufficiently capitalized in order
to withstand losses from both member default and non-member
default loss events.
This is one of the many open deceptions, which are unpleasant and inconvenient to see, and so, readily dismissed. Now recall these excerpts
from the exchange between the Legal Certainty Group and lawyers for
the Federal Reserve:
Q (E.U.): Is the investor protected against the insolvency of anintermediary and, if so, how?
A (N.Y. Fed): . . . an investor is always vulnerable to a securities
intermediary that does not itself have interests in a financial
asset sufficient to cover all of the securities entitlements thatit has created in that financial asset . . .
If the secured creditor has “control” over the financial asset it
will have priority over entitlement holders . . .
If the securities intermediary is a clearing corporation, theclaims of its creditors have priority over the claims of entitlement holders.
So, there we have it. In the collapse of the clearing subsidiaries of DTCC,
it is the secured creditors who will take the assets of the entitlement
holders. This is where it is going. It is designed to happen suddenly,
and on a vast scale.
There are some further relevant statements in the article DTCC Details
Risk Management Approach [29]:VII. Central Clearing Parties

40

Much of the debate recently has focused on whether CCPs shouldmake larger contributions of their own capital to the loss allocationwaterfall as a way to make sure that their risk management isprudent and that they had their own ‘skin in the game.’
An argument could be made that CCPs that are publicly traded
may potentially not be aligned with the interests of owners andshareholders, who also used its services.
“We felt it was very important to point out that this argument isn’t
applicable to DTCC’s CCPs because in essence the source of ourcapital is our users,” Pozmanter said. “We don’t feel that putting an
outsized portion of that capital at risk as part of our loss allocationwaterfall would align our interests any better than they’re alreadyaligned with our owners and users. We look at that as a potential
source of instability in a stressed market.”He added, “While we’re in favor of having some of our capitalin the loss waterfall, we think that having a very transparent
methodology and a static percentage of our operating capital in
the waterfall is what’s most appropriate for us.” . . .
As for resolution procedures, DTCC is opposed to pre-funding thedefault loss waterfall, although it does support pre-funding theoperating capital needed to get a new CCP up and running in theevent of a default.
“As we go through our recovery and resolution planning we want tohave the operating capital pre-funded to potentially start up a new
CCP in the event of the resolution of one of our CCPs,” Pozmanter
said. “We definitely see the logic in having the operating capital tostart up a new CCP pre-funded.”
There you have it. The CCPs are designed to fail. They are deliberately
under-capitalized. The start-up of a new CCP is planned and pre-funded.
This construct assures that the secured creditors will take all collateralupon which they will have perfected legal control. The rule of law must
prevail! We would have chaos otherwise! No one is above the law, afterall!
As a reminder of the structure, here is an excerpt from the Wikipedia
article on DTCC [2]:41

VII. Central Clearing Parties

Most large U.S. broker-dealers and banks are full DTC participants,
meaning that they deposit and hold securities at DTC. DTC appears
in an issuer’s stock records as the sole registered owner of securities
deposited at DTC. DTC holds the deposited securities in “fungiblebulk,” meaning that there are no specifically identifiable shares
directly owned by DTC participants. Rather, each participant
owns a pro rata interest in the aggregate number of shares of aparticular issuer held at DTC. Correspondingly, each customer of
a DTC participant, such as an individual investor, owns a pro rata
interest in the shares in which the DTC participant has an interest.
With the explanation provided by the Federal Reserve Bank of New York(see Chapter III), you know what this means.

VIII. Bank Holiday

They have bartered their birthrightfor a mess of pottage.
William Blake

My Aunt Elizabeth had been ten years old when the banks were closedby executive order in 1933 [30]. When I asked her to tell me about theGreat Depression, she said that suddenly no one had any money, thateven wealthy families had no money and had to take their daughters
out of private school because they could not pay the tuition.
I wondered why even these wealthy families could not send theirchildren back to their schools after the banks were reopened.
The answer is that only the Federal Reserve Banks and banks selectedby the Federal Reserve were allowed to reopen.
“The Federal Reserve Banks,” writes Allan Meltzer, “sent the Treasury
lists of banks recommended for reopening, and the Treasury licensed
those it approved.” Meltzer’s study A History of the Federal Reserve[31] is considered the most comprehensive history of the central bank.
People with money in banks that were not allowed to reopen lost allof it. Their debts were not canceled, however; these were taken overby the banks selected by the Federal Reserve System. If these people
could not make their debt payments—which was now likely, since they
had lost their cash—they lost everything they had financed with any
amount of debt, e.g., their house, their car, and their business.
Thousands of banks were never allowed to reopen. The grand facadesof former bank buildings could be seen around Cleveland. There wassuch devastation of banks that a neighborhood Catholic church wasbuilt with massive stone columns salvaged from a bank building which
had been demolished.
42

43

VIII. Bank Holiday

The Cleveland Trust Co. had grown through acquisition to become, by
1924, the sixth largest bank in the United States. As noted by The Case
Western Reserve University Encyclopedia of Cleveland History [32], “thebank survived the Depression well.” How was that possible?
It was selected by the Federal Reserve to consolidate debts. I had afinance professor who told the class that Cleveland Trust had run asystematic process of foreclosing upon and evicting many thousandsof families from their homes in the greater Cleveland area. After thesefamilies were evicted from their homes, and their equity wiped out,
they were offered the possibility of moving back into their former
homes as renters, the advantage to Cleveland Trust being that thesefamilies would pay to keep the houses heated until they could be sold.
Cleveland Trust did “well.” How did my finance professor know about
this? His family was one of those many thousands of families whose
home mortgage had been taken over by Cleveland Trust.
Contrast this with the cheery image conveyed by William L. Silber, who
was a member of the Economic Advisory Panel of the Federal Reserve
Bank of New York. In his article Why Did FDR’s Bank Holiday Succeed?
[33], Silver writes:
Much to everyone’s relief, when the institutions reopened for business on March 13, depositors stood in line to return their hoarded
cash to neighborhood banks. Within two weeks, Americans had redeposited more than half of the currency that they had squirreledaway before the suspension. The market registered its approval aswell. On March 15, 1933, the first day of trading after the extended
closure, the New York Stock Exchange recorded the largest one-day
price increase ever. With the benefit of hindsight, the nationwide
Bank Holiday in March 1933 ended the bank runs that had plagued
the Great Depression . . . Contemporary observers consider the
Bank Holiday and the Fireside Chat the one-two punch that broke
the back of the Great Depression . . . the speed with which the Bank
Holiday Act reestablished the integrity of the payments systemdemonstrates the power of credible regime-shifting policies.
The Emergency Banking Act of 1933, had been passed by Congress on
March 9, 1933, three days after FDR declared the bank holiday, with
only a single copy available on the floor of the House of Representatives,

VIII. Bank Holiday

44

and with copies being made available to senators as the bill was being
proposed in the senate, after it had passed the house [34].
Was it successful? We are led to believe that the Bank Holiday was abrilliant scheme. Well it was—for some. It was enormously successful
for those banking interests who took the assets and consolidated theirpower. It certainly demonstrated the power of “regime-shifting policies.”
We will see that it was not just about taking peoples homes and otherstuff. As to ending the panic, perhaps that is not so difficult to do when
you have fomented the panic.
In the Wikipedia article The Great Depression [35] we find the following
illumination of the Fed’s odd behavior in the years leading up to thebank holiday:
The Monetarist explanation was given by American economists
Milton Friedman and Anna J. Schwartz. They argued that theGreat Depression was caused by the banking crisis that caused
one-third of all banks to vanish, a reduction of bank shareholder
wealth and more importantly monetary contraction of 35%, which
they called “The Great Contraction.” By not lowering interest rates,by not lowering rates and by not injecting liquidity into the banking
system to prevent it from crumbling, the Federal Reserve passively
watched the transformation of a normal recession into the Great
Depression.
The Federal Reserve allowed some large public bank failures—
particularly that of the New York Bank of United States [in December, 1930]—which produced panic and widespread runs on local
banks, and the Federal Reserve sat idly by while banks collapsed.
Friedman and Schwartz argued that, if the Fed had provided emergency lending to these key banks, or simply bought government
bonds on the open market to provide liquidity and increase thequantity of money after the key banks fell, all the rest of the banks
would not have fallen after the large ones did, and the money
supply would not have fallen as far and as fast as it did.
This view was endorsed in 2002 by Federal Reserve Governor Ben
Bernanke in a speech honoring Friedman and Schwartz with this statement [36]:45

VIII. Bank Holiday

Let me end my talk by abusing slightly my status as an official
representative of the Federal Reserve. I would like to say to Milton
and Anna: Regarding the Great Depression, you’re right. We did it.
We’re very sorry. But thanks to you, we won’t do it again.
As this is “ancient history”, it was safe for Bernanke to make such anadmission. But more to the point, it would allow him to posture as thewise man who had studied the “mistakes” of the Federal Reserve, andthen to justify the Fed’s extraordinary measures to follow in the Global
Financial Crisis. Is the Fed indeed “very sorry”? Can one believe thepromise that “we won’t do it again”? They have studied the lessonsof the past in detail; however, their purpose has been to prepare a
new and improved global version for the spectacular end of this debt
expansion super-cycle. That’s what this book is about.
Contrary to the image of success, which has been handed down tous, the Bank Holiday did not end the Great Depression. There was norecovery which might have allowed people to service their debts andkeep their property. Why was that? “Inexplicably”, the Federal Reserve
kept conditions tight [37]:
According to literature on the subject, the possible causes . . . werea contraction in the money supply caused by Federal Reserve andTreasury Department policies and contractionary fiscal policies.
If that was a comprehensive program to assure there would be norecovery, it worked quite well. Conditions remained broadly stressful
for years, and they kept price levels down, so that people had noopportunity to sell assets for paying off debts. I know from family
letters that, despite having no debts, times were quite tough. Grandma
Webb wrote to her son (who was in a youth athletic program on anarmy base) about Grandpa Webb having been out trying to get any work
for Webb Equipment. That was in 1936.
Contrary to the image of FDR as a savior, the people in my family
who lived through the 30s considered FDR to be something like Satanhimself, and they were not religious people.
Here is an interesting quote from Silber [33]:The Emergency Banking Act of 1933, passed by Congress on March
9—combined with the Federal Reserve’s commitment to supply

VIII. Bank Holiday

46

unlimited amounts of currency to reopened banks—created defacto 100 percent deposit insurance.
So according to William L. Silber, who was an economic advisor to theFederal Reserve Bank of New York, the Fed miraculously and suddenlyin March of 1933 had the means “to supply unlimited amounts ofcurrency to reopened banks”, which were, of course, only the banks
selected by the Federal Reserve System. Clearly, the Fed had had themeans all along to avoid the failure of those thousands of banks. A
panic can be fomented easily when you run the system. They made it
happen. They planned it, and then brought their solution after they got
their regime-shifting policies in place.
The Federal Reserve System and the banks selected by the Fed wereprepared to take things from people on a vast scale: their homes, theircars, and even their new electric appliances, which had been sold tothem with the innovation of consumer credit. Did “the bankers” needto take this property? What was the real purpose? Can you get past
the idea that they were trying to help? Even if we can, we are always
led to think about this in a small way—that it is always about a natural
human greed for money and for material things. It was not then, and it
is not now.
Ask yourself: if they don’t want your money, and they don’t really wantor need your stuff, and they’re not trying to help you, what do they
want? What’s the point of all of their efforts?
This may be difficult to hear: It was deliberate strategy. It was about
ultimate, complete power, allowing no centers of resistance. And so,
it was about deprivation. It was about subjugation—and it still is, inmore ways than we know.
It was not about helping people then, and it’s not about helping people
now. It is all part of the same deliberate herding of humanity andelimination of any pockets of resilience, which plagues us still.
While Cleveland is now a crumbling city, it was a center of incredible
prosperity in the 1920s. The Federal Reserve Bank building in Cleveland
was completed in 1923, less than ten years after the signing of theFederal Reserve Act. The bank vault is the largest in the world, and it
incorporates the largest hinge ever built. It seems they were preparing
to put a lot of stuff in there, and for the possibility that there might be47

VIII. Bank Holiday

some stress about that. Perhaps it was not to be filled with refrigerators,
washing machines, and toasters. There are machine gun turrets above
the sidewalk on the street level.
There was a larger objective.
The preparatory work had been laid when the Federal Reserve System
was secretly planned, and with the passage of the Federal Reserve Act
in the quiet before Christmas, 1913. The Federal Reserve Act set up
an inevitable logic that the Fed must take the gold of the public in a
sufficiently major crisis, with the justification that credit could not be
expanded otherwise.
This is exactly what is now set up to happen with all securities ownedby the public, globally.
Here is an important excerpt from the Wikipedia article on Executive
Order 6102 [38] :The stated reason for the order was that hard times had caused‘hoarding’ of gold.
However,the main rationale behind the order was actually to remove theconstraint on the Federal Reserve preventing it from increasing
the money supply during the depression. The Federal Reserve Act(1913) required 40% gold backing of Federal Reserve Notes thatwere issued. By the late 1920s, the Federal Reserve had almost
reached the limit of allowable credit, in the form of Federal Reserve
demand notes, which could be backed by gold in its possession.
The executive order to confiscate all gold owned by the public wasmade under the authority of the Trading with the Enemy Act of 1917,
which had been enacted four years after the creation of the Federal
Reserve. The act had been used to confiscate the property of interned
natives of Germany, and more. This is described by Daniel A. Gross in
his article The U.S. Confiscated Half a Billion Dollars in Private Property
During WWI [39], whose subtitle reads: “America’s home front was thesite of interment, deportation, and vast property seizure.”
Apparently all the U.S. public was now the enemy. Think about this.
People who were simply protecting themselves and their families fromthe actions of the Federal Reserve System were accused of hoarding

VIII. Bank Holiday

48

gold, and literally criminalized if they persisted in doing so. The
rationale is incredible: You are hoarding gold, so we will take it anddo what with it? Hoard it! As we have seen, once they had taken
the gold of the public, they did not then use the resource to expand
credit. People remained in a debt trap. The deprivation continued andeven worsened. Clearly, the need to expand credit served only as apretext for the confiscation of the public’s gold, which was the real
premeditated objective.
I asked my father why people had turned in their gold. He said that if
you did not you were a criminal, but further, that there was nothing
you would be able to do with it because you could not legally transport
or sell it. So, essentially, the use and value of gold had been confiscated.
This was certainly the case because it remained illegal for a U.S. person
to own gold for more than forty years!
Here are some excerpts from Executive Order 6102 [40]:All persons are hereby required to deliver on or before May 1,
1933, to a Federal Reserve Bank or branch or agency thereof or
to any member bank of the Federal Reserve System all gold coin,gold bullion and gold certificates now owned by them or coming
into their ownership . . .
Whoever willfully violates any provision of this Executive Order . . .
may be fined not more than $10,000, or, if a natural person, may
be imprisoned for not more than ten years, or both . . .
Note that the penalties were quite severe, and that all the gold wasliterally to be turned over to the Federal Reserve System. How nice!
Now we can see the purpose of constructing, in 1923, the largest bankvault in the world and a fortified building!
Perhaps gold will not be confiscated immediately this time around.
Gold has not been targeted as the essential collateral backing as was
the case under the Federal Reserve Act. In this go-round it is securitiesof all kinds, globally, which have been set-up as the collateral backing
underpinning the derivatives complex.
The big banks are organized as holding companies with subsidiaries.
The purpose of this structure is to legally separate risks. A subsidiarycan be designed to take on liabilities, which cannot attach to assets in

49

VIII. Bank Holiday

other subsidiaries or to the holding company. The weakened subsidiarycan be separately bankrupted. It is quite possible that the big banks
have suppressed the price of gold by selling “paper” gold in subsidiaries,
which will be allowed to fail, while accumulating physical gold in othersubsidiaries, which are designed to survive. This, however, does notassure that you, as a member of the great unwashed, will be allowed tokeep your gold, not if this juggernaut continues in motion.
I recall the words of my father, who had lived through all of this, “The
only thing they can’t take from you is your education.”
Only the Federal Reserve System was designed to survive and take over
all assets and banking activities. Only the Federal Reserve banks andthose selected and controlled by the Federal Reserve were allowed toreopen. The Federal Reserve was also indemnified by the government(i.e., the public) for any losses.
And so, large-scale closure of banks and taking of bank deposits is not
unprecedented. Holders of cash in banks are unsecured creditors withno enforceable claim to their money.
It has been promised that there will be no taxpayer bailout this time—as
if that is a good thing. Why? Simply because this will allow the banks
to be closed rather than nationalized. Then all deposits and assets will
be taken by the “protected class” of secured creditors. This is where itis going.
Some wealthy people may think they will hide from this by keeping
their money with the “too big to fail banks.” Perhaps it will seem thatthey have succeeded in this through the early stages of the banking
crisis. However, this “regime shift” is designed to be all-encompassing.
Ordinarily, the deposit-taking subsidiaries should be quite secure. But
a strategy has been set up so that the deposit taking subsidiaries of
the “too big to fail banks” can be separately bankrupted when the timecomes. How can we know that?
The Fed has the power to give exemptions to any bank to move derivatives into deposit-taking subsidiaries, and it has done so. It has beentested, and on a large scale. Apparently it is easily and unilaterally
done by the Fed by granting exemptions to Section 23A of the Federal
Reserve Act.
Here are some excerpts from a Bloomberg News article from 2011 [41]:VIII. Bank Holiday

50

Bank of America Corp., hit by a credit downgrade last month, has
moved derivatives from its Merrill Lynch unit to a subsidiary flushwith insured deposits, according to people with direct knowledgeof the situation.
The Fed has signaled that it favors moving the derivatives to give
relief to the bank holding company . . . Bank of America’s holding
company—the parent of both the retail bank and the Merrill Lynch
securities unit—held almost $75 trillion of derivatives at the endof June . . . About $53 trillion, or 71 percent, were within Bank ofAmerica NA, according to the data, which represent the notional
values of the trades.
That compares with JPMorgan’s deposit-taking entity, JPMorgan
Chase Bank NA, which contained 99 percent of the New York-based
firm’s $79 trillion of notional derivatives . . .
Moving derivatives contracts between units of a bank holding
company is limited under Section 23A of the Federal Reserve Act,
which is designed to prevent a lender’s affiliates from benefitingfrom its federal subsidy and to protect the bank from excessive risk
originating at the non-bank affiliate, said Saule T. Omarova, a law
professor at the University of North Carolina at Chapel Hill Schoolof Law. . . .
In 2009, the Fed granted Section 23A exemptions to the banking
arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp,
ING Group NV, General Electric Co., Northern Trust Corp., CITGroup Inc., Morgan Stanley and Goldman Sachs Group Inc., among
others . . .
And here are excerpts from another article on the same subject [42]:Bank of America (NYSE:BAC) has shifted about $22 trillion worthof derivative obligations from Merrill Lynch and the BAC holding
company to the FDIC insured retail deposit division. Along withthis information came the revelation that the FDIC insured unit
was already stuffed with $53 trillion worth of these potentially
toxic obligations, making a total of $75 trillion.
This all has the blessing of the Federal Reserve, which approved
the transfer of derivatives from Merrill Lynch to the insured retailunit of BAC before it was done.

51

VIII. Bank Holiday

This is not an isolated instance. JP Morgan Chase (JPM) is being
allowed to house its unstable derivative obligations within its FDIC
insured retail banking unit. Other big banks do the same.
Keep in mind, when you see the scale of the derivative positions inthese individual banks, that the size of the entire global economy was
about $74 trillion in 2011. So individual banks had derivatives books
the size of the entire global economy, and they moved them into theirdeposit-taking subsidiaries with the approval of the Fed.
Why has this been tested on such a large scale? It seems they arequite serious about something. Is the intent to make the deposit-taking
subsidiaries safer? What is the real purpose?
Used at the appropriate time, this will assure the collapse of the deposittaking subsidiaries of the “too big to fail” banks, allowing the taking ofmoney comprehensively, including from depositors in these deposittaking subsidiaries, leaving essentially no money anywhere, and nopockets of resilience or of potential resistance. Meanwhile, in the chaosof the ensuing global wave of insolvencies, peppered with contrived
existential threats, the “protected class” of bank holding companies
and their subsidiaries designed for continuance will not only survive,
but thrive, taking essentially all collateral. This will be put forth as animperative, i.e., that they must survive and be strong for the sake ofhumanity, so that the system might begin again and we all might move
forward. People will be desperate and simply want the terror to stop.
What fig leaf will depositors have to protect them from the “protectedclass”?
The Deposit Insurance Fund (DIF) of the Federal Deposit Insurance
Corporation (FDIC) was $128.2 billion as of December 31, 2022. The
FDIC is required to fund the DIF to 1.35% of insured deposits. The DIF
can be exhausted, and indeed has been totally depleted twice—in the
Savings and Loan Crisis and in the Global Financial Crisis. In these
instances, the FDIC was allowed to borrow funds from the Federal
Financing Bank. The FDIC has a line of credit with the Treasury for up
to $100 billion. If this credit line were fully utilized, total resources
would be $228 billion (roughly 2% of insured deposits). So, if the entirebanking system is insolvent, “insured” depositors get 2 cents on thedollar. That will not go far in a widespread banking crisis, or if theVIII. Bank Holiday

52

deposit-taking subsidiary of a major bank is bankrupted, e.g., Bankof America and JP Morgan have over $2 trillion, and $2.5 trillion in
deposits, respectively.
In Europe, Banking union was initiated in 2012 supposedly as a response to the “Eurozone crisis”; this has transferred responsibility forbanking policy from the national level to the EU level in 21 countries.
Sweden has thus far resisted pressure from it’s own central bank tojoin the banking union; Denmark and Poland have signed but not yet
ratified the treaty.
The objective, I believe, was to create a construct, the goal of which ispreventing stabilization of banks through nationalization, under thesimplistic pretext that, as the wind-down of the banks will be handled
entirely privately, no tax-payer funds will be used.
Resolution powers over the captured banking systems, including around3,000 banks and other financial institutions, have been conferred toa resolution authority, the Single Resolution Board (SRB), which will
execute a Single Resolution Mechanism.
A Single Resolution Fund (SRF) will be used for the exercise of resolution
powers. The SRF is composed of contributions from credit institutions
and certain investment firms in the participating Member States within
the Banking Union.
The SRF must, by law, reach the target level of at least 1% of covered
deposits by December 31, 2023, at which time the deposit insurance
regime is intended to be fully mutualised among the member states.
The SRF is projected to be approximately €80 billion at that point. A
revolving credit line from the European Stability Mechanism (ESM) will
match the SRF, stepping up total backing to 2% of covered deposits(approximately €160 billion), and thereby reaching harmonization withthe level of 2% backing of deposits in the U.S.
The SRB is now aiming to capture and incorporate into the SRM thelegacy national Deposit Guarantee Schemes (DGS). The SRB has a problem with something called Super Priority. In bankruptcy, super priority
claims rank with or even above those of secured creditors. The SRB has
stated that, “the super priority of DGS makes it de facto unrealistic to
use DGS funds in resolution” [43].

53

VIII. Bank Holiday

The SRB has further stated that “the SRB supports removing the DGS
super priority and adopting a general depositor preference” [43]. Why
do they object to super priority for DGS? While these funds are quite
small, with super priority, the funds used from national DGS would
certainly be recovered from the assets of the bank, and thus could bereused. It would give the national DGS a seat at the table alongside
the Senior Secured Creditors, potentially involving the state in eachresolution process; the SRB absolutely does not want that. They areattempting to force agreement that these funds will be treated as a
general depositor preference, which would put any such funds justahead of unsecured creditors, but behind secured creditors. Practicallyspeaking this means that the funds would not be recovered and would
be wiped out in the first major failure. That seems to be the objective.
Super priority is only for the “protected class.” The public can only beallowed an appearance of protection.
The Single Resolution Board has directed the biggest banks to prepare
for solvent wind-down (SWD). Again, that sounds like a good thing, but
given the scale of the bubble, this cannot possibly mean the solvencyof the entire banking system. I suggest that what this means is the
preparation of certain portions of the biggest banks to remain solvent.
Here are some excerpts from the SRB memo Solvent Wind-Down ofTrading Books (Guidance for Banks, 2022) [44]:All G-Sibs [globally systemically important banks] are expected towork on SWD planning as a RPC [Resolution Planning Cycle] 2022
priority.
Other banks will be identified and approached in the course of2022 following a further assessment of the significance of theirtrading books, to work on SWD planning as a RPC 2023 priority.
G-Sibs are expected to prepare to plan and ensure that capabilities
are ready to deliver “Day-1” expectations in 2022, while otherbanks approached in 2022 are expected to deliver on these in
2023.
Banks should take all the necessary steps to ensure that all “Day-1”
SWD-related expectations are implemented on time.
Here are further excerpts from the SRB’s Work Programme 2023 [45]:VIII. Bank Holiday

54

The SRB’s 2023 Work Programme is set against a backdrop of great
uncertainty. While the start of 2022 saw economies beginning toemerge from the pandemic, 2023 will see added challenges, in partstemming from Russian aggression in Ukraine. Rising energy costs
have led to double-digit inflation in many parts of the Banking
Union. Now, more than ever, it is important we finalise the workon banking resolvability and ensure that all of the goals set out
in the SRB’s Expectations for Banks are met before the year is out.
This was the initial target date and we are on track to meet it.
The coming twelve months will see the SRB’s focus moving fromthe more general phases of drafting and fine-tuning of resolutionplans towards ensuring that each plan and preferred resolution
strategy for each bank is implementable at short notice.
At the same time, crisis preparedness needs to be further strengthened to equip the SRB with all tools needed to react to a looming
crisis, implement a resolution scheme and manage any necessary
restructuring of the bank.
It is clear that more harmonised European measures are the way
forward, rather than re-nationalising and weakening European
financial stability tools.
Nevertheless, there will always be losses when a bank gets into
trouble. Resolution is not a miracle fix-all solution, rather it isabout attributing and sharing the losses a bank suffers . . .
The year 2023 will be the last of a transitional period for theestablishment of the main elements of the resolution framework in
the Banking Union.
It seems that we are getting very close to show time!
An indication that the powers-that-be are extremely serious can be seenin the SRB press release from 2022, Principals of U.S., European Banking
Union, and U.K. Financial Authorities Meet for Regular Coordination
Exercise on Cross-Border Resolution Planning [46]:The heads of resolution, regulatory and supervisory authorities,
central banks, and finance ministries of the United States, theUnited Kingdom, and the European Banking Union are amongleaders participating in a Trilateral Principal Level Exercise on

55

VIII. Bank Holiday

Saturday, April 23, 2022. The meeting is part of a series of regularexercises and exchanges among the principals of these key financial
sector authorities to enhance understanding of each jurisdiction’s
resolution regime for global systemically important banks and tostrengthen coordination on cross-border resolution.
This exercise builds on six prior cross-border principal level events
going back to 2014, with the European Banking Union authorities
joining in 2016.
From the U.S., the participants are expected to include the Secretary of the Treasury, the Chairman of the Board of Governors of
the Federal Reserve System, the President of the Federal Reserve
Bank of New York, the Acting Chairman of the Federal Deposit
Insurance Corporation, the Chairman of the Securities and Exchange Commission, the Acting Comptroller of the Currency, theChairman of the Consumer Financial Protection Bureau, and the
Chairman of the Commodity Futures Trading Commission. Participants from the European Banking Union include principals fromthe Single Resolution Board, the European Commission, and theEuropean Central Bank. Participants from the United Kingdom
include principals from HM Treasury and the Bank of England.
This level of attention from the U.S. side is extremely unusual. I havenever seen anything like this happen, let alone seven times in eight
years. It’s almost as if they are planning something quite serious.
The Atlantic Council is a think tank which “creates a meeting place”
for heads of state, military and institutional leaders. It is a member ofthe Atlantic Treaty Association, an umbrella organization, which draws
together political leaders, academics, military officials, and diplomats
to support the North Atlantic Treaty Organization (NATO).
The focus of the Atlantic Council is military strategy, not economics.
And what is the Atlantic Council focusing on now? Central Bank Digital
Currency (CBDC), which is virtual money backed and issued directly bycentral banks.
The Atlantic Council has quite a nice CBDC tracker [47]. Here, one cansee that, as of this writing, central banks in 114 countries representing
95% of the global economy are working on CBDC, that 11 countries
have fully launched digital currency, that all G7 economies have now

VIII. Bank Holiday

56

moved into the development stage of CBDC, and that 18 of the G20
countries are now in the advanced stage of development.
Why is this happening now globally? Is it really a desire to bring“financial inclusion” to the disadvantaged?
Why would The Atlantic Council, a military strategy think tank, focus on
CBDC? We are living within a global hybrid war, a component of which
will be the collapse of the banking, money, and payments systems
globally.
War aims will be achieved by means other than kinetic war. The foremost aim of the people who have privately controlled the central banks
and money creation is that they will remain in power, forever. They canrisk no pockets of resistance.
Augustin Carstens is the general manager of the Bank for International
Settlements (BIS). One can see the following comments of his, whichhave “gone viral”, just after the twenty-four minute mark in the videoof the virtual meeting titled Cross-Border Payments—A Vision for the
Future [48]:
We don’t know . . . who’s using a $100 bill today and we don’tknow who’s using a 1,000 peso bill today. The key difference with
the CBDC is the central bank will have absolute control on therules and regulations that will determine the use of that expressionof central bank liability, and also we will have the technology to
enforce that.
In other words: CBDC means absolute control.
And so, if the “old” money system somehow collapses, new money will
be provided by the central banks in the form of Central Bank Digital
Currency (CBDC), the new and improved control system.
Imagine . . . it is chaos. You have lost everything but your smart phone(If you don’t have one, don’t worry—you will be issued one.) You will
download an app. You will click boxes agreeing to everything. You will
become increasingly indebted with each payment you make using the
CBDC you are “given” on your phone. You will be told what to do andwhat not to do from then on. You will comply if you want to eat.

IX. The Great Deflation
Wisdom comes alone through suffering.
Aeschylus

I went down to the Cleveland Public Library and paged through theold chart books of commodity prices and stocks stretching back into
the 19th century. I found that, in the 1930s, all commodities, with thesole exception of gold, bottomed at the lows of the prior sixty years.
Most public companies ceased to exist. They had gone bankrupt. The
shareholders were wiped out. The assets were taken by the secured
creditors, the banks selected by the Federal Reserve System.
Price levels did not recover for decades.
In 1923, Grandpa Rogers, the surgeon who had been in the first U.S.
medical unit into the Great War, bought three housing lots in Shaker
Heights, a new upscale suburb of Cleveland. These properties would
have gone up in value through the 20’s. In 1929, the stock market
crashed. He was probably quite glad that he had not sold the lots andput the money into the stock market. In 1933, when the banks wereclosed, he was probably quite glad that he had not sold the lots andput the money in the banks. In 1952, three decades later, his widow
finally sold the lots for one third of what Grandpa Rogers had paid forthem in 1923. This was not because Shaker Heights was economicallydepressed in 1952. Shaker Heights was, in the 1950’s and into the early
1960’s, statistically, the wealthiest suburb in the United States.
In 1905, my great, great grandfather’s coal yard was valued in a bankappraisal at $126,000. A modern industrial building with heavy overhead hoists was built on the property in the 1920s by my grandfather;that became the site of Webb Equipment, the crane and hoist business.
After my father’s death in 1981, this property, with equipment andmaterials, was sold for less than $80,000. This was after three quartersof a century.
57

IX. The Great Deflation

58

Further confirmation of the persistence of the deflation is found in thispaper by Tom Nicholas and Anna Scherbina titled Real Estate Prices
During the Roaring Twenties and the Great Depression [49]:Using unique data on real estate transactions, we construct nominal and CPI-adjusted hedonic price indices for Manhattan from1920 to 1939. The CPI-adjusted index falls during the recessionthat followed WWI, rises to a local peak in 1926 and declines again
following the collapse of the Florida real estate bubble. It subsequently recovers to reach its highest value in late 1929 before
falling by 74 percent at the end of 1932 and hovering around thatvalue until 1939. A typical property bought in the beginning of1920 would have retained only 41 percent of its initial value two
decades later.
And this was Manhattan!
Consider that in the period from the 1920s into the 1950’s (more than
three decades), there was little recovery in price level. Think of theabsolutely massive demand drivers present through those decades:• electrification and all it enabled (e.g., refrigeration, appliances of all

kinds, industrial machinery);• the automobile and the associated build-out of the highway systemand suburbanization;• telecommunications (telephone, radio, television);• air travel;• a global war, followed by the Korean War and Cold War arms race;• population growth.

No such drivers of demand are present now. It is quite the opposite.
Artificial Intelligence (AI) and robotics are inherently deflationary. We
are told that people are not needed. Perhaps that is a tad deflationary.
The “inflation” we are now seeing is not due to strength in the global
economy. The underlying intractable problem of our time is not inflation but deflation. The “inflation” is illusory; it is created by massive
devaluation of money and artificial scarcity (consider the implicationsof the Nordstream sabotage).
Perhaps you have heard of the “Everything Bubble.” What is it?

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IX. The Great Deflation

I will explain the horror of it simply. Let’s take the example of a single
bond with no fixed maturity date, i.e., a perpetuity. This bond pays afixed annual dividend of $5. If the market rate of interest is 5%, thisbond has a value of $100. If the Fed lowers interest rates such that themarket rate of interest for this bond is now 1%, what happens to thevalue of the perpetuity? The fixed dividend of $5 remains unchanged.
As 5 is 1% of 500, the value of the perpetuity goes up five-fold to $500.
Now if the Fed increases market rates back to 5%, the value of theperpetuity paying a fixed dividend of $5 returns to $100, and hence,
there is an 80% decline in value. It’s basic math.
The entire global financial complex is, essentially, a big perpetuity, i.e. afinancial instrument with no fixed maturity date. The prices of all fixedincome instruments are determined by interest rates, and all equity
market and commercial real estate values are similarly driven.
The Fed created the “Everything Bubble” with the justification of fighting
the Global Financial Crisis, which of course the Fed had also created,by lowering the Fed Funds Rate from 5% to near zero, and then keeping
it near zero for most of the past 15 years. The Fed has now increased
the Fed Funds Rate from near zero in April of 2022 to more than 5.00%
in just one year.
That the decline in global financial and real estate markets will bemassive, has been made certain. This cake is baked. The financial
gains of the past 15 years have been an illusion. Some take comfort
in thinking that the losses can be hedged in the derivatives market. If
that is the case, the losses do not disappear. They are in the derivatives
complex. Epic losses will be concentrated on the balance sheets of the
CCPs, which, as we have seen, are designed to fail.
Some take comfort in saying that the Fed will lower rates again when
they are forced to do so. Have you noticed that they are not lowering
rates despite the first bank failures? This is just the beginning ofsuch failures given the basic math explained above. The Fed is sharply
increasing rates into economic weakness, and a banking crisis. This isexactly what was done in the Great Depression. And they are doing thiswith the bizarre and cruel justification of fighting wage growth!

IX. The Great Deflation

60

When the “Everything Bubble” is imploded, we will face a deflationary
depression, which will span many years, even decades. This coming
Great Deflation is intrinsic to the Great Taking.
The Architects of the Great Taking have planned and prepared to use
this dynamic fully, secure in their knowledge that, as night follows
day, massive and prolonged deflation will certainly follow the epic debt
expansion super cycle, which they created.
The Architects have assured that they alone are positioned to takeeverything, and that you and your children are positioned on the otherside of that, i.e., to lose everything, to be enslaved and even destroyedby it. People will be knocked down, and not be able to get up again.
That is intentional, as the populace has been systematically encouraged
to go deeply into debt. Whom the gods would destroy, they first cause
to borrow at low rates of interest!
As in the Great Depression, prolonged deflation will assure that people
who are in debt will not be able to make payments on their debts, letalone repay them. They will be trapped. All property and businesses
financed with debt will be taken.
With profound and persistent deflation assured to stretch over many
years, debt becomes a powerful weapon of conquest.
Debt is not a real thing. It is an invention, a construct designed to takereal things.
It is instructive to look at the deeper meaning of the word, debt.
The root word is believed by etymologists to be an ancient Proto-IndoEuropean word, ghabh, meaning to give, to hold, or to receive. It isfound, e.g., in the Sanskrit gabhasti (hand, forearm); the Latin habere(to have, hold, possess); the Old English giefan and Old Norse gefa (togive), and in the present-day Swedish ger (gives) [50].
However, the Latin prefix, de, meaning to do the opposite, or undo, ortake away totally and completely (think of the word, defrost), utterly
negates this giving, having, or holding. Again according to the Online
Etymology Dictionary [51], the Latin word debere means “‘to owe’,
originally ‘keep something away from someone,’ from de ‘away’ +habere ‘to have’.” In medieval Latin, the meaning of habere was “goods,
capital, investment” [52].

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IX. The Great Deflation

The bottom line is that debt has for centuries had the function of
dispossessing, of taking away property, capital and investments fromsomeone.
We can plainly see in their deliberate preparations over decades to takeon a vast scale that there will be no debt forgiveness. Ancient societies
knew the practice of the debt jubilee, i.e. a comprehensive forgivenessof debts; it was enacted repeatedly in the interest of general humanwelfare. No debt forgiveness is intended now. But what purpose should
the artificial constructs and institutions of society serve, if not humanwelfare? What must vitally concern each and all of us, if not humanwelfare?
The powers-that-be have designed an elaborate legal construct to prevent individual states from directing their central banks to create themoney to protect the depositors. If many trillions can be created tobail out private banks, the same could certainly be done to bail out thedepositors as a social imperative. That it will not be done is a sign ofthe true intent—deprivation and subjugation.
This “Great Reset” is anti-human. It is intended to fix in place a systemsomething like feudalism in perpetuity, in which the populace is held
in a state of deprivation and fear with the empty promise of safety.
Wake up! We have been living within a protection racket, in which the“protectors” terrorize the “protected.” Those supposedly protecting us
from the “bad guys” ARE THE BAD GUYS!

X. Conclusion

Let every soul submit himself unto the authorityof the higher powers. There is no power but of God.
The powers that be, are ordained of God.
Tyndale Bible (1526)

For his efforts in translating certain texts into the English of the day,William Tyndale was jailed in a castle just outside of Brussels, andthen executed by strangulation, after which his body was burned at the
stake.
Perhaps one might, at some point, come to question whether the“powers that be” are ordained of God. One can easily know that they
conduct wars against innocent people.
Curtis Lemay famously said:
There are no innocent civilians. It is their government and you
are fighting a people, you are not trying to fight an armed force
anymore. So it doesn’t bother me much to be killing the so-called
innocent bystanders.
As a human being, should this not concern you? What part of theorganized slaughter of vast numbers of innocent people can you findacceptable? Do you believe that you are special in some way, that you
were being protected, or that you will be protected now?
There has been abundant evidence of great evil at work in the world,
throughout time and in our present time. Do you really wish to beignorant of its existence and operation?
There is an interconnectedness of all things. If you don’t care about theobvious lies, the deaths of innocent children, the fire-bombings of cities,
the suppression of dissent, the propaganda, the escalating terrorism,
in which, quite strangely, innocent people are always and everywhere
the target, sooner or later it is coming for you, or your children, or your62

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X. Conclusion

grandchildren. If you know and you’re not doing anything about it, orsaying anything about it, it’s time.
It’s time to start connecting the dots, because they lead to you.
If you are wealthy, you might assume that, because the system has
allowed them to accumulate wealth, they will be protected in some way,that they are special. You are special. They’re saving you for dessert.
You have been allowed to chase profits while the wellbeing and resilience of your people have been broadly and systematically eliminated.
There are monsters under the stairs eating people alive. But you don’t
want to look under the stairs, because you want to keep using thestairs.
To not know is bad. To not want to know is worse.
Willful ignorance of the existence and operation of evil is a luxury even
the wealthy can no longer afford.
We are in the grip of the greatest evil humanity has ever faced (orrefused to acknowledge, as the case may be). Hybrid war is unlimited.
It has no bounds. It is global, and it is inside your head. It is neverending.
Nothing focuses the mind like an imminent hanging, or as SamuelJohnson originally said, “Depend upon it sir, when a man knows heis to be hanged in a fortnight, it concentrates his mind wonderfully.”
Hybrid war can be stopped. Stopping it begins in your mind.
During the Great War, Edward L. Bernays had worked with the Committee on Public Information to “sell” the war to the public. In 1928,
he published his book Propaganda [53], in which we can read thisstatement on the subject:
Those who manipulate this unseen mechanism of society constitutean invisible government which is the true ruling power of ourcountry.
The systematic psychological manipulation of society, begun with theevils of the Great War, has continued non-stop and has escalated
to the point that we are now subject to full spectrum, continuous
psychological operations.

X. Conclusion

64

Eighty-one years after the publication of Bernays’ book, Chris Hedges
wrote the following [54, p. 51]:
A public that can no longer distinguish between truth and fiction isleft to interpret reality through illusion. Random facts or obscurebits of data and trivia are used either to bolster illusion and give it
credibility, or discarded if they interfere with the message . . .
When opinions cannot be distinguished from facts, when there
is no universal standard to determine truth in law, in science, inscholarship, or in reporting the events of the day, when the mostvalued skill is the ability to entertain, the world becomes a place
where lies become true, where people can believe what they want tobelieve. This is the real danger of pseudo-events and pseudo-eventsare far more pernicious than stereotypes. They do not explain
reality, as stereotypes attempt to, but replace reality. Pseudo-events
redefine reality by the parameters set by their creators. These
creators, who make massive profits selling illusions, have a vested
interest in maintaining the power structures they control.
The people behind the wars have never been investigated and removed
from power. They have continued in control of all central banks, andmoney creation, and have extended their control globally.
Certainly many who have abetted this are ignorant of the greater design.
But the people behind the wars are, quite literally, lying, thieving killers,
and they know it. To say that there is much evidence of this is anunderstatement. Perhaps they have not killed innocent men, womenand children with their own hands, but they have deliberately caused
these deaths. That this is done with intent can be known through thepersistence of their planning and actions over many decades. While
the scale and audacity of this criminality seems unimaginable to us,
nothing is unimaginable to them. Their criminality has now reachedunprecedented and ultimate scale, as its aim is the subjugation of theentire globe and of all people.
Wars have always been not so much about taking things as about
subjugation of populations on all sides. Vast destruction and death
are acceptable to their planners. You might ask, how could the people
plotting and executing such insane schemes be held together? I suggestthat it has something to do with the binding power of shared guilt, of65

X. Conclusion

the criminal pact. The perpetrators are each and all are bound, whether
explicitly or unconsciously, by evidence of shameful, treasonous acts
committed against their own people. The commission of crime is a
power totem among them. The more heinous the crime, the more
powerful is the binding force.
In the past few years, you have been living within an escalating hybrid
war. Globally, we have witnessed overt media control and propaganda
campaigns; censorship, including arrests of people speaking in public; monitoring of all electronic communications and physical contact
tracing; brutally enforced lock-down and masking requirements, withpeople being beaten, handcuffed and arrested, even in their homes;
suspension of healthcare services and weakening of healthcare systems; invasive testing requirements for employment and travel; forced
quarantine of travelers; and coerced quarantine and “vaccination” ofthe healthy general population.
Governments dropped all pretense of democracy and were emboldened
to practice open despotism. There were no functioning checks on thispower. The courts provided no effective recourse to the public.
Governments broadly abused fundamental human rights, using as
justification the need to prevent the spread of infectious diseases, whichare, in truth, a great many, ever-present, and continually evolving. Andso, this justification, if allowed to stand, affirms the end of democracy
and the continuation of openly despotic government.
Are you able to contemplate that this may have been about more thana virus?
We have witnessed designs and real attempts to exert physical control
over every person’s body, globally, and this is continuing [55]. Why isthis happening?
I will make a startling assertion. This is not because the power tocontrol is increasing. It is because this power is indeed collapsing. The“control system” has entered collapse.
Their power has been based on deception. Their two great powersof deception, money and media, have been extremely energy-efficientmeans of control. But these powers are now in rampant collapse. This
is why they have moved urgently to institute physical control measures.
However, physical control is difficult, dangerous and energy-intensive.

X. Conclusion

66

And so, they are risking all. They are risking being seen. Is this not asign of desperation?
Where will they hide when they have all of the assets, when they
have damaged all of humanity, and caused billions to awaken throughsuffering?
They promote the belief that they are all-powerful. They are not. Allthey have had is the power to print money. The rest, they have usurped
from humanity.
Never before has a system benefitted so few at the great expense ofso many. Is this not inherently unstable and unsustainable? Physicalcontrol, as opposed to rule by deception, requires enormous energy.
Can this be sustained while destroying all economies, and abusing all
people, globally? They do not know how to “build back better.” Lookat their footprint around the world—the destruction, the economic
devastation. When it comes to the real world, they are exceptionally
good at just one thing: fucking things up. Then they declare victory,
and fix blame on others for the horrific damage done.
We were told by Hobbes that war is the natural state of man (Hobbes’
patrons were “nobles”). But is war natural and inevitable? How did
humanity survive? Think about it. Did humans survive by killing eachother? It is oxymoronic! War is aberrant. 100% of human survival
is based on cooperation. You cannot survive alone. You depend on
everyone else, and everything else. That is sanity. That is reality.
All organizations promoting war are criminal organizations. The people
behind them are mass murderers. The men and women orchestrating
chaos in country after country are criminals of the worst kind. The
people following orders are not heroes; they are criminals.
The people controlling this system are quite obviously not benevolent.
They are not noble. They are not elite. They are insane!
They are the antithesis of everything we could value, admire, and love.
These people do not represent human development, or the future ofhumanity. They are lacking in essential human qualities. They areaberrant. Antipathy for humanity is aberrant. For 99.99% of humanhistory, sociopaths like these would not have survived the next winter.
Their nature was seen and they were ostracized from the village, tosave the village.

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X. Conclusion

They operate today through anonymity enabled by inhuman scale ofsocial organization. Even so, this will not allow them to continue
indefinitely. We have entered a time in which their nature is being
recognized. Knowledge of their existence has become unavoidable.
Their grasping will come to an end, because all of humanity cannot
allow it to continue. Once it is recognized, humans will bond against
a common existential threat. People from all walks of life will join incommon cause. We have witnessed this already.
Their power structure can and must be dismantled non-violently. The“masterminds” will not yet be known. However, the individuals andorganizations near the levers of power (monetary, media, government,“healthcare”, military, police, legal, corporate), operating with criminal
intent toward the mass of humanity, can be identified. The allegiancesof these functionaries are unstable, driven by narrow self-interest.
By directly and personally putting these people on notice that theiractions are being documented, and subject to criminal prosecution,
they may be impelled to decline further involvement. This process canbe accelerated. It is not necessary to wake up the majority! We are notfighting the 1%, but the 0.01%. Even without mobilizing the majority,
it is entirely possible to realize an enormous advantage of intelligent,capable, activated people.
If the people behind this Great Taking persist in their insane schemes,
they will inevitably be found. It will be quite simple to follow thecollateral to those who have arranged to take it. Perhaps they aren’tsuch masterminds after all!
We will come to know who is behind this hybrid war against humanity.
We will come to know who controls the Bank for International Settlements, the Federal Reserve System, and all central banks globally, andhence all political parties, governments, media, and armed forces.
We will come to know who controls the CIA.
And we will finally know who has been behind the assassinations.
Let me close with John F. Kennedy’s own words:

Our problems are man-made;therefore, they can be solved by man.

Appendix: NY Fed’s reply to the EC Legal Certainty
Group QuestionnaireThis appendix contains the full text of the New York Federal Reserve’s
reply to the European Commission Legal Certainty Group Questionnaire.
The cover letter of the NY Fed’s response is shown in Figure A.1.
For context, please see Chapter III.

68

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Appendix: NY Fed’s reply to the EC Legal Certainty Group

Figure A.1: Cover letter of the New York Federal Reserve’s response to the New
York Federal Reserve reply to the European Commission Legal Certainty Group
Questionnaire. The body of this reply is reproduced in full in this appendix.

Appendix: NY Fed’s reply to the EC Legal Certainty Group70

The New York Fed’s response letter quotes the EC’s questions, which
it then answers. In the following, the questions posed by the EC aretypeset in italics, whereas the NY Fed’s replies are typeset in uprightfont shape. The letter begins with an extensive quote from the EC’squestionnaire, the end of which poses the first question:

EUROPEAN COMMISSION Internal Market and Services DG
FINANCIAL SERVICES POLICY AND FINANCIAL MARKETSFinancial markets infrastructure
MARKT/G2/D(2005)
Subject: EU Clearing and Settlement Legal Certainty Group Questionnaire
Please provide clear and concise answers specifying the existing
legal situation, whether there are points of uncertainty, and upon
what specific elements the answer given depends (for example, theterms of any relevant contract).
It is fundamentally important in all applicable instances that theanswers given should specify in what ways the answer would differ
according to type of issuer, of intermediary or of security.
It is to be noted that the bulk of the questionnaire draws no distinction between (I)CSDs and other intermediaries (in the sense
proposed below). Answers should make the distinction wherever
relevant.
Where helpful, please identify the source of law (for example,
legislation, regulation, jurisprudence or doctrine). In the case oflegislation specific to the subject-matter of the questionnaire, pleaseprovide copies (or weblinks).
In this questionnaire, ‘securities’ is to be taken to mean all financial
instruments (excluding cash balances unless explicitly asked for
below) that embody entitlements and that can be subject to bookentry holding and transfer, irrespective of whether the holding can
be characterised as direct or indirect.

71

Appendix: NY Fed’s reply to the EC Legal Certainty GroupIn this questionnaire, ‘rights in securities’ is to be taken to mean
both rights arising out of the instrument against the issuer or third
parties and rights or entitlements of the holder in respect of the
instrument as such, and ‘rights in securities’ is to be taken to besynonymous with ‘interests in securities.’
In this questionnaire, ‘intermediary’ is to be taken to mean any
person or entity that maintains positions regarding securities by
way of book-entry. In this meaning, note that intermediary does
not exclude an entity that maintains positions by way of bookentry for investors where according to the applicable law there is adirect relationship between the investor and the issuer. And in thisquestionnaire, ‘securities accounts’ is accordingly to be taken tomean all accounts maintained by intermediaries where positions
for clients regarding securities are entered by way of book-entry.
Please note also that some issues are intentionally addressed morethan once from different angles.
Questions(0) In respect of what legal system are the following answers given?
This response confines itself to U.S. commercial law, primarily
Article 8, specifically Part 5 of Article 8, and parts of Article 9, of
the Uniform Commercial Code (“UCC”); it does not discuss otherlaws or regulations or rules, which may significantly affect aspectsof the indirectly-held securities system, such as securities, tax,
accounting, banking laws, regulations or rules, or any other laws,
regulations or rules. The subject matter of Article 8 is “Investment
Securities” and the subject of Article 9 is “Secured Transactions.”
Article 8 and Article 9 have been adopted throughout the UnitedStates. The United States Treasury issues securities through theFederal Reserve Banks and persons holding those securities on
the books of the Reserve Banks do so through TRADES. The
TRADES regulations apply Federal substantive law to certain
aspects of the transactions at the level of the Federal Reserve
Banks and provide for the application of the substantive law of
the securities intermediary’s jurisdiction (as defined in Article
8 of the UCC) for holdings of Treasury securities at the lower

Appendix: NY Fed’s reply to the EC Legal Certainty Grouplevels. In addition, persons may also hold Treasury securities
directly through a system called “Treasury Direct” which is notdesigned for trading. This response does not discuss the Treasury
regulations for TRADES or “Treasury Direct.”
It is important to convey at the outset that Article 8 plays alimited role in the securities markets. Article 8 does not govern contracts for the purchase and sale of securities, clearing
arrangements, or regulate the relationships between and among
clearing corporations, brokers, or dealers, and their customers
except to the extent such entities act as securities intermediaries.
Article 8 and Article 9 simply provide the rules for identifying
the rights, interests, obligations and priorities of interests in securities, whether certificated or uncertificated, held directly or
through intermediaries. As noted above, many important issues
regarding the securities markets in the United States are governedby State and Federal securities laws and regulations and State andFederal banking laws and regulations and are outside the scopeof the UCC.
I. Content and structure of a legal system
General aspects
Before answering any of the specific questions posed, it’s useful to set the stage by defining a few terms central to Article
8’s framework for “indirectly held securities:” (1) the “securities account” is established by agreement between a securities
intermediary and its customer and the securities intermediary
agrees to treat the person maintaining the account to which anindirectly held investment is credited as entitled to exercise therights comprising the investment; (2) the “securities intermediary”
is a person in the business of maintaining securities accounts
for others, such as a bank or broker, and is acting in that capacity (as opposed to, e.g., a party to a trade); (3) the “financial
asset” is the investment held indirectly (more specifically defined
below); (4) the “securities entitlement” is the name given to theproperty rights and interests of the person holding a financial
asset through a securities account; and (5) an “entitlement holder”
is the person having a security entitlement to a financial asset

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Appendix: NY Fed’s reply to the EC Legal Certainty Groupagainst its securities intermediary (the “investor” or “customer”
in the questions). These terms are used throughout this response.
In addition, references to Article 8 in the responses are in thefollowing form: “8-XXX,” XXX being the section of Article 8 referenced.
(1) What are securities? Does a concept of securities such as is usedin the Directive for Markets in Financial Instruments 2004/39/EC
exist? If not, please describe the concepts used. What distinctions(e.g. bearer, registered, physical, dematerialised, book-entry) aremade and with what consequences?
Under Article 8, a security is “an obligation of an issuer or a share,
participation or other interest in an issuer or in property or an
enterprise of an issuer: (i) which is represented by a security
certificate or in bearer or registered form, or the transfer of which
may be registered upon books maintained for that purpose by oron behalf of the issuer, (ii) which is one of a class or series or by
its terms is divisible into a class or series of shares, participations,interests, or obligations; and (iii) which: (A) is, or is of a type, dealt
in or traded on securities exchanges or securities markets; or (B)is a medium for investment and by its terms expressly provides
that it is a security governed by [Article 8].” 8-102(15).
In the Article 8 context, the term security is not the only relevant
concept, as any “financial asset” can be credited to a securities
account. In addition to securities, financial assets include: (1) an
obligation of a person or a share, participation, or other interestin a person or in property or an enterprise of a person, whichis, or is of a type, dealt in or traded on financial markets, or
which is recognized in any area in which it is issued or dealt inas a medium for investment or any property which a securities
intermediary agrees to treat as a financial asset and (2) property
which a securities intermediary agrees to treat as a financial asset.
8-102(9).
(2) In what manner are securities created and issued? What steps
are necessary to have (existing or newly issued) securities validly
held and transferred with the involvement of intermediaries?

Appendix: NY Fed’s reply to the EC Legal Certainty Group

Issuance of securities is not the subject of Article 8. Most typically,
an issuer issues a global certificate to a nominee of the uppertier intermediary, which then credits interests in that security tosecurities accounts maintained on its books. Securities can also
be issued entirely in dematerialized form.
An entitlement holder can acquire a security entitlement in only
one of three ways: (1) the securities intermediary credits a financial asset to the entitlement holder’s securities account; (2)the securities intermediary accepts a financial asset for credit to
the entitlement holder’s securities account; or (3) the securities
intermediary is obligated by law to credit a financial asset to theentitlement holder’s securities account (a security entitlement
implied in law).
Securities accounts(3) What is a securities account? What is its role and function?
What are the relevant custody, commercial, accounting and tax
laws?
A securities account is an account to which a financial asset iscredited or may be credited pursuant to an agreement underwhich the person maintaining the account “undertakes to treat
the person for whom the account is maintained as entitled toexercise the rights that comprise the financial asset.” 8-501. Whena financial asset has been credited to a securities account a person
acquires a security entitlement with respect to that financial asset.
(4) What securities may be credited to securities accounts? May
cash be credited to securities accounts and, if so, does the accountholder have a right enforceable against third parties or against
the intermediary only? What is the nature of such right?
As noted above, any “financial asset” may be credited to a securities account. The securities intermediary can agree to treat
essentially anything, including cash, credited to the securities
account as a financial asset. For a discussion of the rights ofentitlement holders against third parties and intermediaries, see
the answer to question 7.

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Appendix: NY Fed’s reply to the EC Legal Certainty Group(5) Must the investor be recorded by name on the books of an
upper-tier intermediary or of the issuer?
No, and, in fact, the ultimate investor will almost never berecorded by name on the books of an upper-tier intermediary or
the issuer.
Nominee and omnibus accounts(6) May securities be credited to a securities account in the name ofa person or entity who is acting on behalf of another (i) where theexistence of the other is not indicated and (ii) where the existence
but not the identity of the other is indicated? May the securities
account be opened in the name of the person or entity who ismaintaining the account? May securities be credited to a securities
account in the name of a person or entity who is acting on behalfof more than one other, i.e. such that those others hold a collective
securities position, rather than segregated individual positions perperson? Is the person or entity in whose name the securities accountis credited (if different from the person or entity maintaining theaccount) considered to be an intermediary? Does that person orentity have to disclose whether it is acting on behalf of investors
and, if so, their identities?
Securities may be credited to a securities account in the nameof a person or entity that is acting on behalf of another, such asa trustee, agent, or investment advisor, where the existence ofthe other is not indicated. In addition, a trustee, agent or advisor
may indicate the capacity in which it acts without identifying
specifically the names of its customers. An intermediary may
satisfy its obligation to maintain financial assets corresponding
to its securities entitlements by maintaining those assets with
one or more other securities intermediaries and would typicallyhold those assets in a collective position. Typically, a broker will
maintain 2 accounts at its clearing bank, a “proprietary account”
and a “customer account.” In its proprietary account, thebroker holds its own securities and in its customer account itcollectively holds securities for its customers (without identifying
the customers).

Appendix: NY Fed’s reply to the EC Legal Certainty Group

Nature of rights(7) What rights arise when securities are credited to securities accounts? Is there a specific regime for establishing these rights? Are
these rights characterised as a claim, an intangible, a chattel, or a
new and separate legal asset, distinct from the underlying securities, which can be the object of proprietary rights (e.g. ownership,
security interest, usufruct) and proprietary dispositions (e.g. sale,pledge, loan)? What obligations of the investor may also arise?
Article 8 establishes the rights of an entitlement holder in the
security entitlements credited to its securities account. Security
entitlement is defined broadly as the “rights” and “property interests” of an “entitlement holder” specified by Part 5 of Article 8
with respect to a “financial asset.” 8-102(17).
1. The “property interest”
A security entitlement involves a property interest in the financial
asset (as contrasted with in personam rights against the securities
intermediary) only to the extent it includes rights to the financial
asset enforceable against other persons. 8- 104(c) limits an entitlement holder’s interest as a “purchaser” of a financial asset to
the rights enumerated in 8-503. 8-503(a) provides that financial
assets held by a securities intermediary are “not property of the
securities intermediary” and are exempt from claims of generalcreditors of the securities intermediary (but not certain secured
creditors). The subsection further provides that financial assets
are held by a securities intermediary for its entitlement holders“to the extent necessary” to meet its obligations to entitlement
holders. This provision protects the entitlement holder from thesecurities intermediary’s general creditors and, thus, provides
some property interest, but it does not empower the entitlement
holder to assert rights against any person other than its intermediary, except in the very limited circumstances described
below.
8-503(b) describes the entitlement holder’s property interest ina financial asset as a “pro rata property interest” in all interestsin that financial asset held by the securities intermediary. This

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Appendix: NY Fed’s reply to the EC Legal Certainty Grouppro rata interest in the fungible bulk of a particular financial
asset, however, is not a claim to a specific asset held by thefinancial intermediary. 8-102, comment 17. The drafters referto the entitlement holder as having obtained a property interest“only in the sense that under Section 8-503 a security entitlement
is treated as a sui generis form of property interest.” 8-104,
comment 2.
Under subsection 8-503(c), enforcement of that property interest
against the securities intermediary is limited to the rights enumerated in Sections 8-505 through 8- 508. (These are discussed below
in the discussion of “rights” against the securities intermediary.)
2. The “rights”
a. “rights” against third parties
Article 8 provides an entitlement holder limited rights in the financial asset against persons other than its securities intermediary.
The entitlement holder has no ability to exercise economic orother rights to the financial asset directly against the issuer; however, the securities intermediary has an obligation to obtain andpass on those economic rights to the entitlement holder and to
exercise ownership rights on behalf of the entitlement holder as
further described below. Part 5 of Article 8 only enumerates limited property interests enforceable against “purchasers,” (whichterm is defined in Section 1-201(33) of the UCC to include essentially any recipient of a voluntary transfer, including a secured
party, which could be an upper tier intermediary) and describes norights against the issuer of the financial assets. 8-102, comment
17.
Much of the indirect holding system involves at least two tiersof securities intermediaries (meaning that the financial asset isa securities entitlement). Article 8 does not give an entitlement
holder any rights against an upper-tier intermediary, except as
described below.
Article 8 does include rights of an entitlement holder against
purchasers of a financial asset underlying a security entitlement,but only in “extremely unusual circumstances.” 8-503, comment 2.

Appendix: NY Fed’s reply to the EC Legal Certainty Group

Such a circumstance arises when each of the following conditions
have been met: First, the securities intermediary is subject toinsolvency proceedings. Before the entitlement holder can pursue
rights against the purchaser, the administrator in the securities
intermediary’s insolvency proceeding must have elected not topursue those rights. Second, the securities intermediary does
not have sufficient financial assets to meet its obligations to entitlement holders. Third, the transfer of the financial asset tothat particular purchaser violated the securities intermediary’s
obligation to maintain sufficient interests in the financial asset.
Fourth, the purchaser is not entitled to protection under 8-503(e).
8-503(e) protects any purchaser who has given value and obtained
control of the financial asset from any action based on the entitlement holder’s property interest unless that purchaser colluded
with the securities intermediary in violating its duties to the entitlement holder. The vast majority of purchasers qualify for thisprotection.
b. “rights” against its securities intermediary
Article 8 gives an entitlement holder a number of specific rights
against its securities intermediary. The rights an entitlement
holder may enforce against the securities intermediary are limited
to enforcement of the securities intermediary’s Article 8 obligations. There are eight statutory obligations, listed below as (1)through (8).
i. statutory obligations
The first set of obligations relate to the entitlement holder’sreceipt of the economic and corporate rights that make up thefinancial asset. A securities intermediary must take action(1) toobtain a payment or distribution made by the issuer of a financial asset. 8-505(a). This is accompanied by an almost absolute
obligation (subject to set-off or counterclaim) to the entitlement
holder(2) to pass along payments or distributions made by theissuer of a financial asset and received by the securities intermediary. 8-505(b). (Note that the obligation to pass througheconomic benefits of the financial asset is the only obligation of asecurities intermediary not subject to limitation by agreement or

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Appendix: NY Fed’s reply to the EC Legal Certainty Groupa commercial reasonableness standard. 8-505(b).) The securities
intermediary is obligated(3) to exercise ownership rights withrespect to the financial asset on behalf of the entitlement holder–these rights encompass such things as voting rights, conversion
rights, rights to make demand for payment of an instrument
which is a financial asset, and rights to enforce legal obligations.
8-506, comments 3-4.
The second set of obligations relate to protecting the entitlement holder from the financial risk of the securities intermediary. The securities intermediary must(4) promptly obtain andmaintain sufficient quantities of the financial asset to satisfy theclaims of its entitlement holders. 8-504(a). The only exception tothis requirement is for “a clearing corporation that is itself theobligor of an option.” 8-504(d). The securities intermediary also
has an obligation not(5) to grant security interests in the financial
assets held for entitlement holders without agreement. 8-504(b).
The final three obligations relate to complying with entitlement
orders or directions from the entitlement holder. An “entitlement order” directs the securities intermediary to “transfer or[redeem] a financial asset to which the entitlement holder has
a security entitlement.” 8-102(a)(8). The entitlement order only
directs the transfer; it is not an order to sell the financial asset.
The securities intermediary must(6) comply with an entitlement
order, if originated by the entitlement holder and the securities intermediary has (1) reasonable opportunity to assure itself
of genuineness and authenticity and (2) reasonable opportunity
to comply. 8-507(a). If the securities intermediary acts on an
ineffective entitlement order, it must(7) re-establish a security
entitlement and pay or credit any distributions or payments notreceived as a result of a wrongful transfer. 8-507(b). If the securities intermediary does not re-establish the security entitlement, it
is liable for damages. 8-507(b). Finally, the securities intermediary
has a duty (8) to “act at the direction of an entitlement holder
to change a security entitlement into another available form ofholding for which the entitlement holder is eligible, or to cause

Appendix: NY Fed’s reply to the EC Legal Certainty Groupthe financial asset to be transferred to a securities account of theentitlement holder with another securities intermediary.” 8-508.
ii. standards of performance
A securities intermediary satisfies its obligations under Article
8 by complying with other legal requirements, by exercising due
care in accordance with reasonable commercial standards, or by
performing its duties as specified by agreement. 8- 504(c)(1)(2); 8-505(a)(1)-(2); 8-506(1)-(2); 8-507(a)(1)-(2); 8-508(a)(1)-(2); 8509. A securities intermediary’s compliance with another statute,regulation, or rule satisfies this Article 8 duty if the substance ofthe duty is the subject of that other legal requirement. 8-509(a).
To the extent not covered by statute, regulation, rule, or by the
party’s agreement, duties are to be performed and rights are to
be exercised in a “commercially reasonable manner.” 8-509(b).
A securities intermediary may withhold performance of its obligations because of unfulfilled obligations the entitlement holder has
to the securities intermediary. 8-509(c). This right to withhold
performance may arise out of a security interest, under a security
agreement with the entitlement holder or otherwise, or underother law or agreement. 8-509(c).
(8) What is the legal position of the intermediary in respect of the
securities credited to an investor’s securities account?
As stated above, to the extent necessary to satisfy securities entitlements with respect to a financial asset, the interests held inthat financial asset by the intermediary are held for entitlement
holders and are not property of the securities intermediary. Thus,
the securities intermediary does not “own” the financial assets
credited to the securities accounts maintained on its books, although it may be reflected in the books of the issuer or its transfer
agent as the registered holder or have a security entitlement (orbe an investor/account holder) in respect of an upper-tier intermediary. The securities intermediary may have a security interestin those financial assets, if it extended credit to the entitlement
holder to purchase such financial assets or if it has otherwise
obtained the agreement of the entitlement holder that those fi-

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Appendix: NY Fed’s reply to the EC Legal Certainty Groupnancial assets secured other obligations the entitlement holder
owes the securities intermediary.
(9) Is there any distinction between (i) the rights arising out of the
securities against the issuer and (ii) the rights in respect of holding
the security?
Yes. If one holds securities indirectly through a securities intermediary as a securities entitlement rather than directly, the specificrights the holder has are described by and determined by Part Vof Article 8-505 through 508. There is no direct exercise of rights
against the issuer. However, the issuer cannot raise any defenses
against the entitlement holder that it could not assert against
the entitlement holder if the entitlement holder held the security
directly.
(10) Where securities are held in pooled form (e.g. a collective
securities position, rather than segregated individual positions
per person), does the investor have rights attaching to particular
securities in the pool?
No. The security entitlement holder does not have rights attaching
to particular securities in the pool, he has a pro rata share of theinterests in the financial asset held by its securities intermediary
to the amount needed to satisfy the aggregate claims of theentitlement holders in that issue. This is true even if investor
positions are “segregated.”(11) In what manner does the investor acquire rights in respect of
securities credited to his securities account (i.e. is the transferee’s
right in the securities derived from the right of the transferor or isit originally created in the moment of crediting in his favour)?
The investor acquires rights in respect of the financial assets credited to his securities account at the moment the credit is made(i.e., the security entitlement is created). 8-501(b)(1). The investor
may also acquire such rights when a securities intermediary receives a financial asset from the investor or acquires a financial
asset for the investor and, in either case, accepts that financial
asset for credit to the investor’s account. 8-501(b)(2). Finally, theinvestor may acquire such rights when the securities intermediaryAppendix: NY Fed’s reply to the EC Legal Certainty Group

becomes obligated by other law, regulation or rule to credit afinancial asset to the investor’s securities account. 8-501(b)(3).
(12) What legal effects arise from a credit entry on a securities
account (e.g. book-entry as conferring or evidencing the root of
title, book-entry as a replacement for the possession of the document of title, book-entry as an essential element for exercising therights attaching to securities, other rights or obligations)? Please
distinguish the legal effects against (i) the issuer, (ii) the intermediary, (iii) an upper-tier intermediary (or intermediaries) or (iv) third
parties?
The holder has those rights explained above in the answer toquestion 7 against its securities intermediary and against third
parties. The holder obtains its economic rights and other ownership rights to the financial asset through its intermediary. The
entitlement holder’s rights are good against third parties unlessit granted a security interest or took the entitlement with noticeof an adverse claim (see also answers to questions 23-25).
(13) Is the investor entitled to set-off or net rights against theintermediary in respect of securities with obligations that investor
might have to the intermediary?
Article 8 would not afford an investor these rights, and it would
seem unusual for an account agreement to provide this right.
(14) Is the intermediary entitled to set-off or net obligations to theinvestor in respect of securities with rights the intermediary might
have against the investor? Can any such entitlement be altered bycontract?
Article 8 does not afford an intermediary these rights. Securities
account agreements typically give the securities intermediarya security interest in the contents of a securities account inrespect to credit extended to the customer by its intermediary. In
addition, a securities intermediary has an automatic perfected lienin securities that entitlement holders have purchased with credit
extended by the securities intermediary. 9-206(a), (b); 9-328(3).

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Appendix: NY Fed’s reply to the EC Legal Certainty Group(15) Is the investor protected against the insolvency of an intermediary and, if so, how? Does the investor have to rely on theintervention of a court or liquidator? In what way is the answer
different if the insolvency is of an upper-tier intermediary?
Under Article 8, an investor is protected against the insolvencyof its securities intermediary insofar as the security entitlements
credited to the investor’s securities account are not part of the
securities intermediary’s bankruptcy estate (and likewise, an investor is protected from the insolvency of an upper-tier intermediary). However, an investor is always vulnerable to a securities
intermediary that does not itself have interests in a financial asset
sufficient to cover all of the securities entitlements that it hascreated in that financial asset. This is best illustrated by example:
if a securities intermediary (SI) becomes insolvent, and it
is discovered that SI created total security entitlements to
500 shares of Company X in the securities accounts of 5
entitlement holders (10 shares each) on SI’s books, but that
SI itself had a security entitlement of only 100 shares ofCompany X on the books of an upper-tier securities intermediary, under Article 8, each entitlement holder holding
through SI would only get 20 shares of Company X, i.e.,
its pro rata share of SI’s interest in Company X. (The Article 8 insolvency distribution scheme does not apply to all
insolvent securities intermediaries, and other insolvency
distributions schemes applicable to some types of securities
intermediaries might require different results.)
The interests of an entitlement holder in the financial assets
trump the interests of any of the securities intermediary’s creditors that have a security interest in the same financial asset.
8-511(a). Note that this rule has two exceptions. If the secured
creditor has “control” over the financial asset it will have priority
over entitlement holders who have securities entitlement withrespect to that financial asset. 8-511(b). If the securities intermediary is a clearing corporation, the claims of its creditors havepriority over the claims of entitlement holders. 8-511(c). (ThisAppendix: NY Fed’s reply to the EC Legal Certainty Groupsecond exception is to allow for the secured financing that aids inclearing corporations’ settlement activities.)
Article 8’s limited protection for investors is “premised on theview that the important policy of protecting investors against therisk of wrongful conduct by their intermediaries is sufficiently
treated by other law.” 8-511, comment 2. The “other law” includes,
among others, Federal and State banking law and Federal securities law which require a securities intermediary to separately
account for customer securities versus proprietary securities, andthe Securities Investor Protection Act, which protects investors
against losses up to $500,000 for cash and securities (of which
only $100,000 can be to reimburse cash claims) held at firms
which are members of the Securities Investor Protection Corporation (as are all securities firms that are also required to registeras broker-dealers).
(16) What liability does the intermediary have (i) for upper-tierintermediaries or (ii) other third parties that it may rely on for the
performance of its functions? May any such liability be altered bycontract?
A securities intermediary has a duty under Article 8 to obtainand maintain sufficient quantities of financial assets to satisfy theclaims of its entitlement holders. 8-504(a). In satisfying that duty,
the securities intermediary must either (1) act with respect to theduty as agreed upon by the entitlement holder and the securities
intermediary or (2) in the absence of an agreement, exercise
due care in accordance with reasonable commercial standards.
8-504(c). Though the standard may be specified by agreement, theofficial comments to 8-504 and UCC Section 1-302(b) provide thatthe duty may not be disclaimed. Moreover, the official comments
specifically indicate that the duty of care applies in the securities
intermediary’s selection of its own securities intermediary orintermediaries through whom the intermediary holds financial
assets. In determining whether the duty is satisfied or breachedin the selection of the securities intermediary’s own intermediary
where it holds financial assets to satisfy its own entitlement
holders claims, one looks in part to custom and practice and

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Appendix: NY Fed’s reply to the EC Legal Certainty Group

whether the intermediary has little or no choice in the selectionof the intermediary, which may be the case when holding foreign
securities in a securities account.
The interaction between statutory duties and the provisions of
the agreement between the securities intermediary and its customer is complex and nuanced. Note that the official comments
to Section 8-504 are quite lengthy, and evidence a strong interestin the many risks a securities intermediary may contract around,particularly with respect to foreign securities and foreign custodians. This is an area which is heavily regulated and satisfaction ofa regulatory duty constitutes compliance with the substance of aduty (imposed in 8-504 through 8-508) under 8-509(a).
Transfer of securities(17) What steps are necessary for securities to be transferred?
Please elaborate both operational and legal steps. Do these steps
differ as regards the effectiveness between the parties to the transfer and vis-à- vis third-parties (e.g. perfection requirements)?
A transfer of an interest in securities typically requires an agreement between the transferee and the transferor, although for asale no writing is required and for a pledge a writing is often but
not always required. A transfer as between those parties may be“effective” without the steps described below occurring, although
the respective parties rights against and vulnerabilities to many
third parties, including their respective securities intermediaries,
will be affected if those steps have not occurred.
In the indirect holding system, security entitlements are createdand extinguished—that accomplishes the settlement of securities
transactions, much like a payment of bank money. Operationally,
Party A, having a securities account at Securities Intermediary
X containing a security entitlement to Security I, might instruct
its Securities Intermediary X to transfer or deliver Security I to
Party B, also having a securities account at Security Intermediary
X. Securities Intermediary X will simultaneously create a security
entitlement to Security I in Party B’s securities account and extin-

Appendix: NY Fed’s reply to the EC Legal Certainty Groupguish the security entitlement to Security I in Party A’s securities
account.
(18) What is the object of the transfer of securities (e.g. a claim
against the intermediary, a sui generis right, the security itself)?
There is no “object” that is transferred. A security entitlement iscreated, and another security entitlement is usually simultaneously extinguished. A security entitlement comprises the rights
and interests explained in the answer to question 7.
(19) At exactly what moment or moments in time does a transferee
become entitled, and to what? At what moment or moments intime does the transferor become disentitled?
These rights are mostly determined by the system rules, which
are outside the scope of Article 8. As far as Article 8 is concerned,
the interests and rights described in the answer to question
7 are related to the time in which the security entitlement iscreated/extinguished.
(20) Which concepts of finality (e.g. unconditionality, irrevocability,
enforceability) apply to transfers of securities? Is any such conceptchosen by an intermediary or imposed by law? Do they relate to
the transfer orders, the settlement, the passing of title or ownership,
the fulfilment of the underlying obligations, or other?
Concepts of finality are not addressed in Article 8. Finality may
be the subject of the rules of any securities intermediary or clearinghouse or other law or regulation. However, the Article 8 rules
generally and in particular the rules on adverse claims contributeto the certainty of rights to financial assets and securities entitlement thereto.
(21) What would be the effect on concepts of finality of each of (i) arevocation of transfer instructions, (ii) the debiting of provisionalor erroneous credits; (iii) insolvency challenges, (iv) fraud? Are
there specific rules relating to erroneous entries on accounts?
See answer to question 20 .

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Appendix: NY Fed’s reply to the EC Legal Certainty Group(22) Are there specific rules relating to conditional transfers ofrights, i.e. rules which specify that transfers of securities are considered to be conditional and which would allow (re-)debiting orreversal and, if so, under what circumstances? What position does
the receiving investor have as a result of such credits?
See answer to question 20.
Priorities(23) What rules apply when (i) competing claims are asserted
against the intermediary; (ii) competing claims are asserted respectively against the intermediary and an upper-tier intermediary?
An entitlement holder claiming an interest in a financial asset
credited to its securities account maintained with a securities
intermediary will share pro rata with other entitlement holders
claiming interests in the same financial asset credit to their securities accounts at the securities intermediary. The pro rata
share will be a share of the securities intermediary’s own totalinterest in the financial asset in question. 8-511(a). That claim willtake priority over the claims of other creditors of the securities
intermediary, subject to a few exceptions, explained further in
the answer to question 25.
Among parties with a security interest in a financial asset credited
to a securities account, the party that has perfected its security
interest by control will beat a party that has perfected its security
interest by filing. Special rules apply when the creditor assertingthat security interest is the securities intermediary, the securities
intermediary’s securities intermediary, or a clearing corporation,
discussed in more detail in the answer to question 15.
Note that Charles Mooney has provided additional responses tothis question and questions 24-25 and 29-33.
(24) What rules protect a transferee acting in good faith (the ‘bonafide purchaser’)? What are the limits of the bona fide protection?
Article 8 includes three specific rules to protect purchasers: One
rule protects the entitlement holder from adverse claims asserted
against it to the financial asset if the entitlement holder acquiredAppendix: NY Fed’s reply to the EC Legal Certainty Groupthe security entitlement for value and without notice of the adverse claims. 8-502. (Note that Section 8-116 may make thesecurities intermediary a “purchaser for value” of the financial
asset. Thus, the securities intermediary has the rights of a purchaser when it needs to assert those rights against third persons.)
The second rule similarly protects from adverse claims a person
who purchased a financial asset or security entitlement from anentitlement holder if the purchaser gave value, had no notice of
the adverse claim and obtained control of the security entitlement.
8-510(a). The third rule protects a purchaser of a financial asset
against claims of an entitlement holder to a property interest inthat financial asset, by limiting the entitlement holder’s ability
to enforce that claim against the purchaser to those instanceswhere: (i) the securities intermediary is insolvent, (ii) the securities
intermediary does not have sufficient interests in the financial
asset to satisfy the security entitlements of all of its entitlement
holders to that asset, (iii) the securities intermediary violated its
obligation to keep sufficient interests in the financial asset bytransferring it to the purchaser, and (iv) the purchaser either (a)didn’t give value, (b) didn’t obtain control, or (c) colluded withthe securities intermediary in its failure to meet the obligation
to hold sufficient financial assets to satisfy all of its entitlement
holders security entitlements in such financial asset. 8-503(d).
Essentially, unless the purchaser was involved in the wrongdoing of the securities intermediary, an entitlement holder will beprecluded from raising a claim against it.
(25) Are there rules regarding liens of intermediaries over investor’ssecurities accounts? If so, what are they and are they mandatory?
A securities intermediary may not grant a security interest in afinancial asset that it is required to maintain in order to meet allof its customers’ claims to that financial asset, except with theagreement of the relevant customer.
A securities intermediary that has extended credit to an entitlement holder to purchase a financial asset maintained by anentitlement holder in a securities account maintained at that
securities intermediary has a statutory lien over those financial

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Appendix: NY Fed’s reply to the EC Legal Certainty Groupassets, and that lien has priority over all other liens. 9-206(a),(b); 9-328(3). A securities intermediary may also, by agreementwith the entitlement holder, have a security interest in financial
assets credited to the entitlement holder’s securities account tosecure obligations the entitlement holder may owe the securities
intermediary.
Upper-tier attachment(26) Can the investor enforce rights against an upper-tier intermediary (i) normally, (ii) in the event of breach of duty by theintermediary, (iii) in the event of breach of duty by the upper-tierintermediary, (iv) if the event is insolvency rather than breach of
duty?
Generally, no. The investor has no rights under Article 8 against
an upper-tier intermediary, as upper-tier intermediary per se. The
investor may have rights against an upper-tier intermediary to
the extent it colluded with the investor’s securities intermediaryto violate the securities intermediary’s obligations to entitlement
holders and certain other conditions, detailed in the answer toquestion 24. 8-503(d).
(27) In what circumstances can (i) a creditor and (ii) a non-creditor
third- party (such as a liquidator) of the investor claim securities
from an upper-tier intermediary?
8-112 explains where a creditor’s claim against an entitlement
holder’s security entitlement may be made: only by legal process
upon the entitlement holder’s securities intermediary. Process
directed at an upper-tier intermediary will be ineffective. (If theinterest of the debtor the creditor is claiming is in a security entitlement maintained in the name of a secured party, the creditor
may reach that interest by legal process upon the secured party.
8-112(d).) Under Article 8, a creditor or third-party such as a liquidator of an investor might be able to make a claim to financial
assets against an upper-tier intermediary in the circumstances
set forth in 8-503(d), detailed in the answer to question 24.

Appendix: NY Fed’s reply to the EC Legal Certainty Group(28) In what circumstances can (i) a creditor and (ii) a non-creditor
third- party (such as a liquidator) of the intermediary claim securities from an upper-tier intermediary?
This answer assumes that the question refers to an upper-tierintermediary of the securities intermediary itself. 8-112 explains
where a creditor’s claim against an entitlement holder’s security
entitlement may be made: only by legal process upon the entitlement holder’s (in this case the securities intermediary’s) securities
intermediary. Process directed at an upper-tier intermediary will
be ineffective. (If the interest of the debtor the creditor is claiming
is in a security entitlement maintained in the name of a secured
party, the creditor may reach that interest by legal process upon
the secured party. 8-112(d).) Note that the attachable assets ofa securities intermediary are net of the financial assets deemed
not owned by the securities intermediary (i.e., proprietary financial assets). Under Article 8, a creditor or third-party such as aliquidator of a securities intermediary might be able to make aclaim to financial assets against an upper-tier intermediary inthe circumstances set forth in 8-503(d), detailed in the answer toquestion 24.
Shortfalls(29) Is a shortfall (i.e. the intermediary’s position with an upper-tierintermediary is less than the aggregate recorded position of theintermediary’s account-holders) at the level of the intermediarypossible? What rules are applied to resolve the resulting differenceof positions? Are there any rules on how to handle such a situationfrom an accounting point of view (for example through an interim
securities debit balance)? How are shortfalls handled in practice?
In the general terms of Article 8, a shortfall should not happen.
A securities intermediary may not create security entitlements
greater than its interests in a particular security. 8-504. A securities intermediary could obviously violate that requirement. The
only rule in such instances is that the security entitlement holders simply share pro rata in the interests held by the securities
intermediary. That rule applies at each level. That is, the holdingsof each securities intermediary holding a security entitlement

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Appendix: NY Fed’s reply to the EC Legal Certainty Groupthrough an upper-tier intermediary will be reduced to its pro rata
share of the upper-tier securities intermediary’s holdings. In turn,each entitlement holder holding through one of those securities
intermediary will have its holdings reduced to its pro rata shareof its securities intermediary’s holdings.
This no-shortfall rule is a general requirement that is dealt within more specificity in other regulatory law, compliance with whichconstitutes compliance with the above-referenced section of Article 8. 8-509(a). In certain circumstances, those rules do allow
for temporary shortfalls. For example, in the case of fails, a firm
is permitted a certain period of time to clear up any resulting
shortfall before it would be required to obtain the necessary securities from some other source. In actual fact, shortfalls occur
frequently due to fails and for other reasons, but are of no generalconsequence except in the case of the securities intermediary’s
insolvency.
(30) What duty is there on the intermediary to avoid shortfalls?
See answer to question 29. Article 8 requires a securities intermediary to maintain a financial asset in quantities at least equal
to the security entitlements it has established in favour of entitlement holders. 8-504(a). Article 8 allows for this duty to besatisfied by compliance with other applicable law. 8-509(a).
(31) Does the treatment of shortfalls differ according to whether
there is (i) no fault on the part of the intermediary, (ii) if fault, fraudor (iv) if fault, negligence or similar breach of duty? Does the treatment of shortfalls differ according to whether the intermediary issolvent or insolvent?
As noted above, a securities intermediary has a duty under Article
8 (that duty may be impacted by other law or regulations) to
not create security entitlements greater than its interests in aparticular security. Breach of that duty (or other applicable law
or regulations) may result in various sanctions against or otherliability of the securities intermediary. In terms of the interest thatthe entitlement holders have in the financial assets credited to it
securities account: regardless of fault, fraud, or negligence of theAppendix: NY Fed’s reply to the EC Legal Certainty Groupsecurities intermediary, under Article 8, the entitlement holder
has only a pro rata share in the securities intermediary’s interestin the financial asset in question. Entitlement holders may haveother claims against the securities intermediary (e.g., damages forbreach of its Article 8 or other applicable duty). This is of little
consequence absent the insolvency of the securities intermediary.
In Article 8’s insolvency scheme, the pro rata analysis applies
as well, but other insolvency or other regulatory schemes may
trump Article 8, leading to a different result. In addition, notethat the collusion of the securities intermediary with a third-party
purchaser might give the customer claims against that purchaser.
See answer to question 24.
(32) Can the responsibility of the intermediary for negligence or
wilful behaviour (e.g. of its employees) be contractually excluded
or reduced?
This is not addressed in Article 8, other than as discussed in theanswer to question 7, in part 2.b.ii. Generally, parties can contract
for the standard of care. The extent to which a securities intermediary can contract its way out of liability for basic negligence or
wilful behaviour is probably limited by other law.
(33) If at any level the underlying securities are physical, what isthe position if they are destroyed, e.g. stolen, burned, ruined bywater?
Where a securities intermediary obtained registered securities
to support its security entitlements, if a registered certificate is
destroyed, a replacement may be obtained pursuant to the rulesof 8-405 which may require posting of an indemnity bond or meeting other requirements of the issuer. In the rare case in which
a securities intermediary has obtained a registered security andhas not yet had it re-registered in its own name, the rights of entitlement holders depend on whether the intermediary exercised
reasonable commercial standards of care. If it did, the entitlement
holders have no greater rights against the intermediary than theintermediary has in the certificates. If it did not, the entitlement
holders may further sue the intermediary for damages.

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II. Corporate actions/voting rights 1(34) What are the rights of the investor, and how do they operate
in practice, as against (i) the issuer, (ii) the intermediary, (iii)the upper- tier intermediary (a) in relation to voting or receivingof information on shareholders’ meetings and (b) in relation tocorporate actions, e.g. payments of dividends and coupons, andany other action that affects price or structure?
See answer to question 7.
(35) How can these rights be exercised? Who is entitled to assert
rights against the issuer in respect of securities credited to a securities account? Under what circumstances is the intermediaryrequired to pass benefits on to the investor? How is this achieved if
there is an omnibus or a nominee account?
See answer to question 7.
(36) How is it ensured that no more than those so entitled exercise,or benefit from, the rights attaching to securities?
See answer to question 7.
(37) Is the investor entitled to exercise a right to set-off or net
against the issuer rights in respect of securities with obligations
that the investor might have to the issuer?
No.
III. Choice of the securities location/place of issue(38) Are there any rules and, if so, what that have the effect ofrestricting an issuer’s ability to choose the legal and/or operational
location of its securities for the purposes of the issue process?
The issuer’s jurisdiction is not relevant for purposes of Article
8’s rules on the indirect holding system.
IV. The cross-border dimension
1 These questions are of equal interest to, and may overlap with enquiries made by,those in the Commission dealing with company law and corporate governance issues[this footnote appears in the original text].

Appendix: NY Fed’s reply to the EC Legal Certainty Group

Generally(39) Are foreign securities, meaning those that are (i) governed bya foreign law (ii) issued by a foreign entity, (iii) issued within in
a foreign jurisdiction or (iv) issued in a foreign currency, treateddifferently from domestic ones and, if so, how (as regards theissuer, intermediaries and investors)? Does the answer depend on
the foreign country to which the securities are related?
For purposes of determining the rights and obligations of a securities intermediary, an entitlement holder having a securities
account there, and third parties asserting claims to the financial assets credited to that securities account, the only relevant
jurisdiction is “the local law of the securities intermediary’s jurisdiction” 8- 110(b). A securities intermediary’s jurisdiction is either(the first of the following list to apply): first, that jurisdiction
specified for purposes of this particular section of Article 8 as
the jurisdiction of the securities intermediary in the agreement
between the securities intermediary and the entitlement holder;second, that jurisdiction specified in the agreement between the
securities intermediary and the entitlement holder, as the governing law of the agreement); third, the jurisdiction in which
the office of the securities intermediary at which the account ismaintained, as specified in the agreement between the securities
intermediary and the entitlement holder, is located; fourth, thejurisdiction in which the office of the securities intermediary
identified in the account statement as the office serving the entitlement holders’ account is located; and fifth, the jurisdiction inwhich the chief executive office of the securities intermediary is
located. 8-110(e).
Specifically(40) Are there any rules which specifically define a domestic investor’s right to foreign securities credited to a domestic account?
If so, what is the nature of the right given and does it differ fromthe right of investor to domestic securities?
If the “domestic account” is a securities account governed bymaintained at a securities intermediary in the United States, then

94

95

Appendix: NY Fed’s reply to the EC Legal Certainty Groupthe investor’s rights under Article 8 do not depend on whether
the financial asset in its securities account is a foreign security
or a domestic security–its Article 8 rights and interests are thesame.
(41) Does the protection of a domestic investor differ in relation to
the holding of foreign securities (i) with a domestic intermediaryor (ii) with a foreign intermediary, e.g. in case of the insolvency of
the intermediary?
The identity of the foreign country is irrelevant, but, given the
cascade described in the answer to Question 39, an investor
holding through a foreign intermediary might not have its rights
determined under Article 8 unless the account agreement had
the appropriate selection. In the event of the insolvency of theintermediary, the “lex concursus” will determine the rights of theinvestors. In the United States, the relevant insolvency law will
differ depending on the type of entity (bank, broker/dealer) thatacts as intermediary.
(42) Are foreign intermediaries (where (i) the headquarters, (ii)a branch or (iii) an office is in a foreign jurisdiction) treated differently from domestic ones? Does the answer depend on whichcountry the foreign intermediaries are related to?
An investor holding securities indirectly through a securities
intermediary will not be entitled to the protections of Article 8
unless the agreement governing the securities account specifically
identifies the jurisdiction as an Article 8 jurisdiction(43) How is finality (in the meaning of questions 20 and 21)
achieved for transactions involving (i) foreign intermediaries or(ii) links between more than one intermediary? Does the answer
depend on the type of intermediary or securities?
Finality is not addressed in Article 8.
(44) Do foreign intermediaries which hold domestic securities needa special authorised status in order to convey rights to its investors?
How are foreign intermediaries recognised when entering into alink with domestic intermediaries?

Appendix: NY Fed’s reply to the EC Legal Certainty Group

This is not addressed in Article 8.
(45) Under what rules may domestic investors acquire foreign
securities?
This is not addressed in Article 8.
(46) Under what rules may domestic investors use foreign intermediaries?
This is not addressed in Article 8. However, it may be addressedby regulatory law. For example, the Securities Exchange Commission imposes regulatory requirements on investment companies(mutual funds) that use foreign intermediaries as custodians fortheir assets.
(47) Are there any regulatory or other restrictions affecting foreign
investors exercising shareholders’ rights in domestic securities, orinhibiting domestic investors from exercising foreign rights?
There may be, but such restrictions are not found in Article 8.
V. Public law and regulatory context(48) What rules are applicable to the existence, establishment andoperation of intermediaries (and where relevant for co-operation
between particular intermediaries)?
Article 8 does not contain these rules.
(49) Who is entitled to maintain securities accounts? Does theholding or transfer of securities on behalf of others require any
license or any other authorisation from a public authority?
Article 8 does not address these questions.
(50) Is the access of investors to intermediaries in another Member
State affected by their access to central bank money and, if so,
how?
N/A.
(51) Does an account agreement have to comply with any requirements as to form or content?

96

97

Appendix: NY Fed’s reply to the EC Legal Certainty GroupNo.
(52) Are there any disclosure requirements on the intermediary
regarding securities credited to securities accounts (relating-to(i) taxation, (ii) company law, (iii) takeover regulation, (iv) money
laundering, (v) control of regulated entities or (vi) any other matter).
Is there any requirement to ascertain and/or disclose details offinal investors (e.g. beneficial owners) of securities held with theintermediary?
Article 8 does not impose disclosure requirements on intermediaries.
(53) What data storage requirements are there?
Article 8 does not impose data storage requirements on intermediaries.
(54) Are there any transfer restrictions applicable to securities (e.g.
are transfers restricted to certain types of investors or intermediaries, is there a need for notifications or certifications, can delivery
only occur against payment, is there a prohibition of over-thecounter transactions, etc.)? What is the effect of a breach such
restrictions?
Article 8 validates issuer’s restrictions on transfer; Federal securities laws contain transfer restrictions but the scope and consequences of such restrictions are beyond the scope of our advice
here.
(55) How is it effected that title to the securities passes from theseller to the buyer only at the very moment when the transfer ofthe purchase price from the buyer to the seller becomes effective(delivery versus payment (DvP))? Are the relevant rules establishedby an intermediary, by market conventions or imposed by law? Is
the effectiveness of the credit to the securities account conditional
upon the payment of the purchase price?
DvP rules are not part of Article 8, and generally are not imposedby law but rather through clearing and settlement system rules,
market convention and by contract. The issue of when title

Appendix: NY Fed’s reply to the EC Legal Certainty Grouppasses or payment due would be addressed by contract between
the buyer and the seller or exchange trading rules.
(56) Is the intermediary required to have information about final
investors (e.g. beneficial owners) of securities before it takes any
action in respect of such securities?
No.
(57) Is there any specific penal law protection in case of fraud on
the side of the intermediary? Are there any other specific rulesof penal law applicable to protect the investors’ interest against
appropriations or other encroachments by the intermediary upon
investors’ rights?
Yes, but not in Article 8. Such protections are found in other law,such as Federal and State securities laws and regulations. For
instance, state law may include (as New York State law does) a
criminal rehypothecation statute, making it a crime for a securities intermediary to encumber a customer’s securities without
consent.
March 2005
Response: March 200698

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