Read_884 - The Great Taking [P3]

[00:00:00] Speaker A: 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 and central banks. The trap into which all nations have been herded is ready and waiting to be sprung. The best in Bitcoin made Audible I am Guy Swan and this is Bitcoin. [00:00:36] Speaker B: Audible what is up, guys? Welcome back to Bitcoin. Audible I am Guy Swan, the guy who has read more about Bitcoin than anybody else you know. And we are jumping into part three, continuing the Great Taking by David Rogers Web if you have not read part. [00:01:09] Speaker A: One and, or listened to part one. [00:01:11] Speaker B: And two, this won't make any sense because we are right in the middle of this. And I really think, especially in part one, the majority of it is the prologue, but it's a fantastic foundation to kind of get a perspective and a big picture as to what this whole thing is about and where it's going. I think, I actually think that's one. [00:01:31] Speaker C: Of the best sections of the book. [00:01:33] Speaker B: Well, that's hard to say because there's a lot of great sections of the book. But if you start here on Collateral management in part three, you have no, you're going to have no idea what's going on. So go back, listen to it and if you want to listen to this full on, I will actually have this entire thing published. I actually think I'm going to have it as a full and separate RSS. [00:01:52] Speaker C: Feed, to be honest. [00:01:54] Speaker B: And I'll do them by chapter, I think, I think, in fact, I'm happy to hear your thoughts on how to do that because usually I just publish it as like one like four hour episode in this feed. But I know, I don't know, I can't decide if that's the way to go or if I want to separate it out in chapters so that people. [00:02:14] Speaker A: Can easily navigate it. [00:02:15] Speaker B: And even though it's a podcast, quote unquote, it's an RSS feed, you can listen to it like an audiobook and navigate it the same way. So that's my thinking right now and I'll just have it up on the Bitcoin Audible website to be, to be easy to find. And I think I might actually go back and do that with all the things that were kind of like bigger pieces and, or full books that I've covered on the show because there's a. [00:02:40] Speaker A: Bunch of them now. [00:02:42] Speaker B: But anyway, real quick, let's thank the Human Rights foundation and their Amazing. Financial Freedom Report this is their newsletter detailing everything that's going on with monetary freedom, financial controls, CBDCs and the Bitcoin and freedom tools that allow you to keep your sovereignty in today's age and to not go down the wrong road. We kind of have a fork in the road for toward fiat totalitarianism and Bitcoin freedom. And the most important thing to understand to go down the Bitcoin road is all of the tools and skills to protect yourself and actually be sovereign Today. The Financial Freedom Report is a fantastic. [00:03:23] Speaker A: Resource for all of it. [00:03:25] Speaker B: If you haven't subscribed, don't worry, the link is right down in the show notes and you can read it just by following them on nostr. They publish every week. That's my favorite way to keep up with it. Or that's my favorite way to read it, but I save it in my email daily database so that I have references and I can always come back to stuff. And of course the BitKit wallet and on that note actually synonym. I think PubKey is going to be launching really really soon. There was just another article about it very recently. We will be covering something pretty soon here on the show after we wrap up the Great Taking, so stay tuned on that. But the BitKit wallet is a fantastic non custodial. You hold your keys Bitcoin and lightning wallet that is just intuitive and it's got a fantastic design. It's actually my favorite place to just look at the bitcoin price because they have these little widgets that you can. [00:04:12] Speaker A: Customize inside the wallet. [00:04:14] Speaker B: Check it out if you haven't yet. That's BitKit and the details and links. [00:04:18] Speaker C: Will be right in the show notes. [00:04:20] Speaker B: With that it's time to get into part three of the Great Taking, starting. [00:04:25] Speaker A: In on the section titled Chapter 5 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 is nothing 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 the further assurance of near instantaneous cross border mobility of legal control of such Collateral derivatives are financial contracts on everything imaginable and even unimaginable. For most of us they have been modeled on real things, but are not the real things themselves. They are untethered from physical reality 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 border through 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 Financial Reform and the Demand for Collateral Assets, states the following regulatory reforms and. [00:06:28] Speaker C: The shift towards central clearing of derivatives transactions will also add to the demand for collateral assets, but there is no evidence or expectation of any lasting or widespread scarcity of such assets in global financial markets. [00:06:42] Speaker A: Another report by the same committee entitled Developments in Collateral Management Services states on. [00:06:48] Speaker C: Page 16 some changes that may raise. [00:06:52] Speaker A: Demand for collateral have not been phased. [00:06:54] Speaker C: In yet, since jurisdictions operate on different timelines for mandatory central clearing and margin requirements for non centrally cleared trades. Multiple market participants noted that implementation of mandatory clearing requirements has not yet advanced to the point where those market participants are experiencing shortfalls in collateral readily available to pledge. [00:07:14] Speaker A: And furthermore, on page I, motivated by. [00:07:18] Speaker C: 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 collateral collateral demands with existing and available securities. [00:07:34] Speaker A: Thus, while there is no evidence of scarcity of collateral and market participants were not experiencing shortfalls, demand for collateral assets end quote 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 end game of it all. On its pages 8 through 11, the cited report discloses the objectives of these collateral management systems, providing further confirmation that it is the linking of csds and icsds which provides cross border mobility of collateral from the collateral giver to the collateral taker. Yes, they really explicitly use those terms. [00:08:38] Speaker C: First, many of the largest custodians have. [00:08:40] Speaker A: Implemented or have plans to implement a. [00:08:43] Speaker C: 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 of its available collateral held by the custodian regardless of location. 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 is a necessary prerequisite for the efficient deployment of available securities to meet collateral obligations. ICDs enable their participants to obtain aggregate views on the entirety of the latter's securities holdings held with the icsd, including securities held by ICSD participants via link arrangements. [00:09:26] Speaker A: 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. [00:09:41] Speaker C: 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 collateral management service provider having established direct or indirect, that is Via a custodian participating in the local CSD links with local csds has information on and can access the entirety of a participant's securities for collateral management purposes. [00:10:16] Speaker A: At this point, the report clarifies in. [00:10:18] Speaker C: A the entirety of a participant's securities includes the participant's securities that were issued and are held at the ICSD and the participants securities that were issued and are held via ICSD link arrangements at a linked csd. [00:10:35] Speaker A: The report then turns to the role of the collateral takers. [00:10:41] Speaker C: The collateral takers are also participants in the icsd. Both the collateral giver and the collateral takers provide information on the ICSD as CMSP regarding collateral obligations. With this information, the ICSD runs its optimization process and may automatically guarantee collateral allocation instructions for the collateral givers and 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 optimization and allocation process are participants in the icsd. If the collateral giver does not have sufficient 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. [00:11:31] Speaker A: Note that transferral of the people's assets is to be made free of payment. 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. [00:11:59] Speaker C: As supply and demand dynamics for collateral. [00:12:01] Speaker A: Continue to evolve, it is possible that. [00:12:03] Speaker C: 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 defined as collateral transformation. [00:12:29] Speaker A: Collateral transformation is simply the encumbrance of any and all types of client assets under swap contracts which end up in the derivatives complex. This is done without the knowledge of the clients who were led to believe that they safely own these securities and serves no beneficial purpose whatsoever for these clients. [00:12:50] Speaker C: And here it is. [00:12:52] Speaker A: Here is the automated market wide sweeping of collateral to CCPs and central banks in a time of market stress. Page 19 in times of market stress. [00:13:06] Speaker C: 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 meet margin needs at CCPs in times of increased market volatility or to pledge to central banks in emergency situations to gain increased access to the lender of last resort. The automation and standardization of many operations related to collateral management on a market wide basis may enable a market participant to manage increasingly complex and rapid collateral demands. [00:13:43] Speaker A: 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 to take all securities as collateral. Comprehensive collateral management systems have been implemented which assure the transport of all securities cross border through the mandated linkages of CSDS to ICSDS, to the CCPs where the risk of 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. 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, the 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 endpoint to the decades of seemingly out of control 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 with any real world thing or activity which must end in disaster for so many, with no pockets of resilience allowed to remain in any country. Chapter 6 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 US 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 their own assets. Here are some explanatory excerpts from the online article the Effect of the New Bankruptcy Code on Safe harbor transactions on. [00:16:43] Speaker C: October 17, 2005, the provisions of the Bankruptcy Abuse Prevention and Consumer Protection act of 2005 became effective, amending various provisions of the US Bankruptcy Code. Of particular significance are the provisions of the 2005 act that addressed the bankruptcy treatment of various safe harbor transactions such as forward contracts, commodity contracts, repurchase agreements, and securities contracts. [00:17:10] Speaker A: Historically, under US Bankruptcy Code, a bankruptcy trustee could avoid transfers or in other words, force disgorgement or repayment the transfer was constructively fraudulent, that is Less than reasonable equivalent value was received and the debtor in bankruptcy was insolvent, became insolvent. [00:17:32] Speaker C: As a result of the transfer was. [00:17:34] Speaker A: Engaged in business for which the debtor had unreasonably small capital, intentionally incurred debt beyond his ability to pay, or made such transfer to or for the benefit of an insider, or the transfer was. [00:17:49] Speaker C: Made within 90 days of a bankruptcy filing one year if the transferee was an insider. [00:17:54] Speaker A: Transfers that meet any of the above 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 okay for the transfer of the public's assets to be made free of payment, as there is no requirement to show that reasonably equivalent value was received. Stefan J. Lubin is the Harvey Washington Wiley Chair in Corporate Governance and 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 following the 2005amendments to the Code, it is. [00:18:59] Speaker C: Hard to envision a derivative that is not subject to special treatment. The safe harbors cover a wide range. [00:19:05] Speaker A: Of contracts that might be considered derivatives. [00:19:07] Speaker C: Including securities contracts, commodities contracts, forward contracts, repurchase agreements, and most importantly, swap agreements. [00:19:15] Speaker A: The latter has become a kind of. [00:19:16] Speaker C: Catch all definition that covers the whole of the derivatives market, present and future. A protected contract is only protected if. [00:19:24] Speaker A: The holder is also a protected person. [00:19:26] Speaker C: As defined in the Bankruptcy Code. Financial participants, essentially very large financial institutions, are always protected. [00:19:33] Speaker A: The safe harbors, as currently enacted, were. [00:19:36] Speaker C: Promoted by the derivatives industry as necessary measures. The systemic risk argument for these safe. [00:19:41] Speaker A: Harbors is based on the belief that the inability to close out a derivative. [00:19:45] Speaker C: Position because of the automatic stay would cause a daisy chain of failure amongst financial institutions. The problem with this agreement is that it fails to consider the risks created by the rush to close out positions. [00:19:57] Speaker A: And demand collateral from distressed firms. [00:20:00] Speaker C: Not only does this contribute to the failure of an already weakened financial firm. [00:20:04] Speaker A: By fostering a run on the firm, but it also has consequent effects on the markets generally. The code will have to guard against. [00:20:12] Speaker C: Attempts to grab massive amounts of collateral on the eve of a bankruptcy in. [00:20:16] Speaker A: 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 had taken client assets as a secured creditor while being the custodian for these client assets. Under long standing bankruptcy law, this would clearly have been a constructively fraudulent preference transfer benefiting an insider, and so JP Morgan was sued by clients whose assets were taken. I will cite the following memorandum filed in defense of JP Morgan by the law firm Vaktel, Lipton, Rosen and Katz with the U.S. bankruptcy Court of the Southern District of New York. [00:21:04] Speaker C: 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 the clearing houses, with often millions of dollars at their disposal, would be severely threatened by exposure to avoidance claims. As well, actions to avoid margin payments made by clearinghouses could set off a chain reaction of insolvencies among all other market participants, threatening the entire industry. [00:21:38] Speaker A: Now here is the decision of the. [00:21:40] Speaker C: Court, United States Bankruptcy Court, Southern District. [00:21:44] Speaker A: Of New York, in re chapter 11, case number 0813555. [00:21:50] Speaker C: The court agrees with JPMorgan Chase that the safe harbors apply here, and it is appropriate for these provisions to be enforced as written and applied literally in the interest of market stability. The transactions in question are precisely the sort of contractual arrangements that should be exempt from being upset by a bankruptcy. [00:22:06] Speaker A: Court under the more lenient standards of. [00:22:09] Speaker C: 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 JPMorgan Chase is eligible for protection under Section 546. That subsection, like the safe harbors generally applies only to certain types of qualifying entities. JPMorgan Chase, as one of the leading financial institutions in the world, quite obviously is a member of the protected class and qualifies as both a financial institution. [00:22:44] Speaker A: And a financial participant, and so only a member of the protected class is empowered to take customer assets. In this way, smaller secured creditors are not similarly privileged. In the Aftermath of the 2007 and 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. [00:23:16] Speaker C: Lehman Brothers was used to establish case. [00:23:18] Speaker A: Law precedent that the protected class of secured creditors have an absolute priority claim to client assets and that potentially and practically only they will end up with the assets. Chapter 7 Central Clearing Parties Humpty Dumpty was pushed Mr. Potato Head Toy Story Central Clearing Parties, or CCPs, take on counterparty risk between parties to a transaction and provide clearing and settlement for trades in foreign exchange, securities, options, and most importantly, derivative contracts. If a participant fails, the CCP assumes. [00:24:07] Speaker C: The obligations of the failed clearing participant. [00:24:10] Speaker A: 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 which was designed to channel customer collateral to CCPs. In 2020, Euroclear published an article discussing. [00:24:33] Speaker C: The possibility of failures of central clearing. [00:24:36] Speaker A: Part Regulating the risks of CCPs, in which we find the following remarkable statements of panelists at Euroclear's Collateral. [00:24:50] Speaker C: Regulators around. [00:24:51] Speaker A: The world have demanded more capital, more collateral, and more clearing, and to a large degree, they now have what they wanted. And yet, despite the huge efforts undertaken. [00:25:00] Speaker C: By market participants, there are still two major concerns. The first is that financial regulations from different jurisdictions are not fully aligned with. [00:25:07] Speaker A: One another, and secondly, that the risks. [00:25:09] Speaker C: In the financial systems have been concentrated into central clearing counterparties. Or CCPs. These two issues come together in the upcoming regulatory push to devise 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 clearinghouses themselves and their clearing bank and asset management members as to who should pay what in the event of a collapse of these critical market infrastructures. But for the EU institutions, the red line is that if a CCP fails, then the taxpayer will not be expected to pay. [00:25:47] Speaker A: The last paragraph is a subterfuge assuring that in the resolution the secured creditors will immediately take the underlying assets. That is the plan or in other words, 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. [00:26:12] Speaker C: Now heavily focused within these institutions. One of the Euroclear panelists suggested that there is resistance to the ever increasing march towards 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 is nothing to say that there will not be a CCP crisis in the future. Panelists 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 them through 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 simultaneously default of two major members. If a large CCP is in trouble. [00:26:59] Speaker A: Because of its members default, then we. [00:27:02] Speaker C: Will be having a banking crisis, says Benoit Guris, Senior Director, European public policy at ISDA. [00:27:11] Speaker A: In 2022, the financial stability Board and the Committee on Payments and Market Infrastructures at the BIS published the report Central Counterparty Financial Resources for Recovery and Resolution in which we find the following. [00:27:29] Speaker B: In. [00:27:30] Speaker C: November 2020, the chairs of the FSB, the Committee on Payments and Market Infrastructure, the International Organization for securities Commissions and of the FSB Resolution Steering Group publicly committed to collaborate on and conduct further work on CCP financial resources in recovery and resolution. Such work would consider the need for and develop as appropriate international policy on the use, composition and amount of financial resources in recover and resolution to further strengthen the resilience and resolvability of CCPs in default and non default loss scenarios. [00:28:07] Speaker A: Under the subheading System Wide and Contagion effects and Interconnectedness, the same report states. [00:28:16] Speaker C: 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 the underlying 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 impact of the same clearing members defaulting in multiple CCPs. Neither did the analysis endeavor to model second and later order effects 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. [00:29:04] Speaker A: 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 and Clearing Corporation, or dtcc, operates two central clearing parties, both of which have been designated in the US As Systemically important Financial Market Utilities, or sifmus. The following excerpts are from an article. [00:29:36] Speaker C: Published by with three of DTCC's Clearing Agency subsidiaries declared as Systemically important Financial Market Utilities or SIFM use Pazmanter, 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 depositories recovery and wind down plans. He asked panelists Stefan Pacquia, DTCC Managing Director, Recovery and Resolution Office, 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, petia said. [00:30:20] Speaker A: We would seek to wind down the. [00:30:22] Speaker C: Failed entity and concurrently shift our services to a third party that has been either stood up with the DTCC enterprise or would be some other third party acquirer. What will happen is essentially a transfer of services. There would be some assignment of 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 do need to be prepared, he said. [00:30:49] Speaker A: As many of you know, what will. [00:30:50] Speaker C: Drive this potentially happening may not be something we've seen historically, but the value comes in the planning. [00:30:57] Speaker A: So something which has not been seen before will drive the imperative to start up a new central counterparty, and they are planning for it to happen. DTCC has provided a video clip titled. [00:31:15] Speaker C: Perspectives on CCP Risk Management in which. [00:31:19] Speaker A: Murray Posmanter makes the following we believe. [00:31:23] Speaker C: The level of capitalization of a CCP. [00:31:25] Speaker A: Is a key component of its overall resiliency. [00:31:28] Speaker C: 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. [00:31:37] Speaker A: A comprehensive capital framework to effectively measure. [00:31:40] Speaker C: And mitigate risk and to support the resiliency of DTCC and our subsidiaries. [00:31:46] Speaker A: What then is the capitalization of DTCC? This is an excerpt from the DTCC's consolidated financial statements as of March 2023. [00:31:58] Speaker C: The Depository Trust and Clearing Corporation is the parent company of various operating subsidiaries, including the Depository Trust Company, National Securities Clearing Corporation, Fixed Income Clearing Corporation, DTCC ITP LLC ITP DTCC Deriv Serve LLC DTCC Solutions LLC DTCC Solutions UK Limited. [00:32:29] Speaker A: Business Entity Data BV or BED collectively the company or companies. This is all of DTCC Consolidated. In other words, the whole Enchilada. As of March 31, 2023, the consolidated total shareholders equity was a tad over $3.5 billion. That's with a B. Now realize that this is the entire capitalization underpinning the Central Security Depository and CCPS central clearing parties for the entire US securities market and derivatives complex. Contrast this with the cited we believe. [00:33:20] Speaker C: 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. [00:33:33] Speaker A: 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. [00:33:52] Speaker C: Is the investor protected against the insolvency of an intermediary and if so, how. [00:33:59] Speaker A: New York Fed an investor is always vulnerable to a. [00:34:02] Speaker C: Securities intermediary that does not itself have interest in a financial asset sufficient to cover all of the securities entitlements that it 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, the claims of its creditors have priority over the claims of entitlement holders. [00:34:26] Speaker A: And 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 Much of the debate recently has focused on whether CCPs should make much larger contributions of. [00:35:00] Speaker C: Their own capital to the loss allocation. [00:35:02] Speaker A: Waterfall as a way to make sure. [00:35:03] Speaker C: That their risk management is prudent 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 interest of owners and shareholders who also used its services. [00:35:17] Speaker A: We felt it was very important to. [00:35:19] Speaker C: Point out that this argument isn't applicable to DTCC ccps because in essence, the source of our capital is our users, bozementer said. We don't feel that putting an outsized portion of that capital at risk as. [00:35:32] Speaker A: Part of our loss allocation waterfall would align our interests any better than they're. [00:35:36] Speaker C: Already aligned 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. [00:35:45] Speaker A: Having some of our capital in the. [00:35:46] Speaker C: 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 the default loss waterfall. [00:36:01] Speaker A: Although it does support pre funding the. [00:36:03] Speaker C: Operating capital needed to get a new CCP up and running in the event of a default. As we go through our recovery and resolution planning, we want to have the operating capital pre funded to potentially start up a new CCP in the event of the resolution of one of our CCPs. Postmantor said, we definitely see the logic in having the operating capital to start up a new CCP pre funded. [00:36:25] Speaker A: There you have it. The CCPs are designed to fail. They are deliberately under capitalized. The startup of a new CCP is planned and pre funded. This construct assures that the secured creditors will take all collateral upon which they will have perfected legal control. The rule of law must prevail. We would have chaos otherwise. No one is above the law after all. As a reminder of the structure, here is an excerpt from the Wikipedia article on. [00:37:04] Speaker C: Most large US Broker dealers and. [00:37:06] Speaker A: Banks are full DTC participants, meaning that. [00:37:09] Speaker C: 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 fungible. [00:37:21] Speaker A: Bulk, meaning that there are no specifically. [00:37:24] Speaker C: Identifiable shares directly owned by DTC participants. Rather, each participant owns a pro rata interest in the aggregate number of shares of a particular 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. [00:37:46] Speaker A: With the explanation provided by the Federal Reserve bank of New York. [00:37:49] Speaker C: See Chapter three. [00:37:51] Speaker A: You know what this means? Chapter eight Bank Holiday alright, we're going. [00:38:00] Speaker B: To pause this here because this is actually the longest chapter in the book. [00:38:04] Speaker C: And it's one of the most important in my opinion. [00:38:06] Speaker B: The Bank Holiday one because this is where we dig into the Great Depression and really learn about the nuts and bolts that set the precedent for so much of this today and how it was that a handful of banks that were just approved, that were just the Federal Reserve just decided that they were. [00:38:27] Speaker A: The ones that were allowed to reopen. [00:38:29] Speaker B: And then suck up all of the resources and assets of all the other financial institutions and banks and of the general public. And he also has a couple of great sections in there, just juxtaposing people who actually lived through that period and. [00:38:46] Speaker C: Their understanding and assessment of it, and. [00:38:48] Speaker B: Then the breakdowns of what actually happened and occurred with people's money and the assets of the banks and all these institutions with what genuine representative the story. [00:39:01] Speaker C: That we are told about the Great. [00:39:02] Speaker B: Depression and how it actually went down according to the official narrative and just how kind of how funny it is to juxtapose those, to just put them. [00:39:13] Speaker A: Next to each other. [00:39:14] Speaker B: So anyway, that'll close us out and we'll have a little bit of a long one for part four, but that will wrap up this really amazing book. Some quick news actually from the Financial Freedom Report. So China is injecting billions into the economy and trying to stabilize. They injected $138 billion, cut interest rates. [00:39:39] Speaker A: And made a reduction in bank reserve. [00:39:41] Speaker B: Requirements, which in effect expands the money supply by 12.5%. And funny enough, trading volumes for Bitcoin versus the yuan jumped 20% in response to this. But of course you already know this because you subscribe to the Financial Freedom Report from the Human Rights foundation. [00:40:01] Speaker A: And if you don't, luckily there's a link right down in the description. [00:40:05] Speaker B: Also, if you want to ease a friend into self custody and you want. [00:40:09] Speaker A: Them to be able to use their. [00:40:11] Speaker B: Bitcoin and go buy some tallow fries at Steak n Shake, check out the Bitkit wallet with self custody on chain. [00:40:19] Speaker A: And lightning in a simple and easy. [00:40:21] Speaker B: To understand savings and spending balance. Check it out link is in the show notes. With that we will come back with the final part of the Great Taking by David Rogers Webb on the next episode of Bitcoin. [00:40:36] Speaker A: Audible. [00:40:36] Speaker B: I am Guy Swan and until then everybody take it easy. Expectations are like fine pottery. The harder you hold them, the more likely they are to crack. [00:41:05] Speaker A: Brandon Sanderson.