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Why the MF Global Bankruptcy Is Important to You

By Jim Gillespie | January 11, 2012

Every once in awhile a story comes along that’s not a commercial real estate story, but it’s one that has such broad implications for all of us that I have to mention it to you.

In June of 2008 I wrote that the Royal Bank of Scotland, an institution that has been around since 1727, was calling for a full-fledged collapse in the financial markets within three months, and we all know what happened three months later in September of that year.

This is one of those kinds of stories.

But it isn’t a story predicting when another major financial event will be occurring. It’s a story telling you that approximately $1.2 billion in account-holder money is now missing from a major financial institution, and that it could happen to you, too.

In October of 2011, MF Global filed for the 8th largest bankruptcy in the history of the United States. But the bankruptcy itself wasn’t what had me write this article. It was what happened in addition to the filing of the bankruptcy that had me write this article…

Before the company had filed for bankruptcy, MF Global had allegedly utilized assets that were in their customer’s accounts to cover their own financial obligations to other financial institutions, and $1.2 billion in customer money is now missing.

So for many account holders who had been thinking that their money was safe and secure, they’re now struggling to get their hands on even any amount of it. Gerald Celente, considered by many to be the top trends forecaster in the world, watched the more than six figure balance within his own account completely vanish. Gerald had been telling people of the financial dangers we’re facing right now when our money is entrusted to other people, and this is what he had to say on this:

"What’s the takeaway from this? It’s to make sure you have every penny in your pocket."

This brings us to asking the following question: "How do you know if any of the accounts you may have with financial institutions are safe from having this happen to them?" The short answer to this is, "You don’t really know", but I’m writing this article right now to wake you up and get you to become more vigilant. It’s not easy to know right now if any of your own accounts have been jeopardized by your financial institutions in ways you’d consider to be unethical, but if you choose to leave funds within uninsured accounts, do everything you can to make sure that the institution holding your money is in solid financial condition. The problem here, though, is that oftentimes you never really know for sure if the institution is being completely ethical.

If the executives within a financial institution believe that utilizing customer money for company obligations is their one last hope for staying in business, do you think that they might do it? How about if the executives believe that even if they’re caught, they’ll never, ever be prosecuted for it?

There’s one additional item I want to mention to you here, too…

Sometime ago my bank opened up a new branch that was closer to where I live, and they were inviting the bank’s customers to get safe deposit boxes inside of the new location. When I was handed a flyer about this inside of the bank, I asked a bank employee, "How much are the contents within people’s safe deposit boxes insured for?" The employee responded back to me with, "There is no insurance on the contents within people’s safe deposit boxes. Those safe deposit boxes are only provided as a convenience for the bank’s customers."

But soon thereafter the thought then came to me, "I have to believe that at least one person from the bank has the ability to open up everyone’s safe deposit box if it’s ever deemed necessary, and when combining this with now knowing that there’s no insurance to cover the contents within the safe deposit boxes, this doesn’t make me feel good."

So I wanted to mention this to you in case you either have or are thinking of getting a safe deposit box. It’s easy to assume that if your deposits within your checking and savings accounts are insured, that the contents within your safe deposit boxes are insured also. Check with your own institution on this, but the contents within any safe deposit boxes they’re offering are most likely not insured.

So take what I’ve written here and do your homework on your own financial institutions. If after reading this you’re concerned about holding your money in uninsured places and in uninsured accounts, take the action you feel is necessary to protect your assets. At least for the time being, having your money within insured accounts will probably protect you better against having your money stolen, but there are no guarantees.

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