Learned a Big Word Today: “Rehypothecation”

By | May 07, 2019

Learned a Big Word Today: “Rehypothecation”

I’ve seen it floating around for months, and never bothered figuring out what it meant. But it’s one of these things, at least for me, you’ve kinda known all along.

Wiki: “Rehypothecation is the practice by banks & brokers of using, for their own purposes, assets that have been posted as collateral by their clients. Clients who permit rehypothecation of their collateral may be compensated either through a lower cost of borrowing or a rebate on fees.”

Of course, this makes perfect sense. A bank makes money on our capital; so does a clearing firm. This is customary.

Some good folks think this is a bad term: it leads to AIG, Lehman, MF Global. But let’s break this down into small pieces: if JPMorgan discloses they’re lending out your assets and pays you for it, you’re probably good with it. And if not, you can decline.

If Bank of Steve says: “Give me your money; I’ll put it here in my shirt pocket” like the comedian hilariously once said a million years ago, you might have 2nd thoughts. The reason I mention it is layers upon layers of protocols are being built in the digital asset space right now that “perfect liens” and make counter-parties safe from exogenous risks.

Said it before; say it again: the pros are moving into crypto.

2019-05-09T18:48:11-05:00May 7th, 2019|

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