The Great Taking Chapter 3

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 possible
by 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 prop-
erty (perhaps that is why they were called “securities”). It may come as
a shock to you that this is no longer the case.
In order to convey to you what has been done, let me start with an
analogy:

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 to
borrow money for his own purposes. Now the auto dealer has become
bankrupt, and your vehicle along with all of the others sold by the
dealer are seized by certain secured creditors of the dealership, with
no judicial review being necessary, as legal certainty was previously
established that they have absolute power to take your car in the event
of the bankruptcy of the dealer.
Now, to be clear, I am not talking about your car! I am illustrating the
horror and simplicity of the lie: You are led to believe that you own
9
10 III Security Entitlement
something, but someone else secretly controls it as collateral. And they
have now established legal certainty that they have absolute power to
take 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
done with all tradable financial instruments, globally! The proof of this
is 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 order
of magnitude greater than the entire global economy—that there is
not enough of anything in the world to back it. The illusion of col-
lateral backing is facilitated by a daisy chain of hypothecation and
re-hypothecation in which the same underlying client collateral is re-
used many times over by a series of secured creditors. And so it is
these creditors, who understand this system, who have demanded even
more 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 is
in place. Legal certainty has been established that the collateral can be
taken immediately and without judicial review, by entities described in
court documents as “the protected class.” Even sophisticated profes-
sional 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 re-
quired many years of effort, it could be done quietly, without an act of
Congress.
These are the key facts:
• Ownership of securities as property has been replaced with a new
legal concept of a “security entitlement”, which is a contractual
claim assuring a very weak position if the account provider becomes
insolvent.
III Security Entitlement 11
• All securities are held in un-segregated pooled form. Securities
used as collateral, and those restricted from such use, are held in
the same 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.
• “Re-vindication,” i.e. the taking back of one’s own securities in the
event 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, the
objective 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 and
Services Director General proposed the “setting up of [sic] group of
legal experts, as a specific exercise intended to address problems
of legal uncertainty identified in the context of considering the way
forward for clearing and settlement in the European Union” [4]. 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 legally
certain 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
12 III Security Entitlement
to tell them exactly how to do it [5]. The following are excerpts from
that 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?
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 posi-
tions per person), does the investor have rights attaching to
particular 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 an
intermediary 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 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 entitle-
ment 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 interest
in that financial asset, by limiting the entitlement holder’s
ability to enforce that claim . . . Essentially, unless the pur-
chaser was involved in the wrongdoing of the securities in-
III Security Entitlement 13
termediary, 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
position of the intermediary’s account-holders] handled in
practice?
A (N.Y. Fed): . . . The only rule in such instances is that the security
entitlement holders simply share pro rata in the interests
held by the securities intermediary . . .
In actual fact, shortfalls occur frequently due to fails and for
other 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 intermedi-
ary, (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 the financial asset in question.
That’s how it works directly from “the horse’s mouth”, i.e., the most
authoritative source possible—lawyers working for the Fed.
Further exposure of the purpose of the invention of the security en-
titlement can be found in a discussion paper concerning “legislation
on legal certainty of securities holding and dispositions”, prepared by
the European Commission’s Directorate General Internal Market and
Services in 2012 [6]:
Where securities are concerned, the standard has always been
that a custodian has to hold sufficient securities in order to meet
all its clients’ claims. In most EU jurisdictions, such a standard is
guaranteed by giving investors ownership rights towards securi-
ties.
14 III Security Entitlement
Some markets, however, treat securities like money. The US and
Canada based their law on the concept that investors do not own
’securities’, but they own ’securities entitlements’ against their
account providers instead.
The advantage of this concept is the potential increase in the
amount of assets available as collateral, but critics view it as a
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, cen-
tral banks, and international institutions about potential collateral
shortages . . . 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 . . . with
significant implications for ownership.
The risk of unauthorised use of clients’ assets is increased by the
employment 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 unse-
cured 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 other
unsecured creditors to receive its assets back. . . .
[R]e-use of security interest collateral carries greater risk to the
financial system because multiple counterparties may compete
for the same collateral in default (so called ’priority contests’).
Clearly, the European Union Directorate General Internal Market and
Services, 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?
III Security Entitlement 15
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 this
deception by their own governments.
The reason given for this legislation on legal certainty is “demand for
collateral” by “market participants.” They are not referring to you and
me, the public. “Market participants” is a euphemism for the powerful
creditors who control governments. They have worked for many years
to establish their legal certainty worldwide.

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Author: Glock-N-Load

Simply a concerned, freedom loving American. View all posts by Glock-N-Load