Why is this surprising? A loan secured by collateral (such as a mortgaged home) is, by it's very nature, senior to unsecured debt at least with respect to the specified collateral. Or am I missing something?
Isn't the problem here that client assets, that did not belong to MF Global, were nevertheless allowed to be used as collateral by MF Global for their own investments, once MF Global's client's assets were transferred to subsidiaries outside the reach of U.S. regulatory bodies? If this is correct, then the underlying problem is that the clients' assets should never have been allowed to be used by MF Global as collateral in the first place. Lets suppose you use assets belonging to me as collateral for a loan made to you. Why should your creditor have any claim to my assets if you default on your loan, unless I gave you permission to use my assets as collateral for your loan. Apparently in the MF Global case, clients did exactly that. That is, in the fine print of their brokerage agreement written in legalize that few would bother to read, nor understand if they did read it, was buried language that gave MF Global permission to use client assets as collateral for their own investments. The U.S. regulation, however, is much more conservative since it only allows customer liabilities (not "assets") to be re-hypothecated up to 140%. Apparently MF Global transferred customer accounts to subsidiaries outside the U.S. to circumvent this restriction and allow it to hypothecate customer assets.
MF Global trustee now looking into rehyopthecation. http://blogs.reuters.com/financial-...wing-firms-practice-of-repledging-collateral/
Okay, all well and good. Rehypothecation is rehypothecation, the issue is rehypothecation when a co files BK, not during the normal issues of business which is SOP. Now if they're going to look at rehypothecation during the bk process the finger is going to point at the regulators or Congress (and find no laws were broken) and pfftttttt.....2 stars for this news..... no mention the word "arrest".