Market Financial Solutions double pledging

[William Meyer]

Interesting what is going on with Market Financial Solutions double pledging mortgages.  Almost reminds me of the treasury repo double pleding fiasco centered on Drysdale Securities in the 80s.  

Is it really that different than double pledging reserves in fractional reserve lending do you think?

[Joe Leote]

To my knowledge financial brokers are allowed by law to rehypothecate customer assets, subject to regulations, and this is one mode of double pledging. I associate rehypothecation primarily with the MF Global scandal and the unstable conditions leading up to the so-called global financial crisis in late 2008. I think economist Hyman Minsky famously recognized the financial instability caused by rehypothecation and other forms of double pledging. This is an article on recent double pledging scandals:

Why Double-Pledging Is Back and Why It Matters 

I have not had time to read this recent report (67 pg. pdf) on government repo markets:

Vulnerabilities in Government Bond-backed Repo Markets

Fractional reserve banking under the gold standard is a legal custom wherein the depositor has a legal claim to convert deposits back into gold except when the bank or banking system cannot convert deposits to gold on a statistical basis. The gold window is closed when there is a run on the bank. James and I had robust discussion of the Roman legal concepts (modern law of bailment) where a depositum was an agreement for safekeeping of specific sums of money (coins in bags) and mutuum was considered an investment in the risks of the venture. Modern bank deposits are not claims on gold or any other particular assets held by the bank. When the bank is a going concern the depositors convert deposits into Federal Reserve Notes at par value and there is no effort to run the bank and unwind its investment portfolio. If there is a small run on the bank, causing illiquidity, it should be able to get support from the financial system and/or central bank to weather the statistical outflow of funds. If the bank is insolvent its assets do not exceed its liabilities and the regulatory authorities have to allocate a loss to some of the investors and/or creditors when the institution is resolved under rules for dealing with those features of the modern credit systems.

Joe

On Sun, Mar 1, 2026 at 3:40 PM William Meyer <meye...@gmail.com> wrote:

Interesting what is going on with Market Financial Solutions double pledging mortgages.  Almost reminds me of the treasury repo double pleding fiasco centered on Drysdale Securities in the 80s.  

Is it really that different than double pledging reserves in fractional reserve lending do you think?

--
You received this message because you are subscribed to the Google Groups "Understanding Money" group.
To unsubscribe from this group and stop receiving emails from it, send an email to understandingmo...@googlegroups.com.
To view this discussion visit https://groups.google.com/d/msgid/understandingmoney/CABEX-nAYeR7Pstx%3D48fBoWY3mrBTyLhJ9v-h9c3s5x_4h%2Bt1YQ%40mail.gmail.com.