When The Locusts Come They Eat Everything
The Great Taking is not a Red vs. Blue Issue
I remember hearing that saying when I was young, and it stuck with me. I am not sure who said it, but it fits. A farmer cannot save his crop from a swarm of locusts, we cannot run from The Great Taking. But we can act. Inform yourself and spread the word.
The Great Taking is not a Republican or Democrat issue. Article 8 of the Uniform Commercial Code (UCC) does not discriminate when it puts your investment assets at risk. In the Tennessee Legislature the Bill to restore some property protection for investors received bi-partisan support in the House Sub-Committee and at the full Committee in the Senate because both Republicans and Democrats understood the very real risks to the financial security of their constituents.
Our experience in working with legislators in South Dakota, Tennessee, and South Carolina to amend UCC Article 8 early 2023 shows that lawmakers who prioritize the safety and security of their constituents see the need for immediate action. Other legislators, those who prioritize the interests for banks, financial institutions, and donors fought to maintain the status quo.
So, what is the status quo under UCC Article 8 in all 50 states? A state-approved “bait & switch”. According to Cornell Law School a "bait and switch takes place when a seller creates an appealing but ingenuine offer to sell a product or service, which the seller does not actually intend to sell.” In other words – fraud. But that is exactly what your state law allows when it comes to your IRA, 401(k), or personal investments.
Under UCC Article 8, every time an investor directs their broker or investment advisor to purchase a stock, bond, mutual fund, ETF, etc. and your broker deducts the funds from your account to purchase the investment you do not actually receive the stock or bond you thought you bought. What you actually receive under UCC Article 8 is a ‘security entitlement’. A security entitlement was defined by the folks drafting this law as ‘a bundle of personal rights you hold against your broker’. In plain English, you have a contract with your broker – you do not own the investment the same way you own a physical stock certificate.
Your broker, investment advisor, any custodians your broker uses for buying, selling, and holding these security entitlements are called ‘securities intermediaries’ under UCC Article 8. This is important because the law gives certain creditors of the securities intermediary priority over your investments in the event the intermediary (broker or custodian) fails and files for bankruptcy.
The Great Taking crosses partisan lines when lawmakers understand who stands to win and who stands to lose when the next financial crisis strikes. (as I write this the financial markets are in free fall – but the question is not if a major financial crisis will occur – but when) UCC Article 8 has clear winners and losers, and that is intentional.
Who Wins?
In short, the winners under this law are the “too big to fail” financial institutions. These banks are given priority over the assets held by the failed broker or custodian in a bankruptcy proceeding. The winner is not you.
Who Loses?
Investors who hold their investments with their broker or financial advisor. This is called the indirect holding system. Investors “own” a securities entitlement, essentially a contract between the broker and the investor. This means you, as the investor, has an unsecured contract claim in the bankruptcy of the broker or custodian. You are at the back of the line hoping for a scrap from the bankruptcy table.
Other losers under UCC Article 8 include local banks and businesses that hold investments. Once that reality hits these businesses will think twice about fighting to protect the nation’s largest financial institutions.
Us vs. Them
Efforts to amend UCC Article 8 to protect investors should be bipartisan from the start. This is not a Red vs. Blue issue, a conservative vs. liberal issue, it is an us vs. them issue. The ‘them’ is in The Great Taking are the “too big to fail” financial institutions. The folks that see every decision as “heads I win, tails you lose”.
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