Re-hypothecation: How it’s related to MF Global

Marketplace Whiteboard:

If ever there was a word that you’d expect to find in a Harry Potter  novel, it’s re-hypothecation. This a classic example of financial  people inventing impenetrable terminology to make their business look  like a black art. “Oooh, re-hypothecation, it must be magic!”

Well it isn’t.

The term “re-hypothecation” came up a lot during the MF Global meltdown; It’s quite a common term in the securities market – but what does it mean?

To explain re-hypothecation, we have to explain hypothecation. And  hypothecation is pretty simple. It’s when you lend someone money and let  the borrower keep the collateral.

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Source:
Re-hypothecation: How it’s related to MF Global
Paddy Hirsch
Marketplace Jan 4, 2012
http://www.marketplace.org/topics/business/whiteboard/re-hypothecation-how-its-related-mf-global

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