I picked financial firm Charles Schwab at random and DO NOT believe that they’ve done anything wrong - at least not yet. However, as conversation percolates around The Great Taking, by David Webb …
“…the audacity and scope… is difficult for the mind to encompass. Included are all financial assets and bank deposits, all stocks and bonds…”
…and we contemplate the notion that literally everything might be taken from We The People of the world - cash, stocks, bonds, IRA, 401(k), house, car, etc. - Schwab proved a good starting point to analyze the possibility that bad actors might do it.
Not following “The Great Taking”?
I covered a recent Epoch Times article on this important subject (Your Property Rights Have Been Taken in All 50 States. Here’s How to Get Them Back, by Jack McPherrin) here on Substack a few weeks ago, here’s a link: Ep. 64: You’ll Own Nothing & Like It
Charles Schwab, Custodian
As I stated, I did not select Charles Schwab (“Schwab”) for any particular reason other than their size and general popularity. I plan to look at other platforms as well.
If we’re to wonder whether or not our deposit/investment dollars might be taken in the event of another “financial collapse” a starting point is understanding the legal agreement between the Custodian and the Depositor/Investor (that’s you).
First, let’s define “Custodian”, because it’s a term you should know. Investopedia defines Custodian as: a financial institution that holds customers' securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks, bonds, or other assets in electronic or physical form on behalf of its customers.
(Source: https://www.investopedia.com/terms/c/custodian.asp)
Schwab can hold (Custodian) many types of accounts, from IRA and 401(k) to after-tax investment accounts, often called “brokerage accounts.” I started with the basic brokerage account, called Schwab One. I’m going to include links, for anyone interested in retracing my steps.
The Schwab One New Account Application can be found here. (Again, remember, I’m not suggesting anyone open or close an account or change whatever deposits or investing they’re doing, I’m looking exclusively at the relationship between people like you and companies like Schwab.) In order to simplify this post, I pulled up a PDF of the current New Account Application. The document is 19 pages long, 10 of them are application, the rest is legalese/disclaimers.
It helps to think of all that legalese/disclaimer language and the Agreements like those pesky End User License Agreements that we routinely scroll through when agreeing to a new app, download, or software. Yes, it’s long and boring (probably by design) but it’s IMPORTANT!
Page 11 of 19, paragraph 2 includes an interesting reference to the Account Agreement:
This means that by opening an account, you’re agreeing that the deposit is subject to lien - on all Securities and Other Property… at Schwab… by any party to the Agreement. So, who might be a party to the Agreement between you and Schwab?
And on page 13 of 19, another interesting paragraph (3rd column, 2nd paragraph):
Everything held in the account “may be pledged, repledged… or used as collateral, separately or together with securities of other customers. I find myself wondering under what circumstances your deposit/investments might be mingled with those of other customers. The only answer I can come up with is “collateralizing.”
Remember Collateralized Mortgage Obligations, which led to the system-wide shutdown of much of the financial world? Mega-sized financial firms had bundled packages of mortgages together and used them as collateral in order to make more money? This paragraph seems to me to give clearance to Schwab to bundle your deposits together with other peoples’ and borrow against them.
I’ll pause here to interject FREE advice: take this letter to your lawyers/friends, alter as you see fit, and send it to each and every financial institution with which you do business and notify them that you DO NOT authorize use of your deposit or investment amounts for any manner of Pledged or Collateralized arrangement (meaning that you do not authorize them to borrow against your account).
Back to Schwab’s account structure:
It took a little digging, but by searching “Account Agreement” on Schwab.com, I found the Schwab Library of Agreements.
A search for Section 8 of the Agreement, Security for Indebtedness and Right to Setoff, quickly found this:
Each account holder grants Schwab continuing security interest in and lien on, and a right to setoff with respect to, all Securities and Other Property… in order to satisfy all present and future indebtedness owed to Schwab by any account holder under the Agreement or otherwise.
I find multiple issues with this:
Why does this seem to go out of its way not to speak of the account Owner (we should assume that’s you!), and instead speaks of “any account holder”? This leaves things feeling substantially vague about who has an interest in the account. I, for one, certainly would like to assume that the only person with any Property Rights to such assets is you, and exclusively you, except where some fee or assessment might be concerned, like if you owe an account fee or something.
The Agreement goes beyond the account in question and specifically says that any deposit/investment account that might at any time go through them is subject to this section of the Agreement.
Why does it seem that by granting continuing security interest in the account (and any other account), the amount subject to lien is unlimited? Why wouldn’t this clearly limit the amount of a lien or setoff to ONLY whatever amount might be owed for a specific purpose, like an unpaid account fee, for instance?
Next, let’s talk “setoff” (sometimes expressed as “set-off”):
So the twisting, winding question that arises out of this Application and the connected Agreement is: who is the Account Owner, who is the Account Holder, what are the “debt and other obligations”? Why does the amount subject to lien and/or set-off appear to be limitless and go beyond just the value of the account being opened? Is Schwab bundling & collateralizing client assets? If so, what happens in the event of a “financial meltdown”?
With Charles Schwab I didn’t find what I was looking for: a clear way to eliminate concern of The Great Taking. In fact, what I discovered appears to point directly toward it.
I’m speaking with my friends in Finance to ask these questions as broadly as possible, not just Schwab, but at all other Custodians, and encourage you to use the above template letter and maybe some phone calls and emails to your financial institutions to question this. Track The Great Taking as a subject online and stay informed.
And PLEASE, let us know what you find out or hear back. We’ll help share the results broadly.