The short sellers put up collateral, agreed to pay dividends, and paid a small amount of interest. These middle-men companies took a big slice of the earnings.  The 401k funds got only a little,  but did not complain because they thought it was essentially a risk free source of extra money.

Unfortunately, the middle-man companies overseeing the transactions got greedy, and started investing the collateral in commercial paper, instead of safer T-bills.  When the financial crisis hit, and Lehman Brothers went bankrupt, there was a panic in the commercial paper market, and some of the invested collateral suffered losses.

These Wall Street firms then passed the losses onto the funds.  Ultimately, it was the “little guy retirees” who are paying the price.  Effected S&P 500 funds, for example, lagged their benchmark index by 11 basis points (0.11%) before fees.  Mortgage-backed funds lagged by up to 53 basis points (0.53%).

Even though these losses caused by poorly invested collateral are insignificant compared to the overall loss in the mutual funds (e.g. the S&P 500 index lost 36% in 2008), they still angered some investors – who have filed class action law suits.

Overall, this situation seems to be limited to mutual funds.  People with brokerage accounts who buy individual stocks do not have to worry.  All the major brokerages keep 100% of any fees from lending securities to short sellers.  In return, they cover any losses.

Today stock loans are very popular.   Since the financial markets have been turned up-side down and banks are not lending, one method of financing has gained a lot of attention – securities based lending.

Click here for information about Non-Purpose, Non-Recourse Lending

Securities Lending is a long-established process.  In fact, hundreds of successful stock-lending transactions have been executed involving the American Stock Exchange (AMEX), National Stock Market and Small Cap Stock Market (NASDAQ), New York Stock Exchange (NYSE), Over-the-Counter Bulletin Board (OTCBB), and certain foreign exchanges.

For those with money invested in marketable securities, there is a safe way to leverage their assets and take advantage of the golden opportunities now available to cash-in on terrific RE investment opportunities which are available today.

If you are a forward-thinking investor who wants to retain the future ownership of your assets as well as leverage the present value of your securities for immediate cash needs, securities lending (also known as stock loans) can be a terrific program.

Securities base loans are –

·         Simple & Quick – NO Credit Check / NO Income Verification / NO Upfront Fees / NO Closing Costs / NO Personal Guarantee

·         Loans are “Non-Purpose” – loan can be used for virtually anything borrower wants to accomplish (personal or business)

·         Loans are “Non-Recourse” – giving the borrower the opportunity to simply “walk away” if the collateral falls below a set floor amount

·         High Loan-to-Values – up to 80% LTV (depending upon security); which is much higher than banks and brokerage companies can offer

·         Loans are Interest Only – principal payment at maturity; otherwise loans can be refinanced or extended

·         Low Fixed Interest Rates – usually between 2% to 4%

·         Loan Term – minimum of 3 yrs; also 5 yr / 7 yr / 10 yrs

·         Quick Funded – usually within 5 to 7 business days

Click here for information about Securities Based Lending