The bottom line is that apparently some warehouses and bullion dealers are not a safe place to store your gold and silver, even if you hold a specific warehouse receipt. In an oligarchy, private ownership is merely a concept, subject to interpretation and confiscation.
Although the details and the individual perpetrators are yet to be disclosed, what is now painfully clear is that the CFTC and CME regulated futures system is defaulting on its obligations. This did not even happen in the big failures like Lehman and Bear Sterns in which the customer accounts were kept whole and transferred before the liquidation process.
Obviously holding unallocated gold and silver in a fractional reserve scheme is subject to much more counterparty risk than many might have previously admitted. If a major bullion bank were to declare bankruptcy or a major exchange a default, how would it affect you? Do you think your property claims would be protected based on what you have seen this year?
American common law has it that a transfer of property from one party to another for the purpose of safekeeping creates a bailment. A bailment is most definitely created when one deposits physical property in a warehouse for storage. This is what happened here, where depositors placed gold and silver bullion in a couple of different warehouses. The next thing that apparently happened was that these warehouses went bankrupt and the depositors’ assets were confiscated.
As can be guessed, this is quite illegal, at least assuming that the laws have any meaning. The reason for this is pretty simple. Since assets are deposited into a warehouse for safekeeping, they create a bailment. A bailment is simply a transfer of possession, not property. The bullion and other assets were still owned by those making the deposit, not those receiving it. As such, when default hits, it can only confiscate the property of those in default. The property deposited at the warehouses s not (generally) owned by the warehouses but by the depositors. Since the depositors still have ownership, their property cannot be seized, at least under law.
Thus, this case is extremely problematic because it undermines the once-secure legal concept of bailments, and significantly erodes property rights in the process. Correcting this problem is as simple as enforcing the longstanding legal traditions that have long secured property rights. Given the way things have been going recently, though, enforcement seems like a long shot.