Is MF Global causing a shadow bank run?

"It is an open secret that there are more paper-assets than there are actual assets. The markets are essentially playing musical chairs—and praying that the music never stops. Because if it ever does—that is, if there is ever a panic, where everyone decides that they want their actual asset instead of just a slip of paper—the system would crash.

And unlike with fiat currency, where a central bank can print all the liquidity it wants, you can’t print up gold bullion. You can’t print up a silo of grain. You can’t print up a tankerful of oil.

Now, question: When is there ever a panic? When is there ever a run on a financial system?

Answer: When enough participants no longer trust the system. It is the classic definition of a tipping point. It’s not that all of the participants lose faith in the system or institution. It’s not even when most of the participants lose faith: Rather, it’s when a mere some of the participants decide they no longer trust the system that a run is triggered.

And though this is completely subjective on my part—backed by no statistics except scattered anecdotal evidence—but it seems to me that MF Global has shoved us a lot closer to this theoretical run on the system.

As I write this, a lot of investors whom I know personally—who are sophisticated, wealthy, and not at all the paranoid type—are quietly pulling their money out of all brokerage firms, all banks, all equity firms. They are quietly trading out of their paper assets and going into the actual, physical asset.

Note that they’re not trading into the asset—they’re simply exchanging their paper-asset for the real thing.

Why? MF Global."

“Because of MF Global, the integrity of the system has disappeared,” said a good friend of mine, Tuur Demester, who runs Macrotrends, a Dutch newsletter out of Brugge. “The banks are insolvent, the governments are insolvent, and all that’s left is for the people to realize what’s going on—and that will start a panic.”

--http://gonzalolira.blogspot.com/2011/12/run-on-global-banking-systemhow-close.html