The budget was overcomplex (a mania for hypothecation means that school sports will be funded by a sugar levy), but its beneficiaries—small businesses, the young and the neglected Britons outside London—were deserving.
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The kind of charge created can be either pledge or hypothecation.
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Secondly, differentiation is made between wide and narrow hypothecation. When the tax revenues finance the entire public service such as the health care, it is described as wide hypothecation. Narrow hypothecation means that only a specific area such as nursery education is funded. The third level of splitting is based on the type of, and the reason for imposing, the tax that is hypothecated.
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The most supported type is a combination of strong and narrow hypothecation. In this case, the hypothecation can serve as a beneficial link between demand and supply. An example can be financing the roads in the U.S. by the gasoline tax.
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Strong hypothecation means that the revenues from the tax go only to financing the particular service and the service is financed only through the revenues from this tax. Strong hypothecation is thought to be appropriate for pure public goods where voters must reveal their consumption preferences. If at least one of the two conditions is not met, we say that the hypothecation is weak. This distinction is the most common as many of the arguments for and against hypothecated tax are based on it.
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The most common form of hypothecation is a repo transaction: the creditor gives a loan to the debtor and receives in return the possession (not the ownership) of a financial asset until the maturity of the loan. A reverse repo is a hypothecation 'in the reverse direction': creditor and debtor swap roles.
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In tax circles, to restrict a tax payment from a particular purpose, or to designate a tax payment for a particular purpose, is called hypothecation.
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The main purpose of hypothecation is to mitigate the creditor's credit risk. If the debtor cannot pay, the creditor possesses the collateral and therefore can claim its ownership, sell it and thus compensate the lacking cash inflows. In a default of the obligor without previous hypothecation, the creditor cannot be sure that it can seize sufficient assets of the debtor. Because hypothecation makes it easier to get the debt and potentially decreases its price; the debtor wants to hypothecate as much debt as possible but the isolation of 'good assets' for the collateral reduces the quality of the rest of the debtor's balance sheet and thus its credit worthiness.
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The problem of ambiguity of hypothecation occurs in many countries all over the world. As mentioned before, revenues of hypothecated taxes are often used to finance health care or education because in these sectors the aggregate preference can be easily revealed. One of the most known cases of hypothecation in Europe is the National Insurance contribution in the United Kingdom. Money that is raised goes directly to the National Insurance Fund from which the benefits are paid.
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Hypothecation, or "trust receipts" are relatively uncommon forms of security interest whereby the underlying assets are pledged, not by delivery of the assets as in a conventional pledge, but by delivery of a document or other evidence of title. Hypothecation is usually seen in relation to bottomry (cf. bills of lading), whereby the bill of lading is endorsed by the secured party, who, unless the security is redeemed, can claim the property by delivery of the bill.
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The active projects for 2017 include shared KYC / AML, syndication of loans / consortium lending, trade finance, asset registry & asset re-hypothecation, secure documents, cross border payments, peer-to-peer payments, and blockchain security controls.
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Hypothecation is the practice where a debtor pledges collateral to secure a debt or as a condition precedent to the debt, or a third party pledges collateral for the debtor. A letter of hypothecation is the usual instrument for carrying out the pledge. A common example occurs when a debtor enters into a mortgage agreement, in which the debtor's house becomes collateral until the mortgage loan is paid off. The debtor retains ownership of the collateral, but the creditor has the right to seize ownership if the debtor defaults.
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The detailed practice and rules regulating hypothecation vary depending on context and on the jurisdiction where it takes place. In the US, the legal right for the creditor to take ownership of the collateral if the debtor defaults is classified as a lien. Rehypothecation occurs mainly in the financial markets, where financial firms re-use the collateral to secure their own borrowing. For the creditor the collateral not only mitigates the credit risk but also allows refinancing more easily or at lower rates; in an initial hypothecation contract however, the debtor can restrict such re-use of the collateral.
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In 2012, the Mercatus Center pointed outThe Effects of Dedicating Tax Revenues the negative effects that dedicating tax revenues to specific expenditures can have on the policymakers. In their report they stated that hypothecation can be used to mask the increases in total government spending.
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For a mortgage to be valid, there must be a legal or natural obligation to which the hypothecation is accessory. In Kilburn, a husband had, before his marriage, passed and registered a notarial bond for £500 as a second charge on all his property in favour of his wife.
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The hypothecation of a tax (also known as the ring-fencing or earmarking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose. This approach differs from the classical method according to which all government spending is done from a consolidated fund.
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The court held, firstly, that a mortgage bond may be used both as an instrument of hypothecation and also as a record of debt, and secondly that it is matter of custom in drafting mortgage bonds to incorporate an admission of liability by the mortgagor to facilitate a quick and easy remedy.
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The hypothecated tax can be divided into three groups based on the main characteristics. The emphasis can be put on the final use of the revenues, on the vastness of the area financed from the money earned or on the type of the tax. Each group then has two subsections. In the first case, we distinguish between strong and weak hypothecation.
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Hypothecation is a common feature of consumer contracts involving mortgages the debtor legally owns the house, but until the mortgage is paid off, the creditor has the right to take ownership (and possibly also possession) but only if the debtor fails to keep up with repayments. If a consumer takes out an additional loan secured against the value of his mortgage (known colloquially as a “second mortgage”, for up to approximately the current value of the house minus outstanding repayments) the consumer is then hypothecating the mortgage itself the creditor can still seize the house but in this case the creditor then becomes responsible for the outstanding mortgage debt. Sometimes consumer goods and business equipment can be bought on credit agreements involving hypothecation the goods are legally owned by the borrower, but once again the creditor can seize them if required.
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The Freycinet Plan () was an ambitious public works programme, launched in 1878 by the Minister of Public Works Charles de Freycinet, principally for the construction of railways, but also for canals and maritime ports. In its initial codification - which very largely was superseded - the plan foresaw the hypothecation of 3 billion francs to the railway lines, 1 billion to the canals and 500 million to the ports.
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This may be combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol abuse. Similar taxes may exist on tobacco, pornography, etc., and they may be collectively referred to as "sin taxes". A carbon tax is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels, and natural gas.
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The main difference between a deed and an agreement is that the deed is generally signed by only one person / party. Examples of a deed are deeds of hypothecation for creating charge on movable properties in favour of the banks/financial institutions etc. An agreement by its name suggests that there should be at least two parties signing/approving the same. Examples of an agreement are agreement to sale, loan agreement etc.
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A maritime lien is a lien on a vessel, given to secure the claim of a creditor who provided maritime services to the vessel or who suffered an injury from the vessel's use. Maritime liens are sometimes referred to as tacit hypothecation. Maritime liens have little in common with other liens under the laws of most jurisdictions. The maritime lien has been described as "one of the most striking peculiarities of Admiralty law".
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He also demanded a loan of 150,000 chakras without interest repayable in three years against the hypothecation of Mayavaram lands, and an annual rent of 4,000 pagodas for five villages. The French agreed to all the terms except for the payment of 150,000 chakras, which was then reduced to 10,000 chakras, while the annual rental was reduced to two or three thousand chakras. The villages received were Kilaiyur, Melaiyur, Puduthurai, Kovilpathu and Tirumalairayanpattinam. Subsequently, two villages were ceded to the French.
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In 1883, Grant joined the firm and invested $100,000 of his own money. The firm's success attracted more investors, who bought securities through them, then used the securities as collateral to borrow money to buy more securities. Grant & Ward then pledged that collateral to borrow more money to trade in securities on the firm's own account. The practice–called hypothecation–was legal and accepted; what was illegal was rehypothecation, the practice of pledging the same securities as collateral for multiple loans.
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He also demanded a loan of 150,000 chakras without interest repayable in three years against the hypothecation of Mayavaram lands, and an annual rent of 4,000 pagodas for five villages. The French agreed to all the terms except for the payment of 150,000 chakras, which was then reduced to 10,000 chakras, while the annual rental was reduced to two or three thousand chakras. The villages so received were Kilaiyur, Melaiyur, Puduthurai, Kovilpathu and Tirumalairayanpattinam. Subsequently, two villages were ceded to the French.
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Pledge is the pignus of Roman law, from which most of the modern European-based law on the subject is derived, but is generally a feature of even the most basic legal systems. It differs from hypothecation and from the more usual mortgage in that the pledge is in the possession of the pledgee. It is similar, however, in that all three can apply to personal and real property. A pledge of personal property is known as a pawn and that of real property is called an antichresis.
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The arguments against earmarking come mostly from the traditional way of viewing the taxes where they were confined to compulsory, unrequited payments to the general government as defined by the OECD in 1988. Firstly, public spending should be determined by policies and not by the amount of the revenue raised. With earmarking, inappropriate funding levels may occur as the strong hypothecated tax implies the dependence of spending on the tax revenues and thus on the macroeconomic performance of the country. Secondly, the flexibility of fiscal policy and thus the ability to influence the economic situation is reduced when hypothecation is used.
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In the US, re-hypothecation is capped at 140% of a client's debit balance.Hedge funds often have a considerably higher amount of securities pledged as collateral than their current borrowings they continue to receive the normal income stream from the securities and it gives them the flexibility to quickly execute trades if an opportunity arises the 140% limit does in many cases considerably reduce their exposure to rehypothecation. In 2007, rehypothecation accounted for half the activity in the shadow banking system. Because the collateral is not cash it does not show up on conventional balance sheet accounting.
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This is also an example of the combination of wide and weak earmarking. (In practice, National Insurance today funds general government expenditures, for after accounting for health spending there is a large surplus which is loaned to the Consolidated Fund.) The health care system is also often supported by taxes on tobacco, as smoking is considered a serious threat. For example, in Egypt, the revenue earned from these taxes is used to help to cover health insurance and provide prevention and rehabilitation for students. Besides the United Kingdom and Egypt, hypothecation helps to finance health care in many countries including Finland, the Republic of Korea, Portugal, Thailand and Belgium.
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Goldman Sachs Tower banks that provide prime brokerage services are able to expand their trading operations by re- using collateral belonging to their counter-parties. Re-hypothecation occurs when the creditor (a bank or broker-dealer) re-uses the collateral posted by the debtor (a client such as a hedge fund) to back the broker's own trades and borrowing. This mechanism also enables leverage in the securities market. In the UK, there is no limit on the amount of a client's assets that can be rehypothecated,Though of course a bank can only rehypothecate the assets the client has posted as collateral except if the client has negotiated an agreement with their broker that includes a limit or prohibition.
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He also demanded a loan of 150000 chakras without interest repayable in 3 years against the hypothecation of Mayavaram lands and an annual rent of 4000 pagodas for 5 villages. 8The French agreed to all the terms except for the payment of 150000 chakras which was reduced to 10000 chakras while the annual rental was reduce to two or three thousand chakras. The villages so received were Kilaiyur, Melaiyur, Puduthurai, Kovilpathu and Tirumalairayanpattinam. Subsequently, 2 villages were ceded to the French. Pratap Singh who succeeded the throne renewed demand for a loan of 100000 chakra and on receipt of the first instalment of 4000 chakras he assigned 8 more villages to the French viz.
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Hypothecation of VED into the Road Fund was formally ended under the Finance Act 1936, in accordance with the recommendations of the Salter Report that controversially sought to introduce a balance between the road haulage industry and the railways. It had concluded that the method of road funding, which had relied on parishes and local authorities to fund a portion of the road network through their own means, represented a subsidy to the road hauliers. After the 1936 Act the proceeds of road vehicle duties were to be paid directly into the Exchequer. The Road Fund itself was finally wound up in the Miscellaneous Financial Provisions Act 1955,OPSI (UK legislation database) becoming a system of funding through government grants.
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When an investor asks a broker to purchase securities on margin, hypothecation can occur in two senses. First, the purchased assets can be hypothecated so that, if the investor fails to keep up credit repayments, the broker can sell some of the securities; the broker can also sell the securities if they drop in value and the investor fails to respond to a margin call. The second sense is that the original deposit the investor puts down for the margin account can itself be in the form of securities rather than a cash deposit, and again the securities belong to the investor but can be sold by the creditor in the case of a default. In both cases, unlike with consumer or business finance, the borrower does not typically have possession of the securities as they will be in accounts controlled by the broker, however, the borrower does still retain legal ownership.
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Of this, 22 billion had been re-hypothecated.Steven Lessard, E.U. Re-Hypothecation And Lehman Brotherʼs Bankruptcy: Changes That Must Be Made To The MiFID, Appearing in Folsom, Gordon, Spangole, INTERNATIONAL BUSINESS TRANSACTIONS, PRACTITIONERS TREATISE, (2010 Treatise Supplement) As administrators took charge of the London business and the U.S. holding company filed for bankruptcy, positions held by those hedge funds at Lehman were frozen. As a result, the hedge funds were forced to de-lever and sit on large cash balances, inhibiting chances at further growth. This in turn created further market dislocation and overall systemic risk, resulting in a 737 billion dollar decline in collateral outstanding in the securities lending market.Manmohan Singh & James Aitken, Deleveraging After Lehman-Evidence from Reduced Rehypothecation, IMF Working Paper No.09/42, at 7 (2009) In Japan, banks and insurers announced a combined 249 billion yen ($2.4 billion) in potential losses tied to the Lehman shock. Mizuho Trust & Banking cut its profit forecast by more than half, citing 11.8 billion yen in losses on bonds and loans linked to Lehman.
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