Rehypothecation at Naked Capitalism:

Despite its daunting name, rehypothecating is not that hard to grasp. Imagine you operate a pawn shop. People bring things that are valuable and leave them with you as collateral for loans. In rehypothection, you as the pawn broker have gotten permission from the people who have provided their assets to you to take them to another pawn broker and get a loan from them.

You can already see this sounds dodgy. How many times might your gold watch be passed from pawnbroker to pawnbroker? And if the pawnbrokers were each willing to lend a high percentage of its market price, the loans made against this one watch could easily exceed its value.

From Financial Times article:

More important still, banks often churn, or “rehypothecate”, that collateral. More specifically, when banks receive collateral from hedge funds, they often act as if they owned that collateral outright – and post that as collateral to support their own deals. Thus one piece of collateral can be churned several times to support several deals; hence that great financial candy floss cloud.

In other-words, the house of cards which is our financial system, that collapsed upon itself in Fall 2008, is still alive and well and there is still massive risk the next collapse upon itself will not be able to be stopped.

Still own stocks, mutual funds and risky “investments” like it was 1999?

Defined at Investopedia.