patrick.net

  new post
register or log in

Patrick.net's 40 proposals »

10,730 registered users, 6 online now: Automan Empire, curious2, Dan8267, iwog, Patrick, Strategist

Is trust an issue for you when investing?

By uomo_senza_nome   2012 Feb 14, 5:48am   ↑ like   ↓ dislike   3,801 views   16 comments   watch (0)   share   quote  

As noted in this thread, financial institutions engaged in lawless behavior have hardly been prosecuted.

Also consider this: http://jessescrossroadscafe.blogspot.com/2012/02/chris-whalen-jpm-has-mf-global-money.html

But in quiet whispers, the Street knows the truth, that the money was stolen, not once but twice. And even these hard cases are shocked. The first time by MF Global and from the very top, and then afterwards in the courts and the regulatory bodies that used the bankruptcy to take the funds from the customers and give them to the creditors.

And it does stink to high heaven. But the clean up men are giving the evidence a thorough scrubbing while justice waits, Chicago-style.

It has placed a chill on those trading in the US markets. Even they are frightened of such lawlessness. They can't help but wonder, who's next? And how far will they go?

Do you worry at all that the trust/confidence you have in the financial institution/brokerage firm will be upheld during times of distress?

How are you hedging it, if you believe such a worry about 'vanishing customer funds' is genuine?

#investing

Comments 1-16 of 16     Last »

1   Vicente   2012 Feb 14, 5:59am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Well I'm down here in the "cheap seats" where SIPC and FDIC protection are sufficient coverage. So I don't hedge for it at all. I did have all my eggs in the E*Trade basket, but have spread into Fidelity and Ameritrade, partially to take advantage of promotions (Delta SkyPesos) and partly to see if I like them enough to move out of E*Trade entirely. As best as I understand it SIPC should take care of my equities but not the cash. However I don't generally leave a lot of cash laying around in a brokerage account indefinitely, if there's much there I move it back to bank account where I have FDIC protection.

2   uomo_senza_nome   2012 Feb 14, 6:11am  ↑ like (1)   ↓ dislike (1)   quote   top   bottom   home   share  

Vicente says

where I have FDIC protection.

Vicente says

where SIPC and FDIC protection are sufficient coverage.

SIPC protection is only for equities you're right. We shouldn't have much cash in brokerage accounts simply sitting. that much should be clear through the MF Global scandal.

Are you sure about the FDIC?

http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html

This should help to clarify why Glass-Steagall needs to be reinstated. And why the Fed may be a poor choice as bank regulator, itself being a private institution owned by the banks.

Vicente says

Well I'm down here in the "cheap seats"

Include me too ;) 1.2 billion in customer funds is not a lot of money from a giant's perspective. But it still means substantial amount to the customers who lost it.

3   clambo   2012 Feb 14, 8:34am  ↑ like (2)   ↓ dislike   quote   top   bottom   home   share  

When I am investing, I buy mutual funds. These I have at Vanguard and T.Rowe Price.
I've only bought several individual stocks, which I consider more speculation than investing. I sold them and kept Apple and bought a few shares. That is the only individual stock I own.
I have heard of Merrill paying fines in the millions of dollars so many times over the years I wouldn't touch them with a 10 foot pole.
Since my Vanguard stock trades are so inexpensive ($2) there's never a reason to even consider another place do make them. I think T.Rowe Price brokerage fees are also very low.
I have no fear of anything unusual happening at either Price or Vanguard to any cash in a sweep account.
I have no need for the other places whatsoever.

4   APOCALYPSEFUCKisShostikovitch   2012 Feb 14, 12:47pm  ↑ like (2)   ↓ dislike (1)   quote   top   bottom   home   share  

The best investment today is a working knowledge of how to behead an attacker with an ax.

In mere months, it will mean the difference between eating or being eaten.

Get used to it.

5   DrPepper   2012 Feb 14, 11:16pm  ↑ like (1)   ↓ dislike (1)   quote   top   bottom   home   share  

I don't have much faith in the legal protections set up for investing. MF Global is a ringing indication that there is no rule of law and the system is broken.

I checked my Etrade accounts and technically only margin accounts are subject to rehypothecation but the customer agreement specifically states that cash in my regular brokerage account is NOT segregated.

So if I understand all of this correctly, if Etrade went POOF tomorrow my shares in stocks SHOULD be okay but my cash could conceivably be gone.

As a result I lowered the amount of cash I had sitting one the sidelines by about 20% and returned some of it to a regular bank, some to silver/gold, and some to the Mark 1.0 Mattress.

6   uomo_senza_nome   2012 Feb 15, 12:36am  ↑ like (1)   ↓ dislike (1)   quote   top   bottom   home   share  

clambo says

I have no fear of anything unusual happening at either Price or Vanguard to any cash in a sweep account.
I have no need for the other places whatsoever.

Are you sure? Doesn't vanguard give the same protection like other firms such as Etrade/Fidelity? They all are insured by SIPC, but SIPC only works for securities - not cash.

I guess normalcy bias is hard to overcome ;)

7   uomo_senza_nome   2012 Feb 15, 12:36am  ↑ like (1)   ↓ dislike (1)   quote   top   bottom   home   share  

APOCALYPSEFUCK is Tony Manero says

In mere months, it will mean the difference between eating or being eaten.

Aargh...I should get to work on that potatoes :)

8   clambo   2012 Feb 15, 1:35am  ↑ like (2)   ↓ dislike (2)   quote   top   bottom   home   share  

I don't keep much cash so it doesn't matter I guess.

9   uomo_senza_nome   2012 Feb 15, 2:47am  ↑ like (2)   ↓ dislike (2)   quote   top   bottom   home   share  

Ritholtz has a piece relevant to this topic:

http://www.ritholtz.com/blog/2012/02/volcker-rule-mfglobal-bankcounterparty/

You are, in fact, a counter-party to your bank.


Thanks to the sheer ideological idiocy of Phil Gramm, enabled by the corruption of former Treasury Secretary Robert Rubin and the hubris of former Treasury Secretary Larry Summers, Glass Steagall was repealed. Thus, banks could be as stupid as they want to be — and you get to foot the bill.

10   Dan8267 (92/93 = 98% civil)   2012 Feb 15, 3:18am  ↑ like (1)   ↓ dislike (1)   quote   top   bottom   home   share  

I don't have trust issues with Vanguard, the mutual fund company I invest with. However, I would have trust issues with other large financial companies.

At least with passively managed index funds, you don't need much trust in the financial institution. However, I have long-term trust issues with the U.S. economy. Seems like it's century is over and America is going to be a second-rate economy during the 21st century.

11   Vicente   2012 Feb 15, 3:29am  ↑ like (1)   ↓ dislike   quote   top   bottom   home   share  

Thanks for pointing this out. But for me, it's really only practical at the retail investor level to spread one's risk over more than one brokerage and to shelter cash under FDIC. Anything else would make sense for serious money managers but takes too much time to be worthwhile.

Alternatives? Buy gold and bury it in your yard I guess.

Quote for the day is relevant:
"Of course the game is rigged. Don't let that stop you--if you don't play, you can't win." - Robert Heinlein

12   freak80   2012 Feb 22, 1:28am  ↑ like   ↓ dislike (1)   quote   top   bottom   home   share  

Vicente says

Alternatives? Buy gold and bury it in your yard I guess.

I've thought about doing that...but gold "crashed" in 2008 along with everything else.

Seems like cash is the worst asset class right now, except for all of the others.

13   theoakman (7/7 = 100% civil)   2012 Feb 22, 2:37am  ↑ like   ↓ dislike (2)   quote   top   bottom   home   share  

wthrfrk80 says

t the customer agreement specifically states that cash in my regular brokerage

Gold didn't crash, it pulled back.

14   WaPoIsHitler Lipsovitch (39/39 = 100% civil)   2012 Mar 7, 12:39am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

It does for MFGlobal Customers:

"Time for me to pick up my toys and go home."
It's perhaps no surprise that customers burned by the MF Global collapse have sworn off commodities, and in some cases, investing in general. Desai says, "I've stopped contributing to any 401(k) plans. I don't put any money, anywhere that's not FDIC insured. I'm buying real assets and I've quit all the trading."

http://www.fool.com/investing/general/2012/03/06/after-mf-global-collapse-customers-struggle-with-c.aspx

15   freak80   2012 Mar 7, 1:12am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

Trading = gambling.

The house always wins in the long run.

16   freak80   2012 Mar 7, 1:13am  ↑ like   ↓ dislike   quote   top   bottom   home   share  

And at least a casino doesn't charge a $7 fee for each gamble.

Plus there are lights, sounds, and an all-you-can-eat buffet.

Comments 1-16 of 16     Last »

Watch comments by email

home   top   users   about   contact  
housing crash   thunderdome   sexy pix   site suggestions  
best comments   ad hominem comment jail   patrick.net on twitter   random post  
please recommend patrick.net to your enemies