21–30 of 103 posts
This seems to be a Rorschach Inkblot test for what people think of fin-tech/startups in general. If you want to see it as an example of a company moving too fast and being careless then you're inclined to jump on that reasoning. The same goes if you think this was a purposeful attempt to mislead the public. Either way, what actually happened isn't public, so it's foolish to jump to conclusions.
Silicon Valley is broken. Ethics went out the window years ago, replaced by greed. Whether that is Google suddenly wanting to go into China, Facebook lying and spying on everyone and their dog or companies like Uber et al ‘bending the law’. The most recent such bend was now this stock trading company trying to sell customers Checking accounts that were never insured as such. Time for the old valley of scrappy founder…
I see no reason to be hostile toward them. I think they're undercutting buy fees. It sounds like they announced something and had to retract, but that doesn't hurt anyone. And I bet whatever they do come up with will put pressure on banks to be more competitive.
As whitepoplar noted here (https://news.ycombinator.com/item?id=18691477) other similar services are FDIC insured because the funds are swept into FDIC bank accounts behind the scenes. But FDIC insured bank accounts pay very, very little interest, and Robinhood wanted to offer a high interest rate.
Their innovation was, instead of sweeping the funds into FDIC bank accounts, to sweep the funds into treasuries, which pay more. And as a bonus, bonds held on your behalf by a brokerage are insured via SIPC, which is a little bit like having your funds be insured by FDIC, which makes for good marketing.
The problem here is:
1) SIPC insurance makes sure you get your bonds back if a brokerage goes under. It doesn't make sure that they're worth what you were promised, just that if the broker goes under, whatever they were holding on your behalf gets returned to you. That's valuable, but it does mean there's no guarantee that you'll get all your money back. Money market funds are covered by SIPC insurance, and that didn't stop investors from losing money during the crisis when some funds "broke the buck" and became less worth than what investors had paid.
2) It's not actually clear that SIPC insurance actually covers this sort of thing. If I buy $5k of treasuries with a broker, it clearly would. If I deposit $5k cash with my broker (not for use in buying securities, but just to hold onto for me so I can pay my rent, as you would with a bank account), it clearly does not. If I deposit $5k cash and my broker uses it to buy $5k of treasuries then...I dunno, maybe? It does cover money market funds, and money market funds are a lot like what Robinhood was planning, but there are some obvious differences.
In short, Robinhood has done two things: They have marketed a vaguely money market like product as a bank account, but elided the difference in protection a money market and a bank account enjoys (very naughty). And they seem to have possibly contemplated launching a money market like product without getting the SIPC to sign off on it being covered, although it's very possible that the SIPC is reacting to the confusion caused by Robinhood's marketing. (Eg, the SIPC may have confirmed with Robinhood that a money market like product would be covered, but had no idea that this bank account product Robinhood was marketing was the same underlying product.)
In any case: In the US, bank accounts are covered by FDIC, Robinhood marketed this as a bank account, it isn't covered by FDIC, and even if Robinhood is right and the SIPC is wrong and it is covered by SIPC, that type of coverage is fundamentally different (and weaker) than FDIC coverage, making Robinhood's marketing fundamentally misleading. The core issue here isn't the dispute with the SIPC, it's that this was never going to work how Robinhood implied it was.
“However, we realize the announcement may have caused some confusion.“ Gotta love corp-speak. “We lied our asses off but didn’t realize you’d catch on so fast.”
It's difficult to imagine a situation where an individual could get away with something like this. Suppose someone gets a gig playing church hymns, and instead they stubbornly play an impromptu hour-long jazz interpretation of "Free Bird" until the police are called. What would happen if their response to the churchgoers was, "I was excited and humbled by the response I received yesterday! I'll be revamping my accomp…
Earlier quoted context omitted.
It's difficult to imagine a situation where an individual could get away with something like this. Suppose someone gets a gig playing church hymns, and instead they stubbornly play an impromptu hour-long jazz interpretation of "Free Bird" until the police are called. What would happen if their response to the churchgoers was, "I was excited and humbled by the response I received yesterday! I'll be revamping my accomp…
You've never seen someone screw something up, apologize for screwing up, and promise to do better next time? I find that hard to believe.
Silicon Valley is broken. Ethics went out the window years ago, replaced by greed. Whether that is Google suddenly wanting to go into China, Facebook lying and spying on everyone and their dog or companies like Uber et al ‘bending the law’. The most recent such bend was now this stock trading company trying to sell customers Checking accounts that were never insured as such. Time for the old valley of scrappy founder…
“However, we realize the announcement may have caused some confusion.“ Gotta love corp-speak. “We lied our asses off but didn’t realize you’d catch on so fast.”
Earlier quoted context omitted.
As well as Fidelity's checking account, Cash Management Account, is FDIC insured. This definitely feels like a case of Robinhood ignoring some advice.
Not quite. Fidelity CMA accounts are brokerage accounts and thus cannot offer FDIC insurance because Fidelity is not a bank. Fidelity accounts offer SIPC insurance. However, Fidelity's trick is to sweep all cash into third-party FDIC-insured bank accounts behind the scenes. This yields several benefits: 1) Practically speaking, it offers the exact same FDIC insurance as a real bank account, because your money is bein…
Silicon Valley is broken. Ethics went out the window years ago, replaced by greed. Whether that is Google suddenly wanting to go into China, Facebook lying and spying on everyone and their dog or companies like Uber et al ‘bending the law’. The most recent such bend was now this stock trading company trying to sell customers Checking accounts that were never insured as such. Time for the old valley of scrappy founder…
I'm confused. Are we saying that robinhood is the scrappy kind or not? I see no reason to be hostile toward them. I think they're undercutting buy fees. It sounds like they announced something and had to retract, but that doesn't hurt anyone. And I bet whatever they do come up with will put pressure on banks to be more competitive.
More competitive how, exactly? Robinhood isn't "innovative." They haven't done anything fundamentally different from any other financial institution except skirt regulatory protections for retail investors. You'd think by now we would learn to ask "if this platform is free, how are they making their money?" Robinhood is cutting compliance corners. Period. That doesn't "pressure" other banks to be more competitive. That hurts consumers.
“However, we realize the announcement may have caused some confusion.“ Gotta love corp-speak. “We lied our asses off but didn’t realize you’d catch on so fast.”
I think a modified version of Hanlon's razor could be applied here: Never attribute to malice that which is adequately explained by hubris.