SIPC Says It Has Serious Concerns About Robinhood's New Product

Post by JimboOmega » Fri, Dec 14, 2018, 4:31 PM UTC

all_blue_chucks wrote: post #34

hn_throwaway_99 wrote: post #13

Through all of this I can't help but be reminded of the 2008 financial crisis and think "this is not going to end well." One part of that crisis was Icelandic Banks making a huge push for savings all over the UK and other parts of Europe ("IceSave") with the promise of better interest rates. When it all went belly up those savers realized these Icelandic banks were not quite the same thing as UK banks and Iceland ref…

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

Post by DennisP » Fri, Dec 14, 2018, 4:31 PM UTC

wp381640 wrote: post #19

mrfredward wrote: post #8

Normally brokerage accounts fall under the SIPC and bank accounts under the FDIC. Robinhood thinks their checking account should fall under the SIPC...so is their bank account not a bank account? What am I missing?

It's a brokerage account where you buy US Treasuries but also made liquid via a deal with Mastercard and branded as a chequing account It's kinda smart - but i'm curious how they settle some of the backend with daily transactions moving in and out - if they're actually making bond purchases/sales with each transaction, for each customer each day, or for all customers each day etc. edit: fwiw I think the entire premis…

Post by crankylinuxuser » Fri, Dec 14, 2018, 4:33 PM UTC

pjc50 wrote: post #37

luckydata wrote: post #29

I don't understand the infatuation silicon valley has of Robinhood. Take almost every possible bad idea about personal finance and put them in an app, you get Robinhood. The business model is also suspect, I think there's a little more that hasn't been disclosed and I suspect the chase for cash started when the crypto currency fad started deflating in a hurry. I wonder if Robinhood is hiding something bigger under th…

> almost every possible bad idea about personal finance and put them in an app, you get Robinhood That sounds extremely profitable, so long as you stay ahead of the law - just like Robin Hood, in fact. But in this case it's not taking money from the rich ...

Post by MrRadar » Fri, Dec 14, 2018, 4:37 PM UTC

aresant wrote: post #17

“I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC. Not sure that leaves a lot of room for speculation - don’t sign up to use Robinhood as a savings account unless you are comfortable doing so without an FDIC level of guaranteed protection.

Post by pushtheenvelope » Fri, Dec 14, 2018, 4:37 PM UTC

woolvalley wrote: post #44

all_blue_chucks wrote: post #34

Earlier quoted context omitted.

Short term investment grade debt has a default rate of near-zero and pays more than 3%. See for yourself: https://investor.vanguard.com/etf/profile/VCSH It is entirely possible for them to safely promise a 3% account under these conditions. This is not at all like the financial crisis. It's just wrapping an investment grade bond fund in a bank account interface.

When you buy a bond and the interest rate goes up, the nominal value of the debt goes down when the interest rate goes up, while with bank accounts they stay the same. Ex: You buy a $100 bond at %3, then the prime rate goes up %1 so the typical market price of bonds of your class are now %4. Now your bond is worth less than $100 if you were to liquidate it. Big difference.