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

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

#61

Post by kinkrtyavimoodh »

scrumper wrote: post #59
kinkrtyavimoodh wrote: post #38

Earlier quoted context omitted.

> bad idea about personal finance Such as?

Single stock trading sold as an investment product to the low-end of the retail market (i.e. people like me who's limited investment dollars should be dumped into passive, diversified funds.)

As a user of RobinHood I have not felt any specific push for buying single stocks. A lot of people just buy index funds on RobinHood. If RH had made it more difficult to buy those compared to single stocks, your claim might have some weight...

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

#62

Post by nsedlet »

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.

It may be fairly safe, but it's not risk-free (and certainly not guaranteed by the government). Even if companies don't default, their borrowing rates can still increase, reducing the value of the bond and causing you to lose money.

The 3% return is compensation for the added risk. The financial markets are pretty efficient for liquid stuff like this.

Banks also provide services that consumers are willing pay for through lower rates on their checking accounts, and need to cover their administrative costs or have some other way of making money with the deposits.

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

#63

Post by gammateam »

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…

Investment banks were leveraged 40:1

The consumer banking side of the story has almost nothing to do with it

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

#64

Post by wp381640 »

DennisP wrote: post #43
wp381640 wrote: post #19

Earlier quoted context omitted.

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…

I'm not sure what you mean by "way over" but 6-month t-bills are paying 2.5% right now. It's probably a loss leader but since they'll make money from merchant fees on debit cards, it might not be that much of a loss.

I doubt they'd be able to 100% buy tbills at that maturity length (hence curiosity on what they're doing on the backend here), but even assuming 2.30~ average plus whatever Mastercard kickback is negative 50-70bp is still a hell of a margin to make on selling consumers tbills and not raising funds for your own investment activity

edit: a better way to explain it - we'll give you tbills at 3% p.a and let you pull out/in whenever you want and handle the rest is a hell of a business model without the rest of the story

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

#65

Post by binarymax »

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…

I remember (but cannot find a citation) in ~2005/6 AIG was offering 4% saving accounts. I'm having deja vu all over again.

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

#66

Post by jartelt »

kinkrtyavimoodh wrote: post #38
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…

> bad idea about personal finance Such as?

The vast majority of people should just be maxing out their 401k and investing in index funds.

They shouldn't be using Robinhood to buy individual stocks, buy cryptocurrency, or do options trading.

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

#67

Post by [deleted] »

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.

[deleted]

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

#68

Post by Kiro »

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.

No, it's much worse than the financial crisis.

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

#69

Post by freehunter »

ocdtrekkie wrote: post #51
wallawe wrote: post #31

Earlier quoted context omitted.

AirBnB and Uber are both examples of companies that were huge wins for customers/consumers. Just because they flout regulations which are often times outdated and unnecessary (re: protecting inefficient incumbents) doesn't mean they aren't doing what's good for the consumer. I agree though that Robinhood is a different story with potentially harmful consequences for unsophisticated investors looking for a safe/easy i…

The people sexually assaulted, discriminated against because of their skin color or sexuality, and those recorded in their beds without their consent would all presumably disagree that Uber and AirBnB flouting regulations made for huge wins for customers/consumers. EDIT: The fact that these crimes "have happened at hotels/in taxis as well" ignores the fact that they are far more likely in an environment where regulat…

The people sexually assaulted on the subway, discriminated against because of their skin color or sexuality in taxis, and those recorded in their beds without their consent in hotels would all presumably argue that crimes happen even without SV investment money.

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

#70

Post by kgwgk »

kinkrtyavimoodh wrote: post #38
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…

> bad idea about personal finance Such as?

https://news.ycombinator.com/item?id=16757437
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