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Morgan Stanley to Buy E-Trade for $13B

nytimes.com

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Re: Morgan Stanley to Buy E-Trade for $13B

#71

Post by pas »

BurningFrog wrote: post #35
StarDucks wrote: post #33

Earlier quoted context omitted.

This is really going to end up biting everyone in the ass though. What happens when we have another market crash and everyone is broke because they put money they would have saved into investments instead and now they have no safety net?

I don't understand negative interest rates at all, but surely something is deeply broken behind this, and it will crash in one spectacular way or another.

It's a cost of having money, but not spending it. The central bank pays a negative interest on excess deposits. So banks are motivated to lend it out. (Eg. take on more risk.)

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749...

One problem that becomes a bit hard is that in the retail sector if interest rates go below zero people are willing to simply withdraw the money, which would hurt banks' ability to lend. (Eg. the central bank would have to add funding via some mechanism, such as lowering the fractional ratio, or QE . [Or paying interest on reserves. But that would go against the negative interest on excess reserves.])

The paper concludes that the negative interest rates resulted in more loans.

Re: Morgan Stanley to Buy E-Trade for $13B

#72

Post by evanpw »

rwmj wrote: post #67
lordnacho wrote: post #50

Earlier quoted context omitted.

No it isn't. I've worked at an HFT, this is not why they buy the order flow. Retail order flow is worth buying because it's what's called "non-toxic". That means the retail traders generally don't know which way the market is going, ie they are either wrong or too small to make the market move against the market maker. Contrast that to trading against a hedge fund which might have a better clue and is potentially lar…

I'm confused how this is valuable. If the retail traders are wrong, then why do you want that information?

You don't want the information. You want the order, so that you can be the other side of the trade. As long as the order arrival isn't too correlated with price movements, the market maker can buy a little above the bid price and sell a little below the ask price and make some fraction of a cent on each share, on average.

Re: Morgan Stanley to Buy E-Trade for $13B

#73

Post by jredwards »

anthonypasq wrote: post #64
OJFord wrote: post #25

$13B is a more than 96% discount on the stated $360B asset value, what am I missing? Unless it means (or is including) assets held for clients in nominee accounts?

if you counted Assets under Management, Blackrock would have a valuation of 7 trillion. That clearly isnt the case. They dont actually own the assets

Incidentally, I think Blackrock is worth about 85B, which means Apple could buy the largest asset manager in the world by writing a check.

Re: Morgan Stanley to Buy E-Trade for $13B

#74

Post by [deleted] »

rwmj wrote: post #67
lordnacho wrote: post #50

Earlier quoted context omitted.

No it isn't. I've worked at an HFT, this is not why they buy the order flow. Retail order flow is worth buying because it's what's called "non-toxic". That means the retail traders generally don't know which way the market is going, ie they are either wrong or too small to make the market move against the market maker. Contrast that to trading against a hedge fund which might have a better clue and is potentially lar…

I'm confused how this is valuable. If the retail traders are wrong, then why do you want that information?

[deleted]

Re: Morgan Stanley to Buy E-Trade for $13B

#75

Post by BurningFrog »

pas wrote: post #71
BurningFrog wrote: post #35

Earlier quoted context omitted.

I don't understand negative interest rates at all, but surely something is deeply broken behind this, and it will crash in one spectacular way or another.

It's a cost of having money, but not spending it. The central bank pays a negative interest on excess deposits. So banks are motivated to lend it out. (Eg. take on more risk.) https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749... One problem that becomes a bit hard is that in the retail sector if interest rates go below zero people are willing to simply withdraw the money, which would hurt banks' ability to…

Yeah, but I'm worried about the underlying causes.

How did holding money become so worthless in the first place?

Can this really be natural, or is there massive central bank shenaningans behind it? Clearly savers lose, but who benefits?

Re: Morgan Stanley to Buy E-Trade for $13B

#76

Post by pas »

logicchains wrote: post #70
pas wrote: post #59

Earlier quoted context omitted.

What would be the solution for this? Which actors/groups ought to do what? Could you explain this a bit? Thanks!

The central bank could start raising rates. There are very good arguments for temporarily lowering rates to stimulate the economy, but the arguments for keeping it this way for 5-10 years are weaker. Especially if it discourages savings, as in the long term economic growth requires savings (in the economic sense, wherein there is a choice to "save" or "consume" our output, and only the "saved" output can be invested…

They would if they could.

https://www.ft.com/content/478fe908-5168-11ea-8841-482eed003...

Sweden raised rates recently, but only back to zero.

Swedish banks - for some reason - simply waited for the NIRP to pass and moaned.

[from the link]: Johan Torgeby, chief executive of one of Sweden’s largest banks SEB, says lenders involved in fixed income “struggled for years” and calls the end of sub-zero rates “good news”. He adds: “We have never really understood what effect negative yields have on [boosting] consumption.”

https://www.theguardian.com/money/2019/aug/13/danish-bank-la...

It certainly helps expanding the money supply. That should help increase savings, that then can be loaned out. (And simply increasing savings doesn't automatically lead to more investment: https://en.wikipedia.org/wiki/Saving_identity - I know wikipedia is not a proper source, sorry, anyway: "This identity only holds true because investment here is defined as including inventory accumulation, both deliberate and unintended. As such, this does not imply that an increase in saving must lead directly to an increase in investment. Indeed, businesses may respond to increased inventories by decreasing both output and intended investment.")

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749...

"Given this finding and its robustness when tested using a variety of standard robustness checks, we conclude that NIRP has acted as an empowerment to the ECB’s asset purchase programme (APP). Banks most reliant on retail deposits have the strongest incentive to convert their EL (excess liquidity), created by the APP, into loans - and our results document that they did so."

> Personally I think it's better to err on the side of favouring whatever the "market rate" of interest would be (the rate if the central bank was taking no action to alter the supply of money or loans), and I'm very doubtful that would be negative.

Isn't the problem that the market rate would lead us to deflation?

Re: Morgan Stanley to Buy E-Trade for $13B

#77

Post by blue11 »

rwmj wrote: post #67
lordnacho wrote: post #50

Earlier quoted context omitted.

No it isn't. I've worked at an HFT, this is not why they buy the order flow. Retail order flow is worth buying because it's what's called "non-toxic". That means the retail traders generally don't know which way the market is going, ie they are either wrong or too small to make the market move against the market maker. Contrast that to trading against a hedge fund which might have a better clue and is potentially lar…

I'm confused how this is valuable. If the retail traders are wrong, then why do you want that information?

It's called adverse selection. You don't want to be on the other side of an order from an informed trader, because the market is moving against you in the short run. In the longer run, if the big fund is more often correct than not, then you are also more likely to have made a losing trade. HFTs care mostly about the effect on the market today, so they probably don't care whether the information is correct or not, they just want to get out of the way of big moves.

Re: Morgan Stanley to Buy E-Trade for $13B

#78

Post by pas »

BurningFrog wrote: post #75
pas wrote: post #71

Earlier quoted context omitted.

It's a cost of having money, but not spending it. The central bank pays a negative interest on excess deposits. So banks are motivated to lend it out. (Eg. take on more risk.) https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749... One problem that becomes a bit hard is that in the retail sector if interest rates go below zero people are willing to simply withdraw the money, which would hurt banks' ability to…

Yeah, but I'm worried about the underlying causes. How did holding money become so worthless in the first place? Can this really be natural, or is there massive central bank shenaningans behind it? Clearly savers lose, but who benefits?

Money is just a piece of the underlying monetary system, which is constantly priced based on what the economy using that money does.

If that economy expands without corresponding increase in the money supply, then prices go down (because there are more stuff, but the same amount of money, so the same amount of money now represent more stuff). But this represents a deflation, which would auto-magically counteract the expansion, because it would incentivize people to wait and spend just at the last minute. (Time value of money and all would revert, wages would fall, fixed amount mortgages would start to spiral out, and all the regular deflation doomsday scenarios.) So the central banks make sure that even in an expanding economy the money supply "stays ahead" of the expansion of the economy. Targeting 2%. (And usually falling short, so inflation is somewhere between 1-2%.)

So holding money did not became worthless, quite the opposite, holding cash is now better than holding it in a bank. But the central bank has only a few policy tools available, and one of them is the interest rate manipulation.

The central banks want to encourage people to make some investments, to take on some risk, or at least spend. Sure, one way is to simply fund the government, as that usually seems the least risky. And it's not like there's nothing to spend on - the Green New Deal and co, but governments are quite reluctant to do so.

Re: Morgan Stanley to Buy E-Trade for $13B

#79

Post by gonehome »

murph-almighty wrote: post #62
basch wrote: post #19

Earlier quoted context omitted.

this is a good explanation too, and from a local. https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone... The writing was on the wall for E-Trade. Banking is in an ebb of consolidation. E-Trade and TD Ameritrade had to sell once Interactive Brokers / Schwab started that game of dropping commission. They didnt add enough other value besides stock trading. They are a component to a larger banking suite. I have…

>I am somewhat surprised nobody offers an abstracted savings account, that handles 401k, IRA, HSA, paying rent and bills, and access to credit. I think it'd be complicated to regulate from a risk perspective. Checking and savings accounts get insured by the FDIC, how do you insure a large pile of money invested practically everywhere in varying risky scenarios? You'd need to at least create a boundary between "FDIC-i…

Haven Money was an attempt at this (startup a friend/former coworker started to tackle this), but they recently sold to credit karma.

https://havenmoney.com/

It was a cool idea - basically they'd auto invest some portion into a total market index, pick the best rates for things in your 401k, etc.

Re: Morgan Stanley to Buy E-Trade for $13B

#80

Post by [deleted] »

hedora wrote: post #53
jzwinck wrote: post #24

Earlier quoted context omitted.

Do you believe the usual insurance programmes will not help in the event of a hack? https://us.etrade.com/l/f/asset-protection Basically everyone has $500k insured in their trading account. Are you concerned about people with more than that, or concerned that it wouldn't cover hacking?

FDIC payouts are extremely rare. As far as I know, it only kicks in if the entire bank fails. I don’t think it covers fraud. Having said that, I’d be surprised if E Trade were not legally required to cover losses in the event of account break ins, regardless of what their customer agreement says.

[deleted]
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