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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

#91

Post by rchaud »

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…

The infatuation has more to do with not missing out on the Fintech bandwagon. They are betting that one of Robinhood, Stripe, Square, etc will become a megacorp or be acquired by one. So it makes sense to be a cheerleader for all of them.

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

#92

Post by whatok »

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.

This is extremely misleading and no one should be using bond funds as a checking/savings account replacement. You have mark to market and liquidity risk here which in normal circumstances you do not have with a savings/checking account.

Additionally, Robinhood is reportedly investing proceeds in US Treasuries. US Treasuries have a completely different risk profile than corporate investment grade bonds.

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

#93

Post by BurningFrog »

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…

> Iceland refused to make depositors whole

As I recall it, the 340,000 people of Iceland had no chance in hell of covering the enormous amounts even if they wanted to.

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

#94

Post by ummonk »

ticmasta wrote: post #83
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…

If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way? These companies are not democratizing investment, accommodation, tranportation or whatever they are rent seekers that use a combination of technology, business model and rule breaking to extract a portion of every transaction. They explicit…

>If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way?

Yes, you are. You're trying to freeze your neighborhood in amber, which is most definitely a sign of an inefficient incumbent.

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

#96

Post by aakilfernandes »

300bps wrote: post #27
DevX101 wrote: post #11

> “I disagree with the statement that these funds are protected by SIPC,” Stephen Harbeck, president and chief executive officer of SIPC How the hell did this product get launched?

You can open an Ameritrade or any other brokerage account and deposit money into the account with no intention of purchasing securities. There is no dispute that the SIPC would cover your account in that instance. The only thing that has changed here is Robinhood is explicitly marketing their brokerage account as being able to be used as a savings account without any need to invest in securities. It’s not black and w…

What other reason would you have an Ameritrade account?

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

#98

Post by grey-area »

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.

But it carries more risk. It may not continue to pay 3%. In a financial crisis the money may not be there any more, the companies may go bankrupt en masse for example, or companies that were previously thought to be safe may not be able to meet their obligations. There is no sort of guarantee here, and the SIPC guarantees are supposed to be about making sure investors end up with the securities they purchased, not making investors whole if their investments turn out to be worthless.

It is precisely this kind of bundled 'derisked' derivatives which caused the last financial crisis (those were sold as very low risk mortgage debt , these are corporate debt).

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

#99

Post by gonational »

deadmik3 wrote: post #80

“The statute that we administer says that we protect money with a brokerage firm that is used for the purchase of securities,” he added. “On Robinhood’s help page, it says that you don’t need to invest to use Robinhood checking and savings, that statement is wrong. If you deposit money for any other purpose, it is not protected.” So it is insured, unless they can prove it's not for investing?

The burden of proof is not on the insurer, but the insured.

Think through this like a court case, where the insured is suing the insurer.

The insured doesn't simply go in front of a jury and state, "SIPC owes me $N. I rest my case."

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

#100

Post by wallawe »

ticmasta wrote: post #83
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…

If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way? These companies are not democratizing investment, accommodation, tranportation or whatever they are rent seekers that use a combination of technology, business model and rule breaking to extract a portion of every transaction. They explicit…

> If I buy a house in a neighbourhood that is zoned single family residential, Am I an "inefficient incumbent" because I expect that over the mid-to-long term it will stay that way?

The incumbents I was referring to are clearly hotels and taxis. But I think it's also important to point out that I wouldn't presume to tell you who to rent to or for what duration since you own the home and it's your property. AirBnB is merely a facilitator of that transaction.

If you don't own the property, that's different story.

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