Comments on: When Investment Banks Fail, What Happens to the Little Guy?

By: Steph K

Steph K — Mon, 17 Jan 2011 14:52:18 +0000

“Second, manage your money with respect to SIPC insurance. Keep in mind that if you exceed SIPC insurance limits (often $500,000), your excess would disappear in the event of your institution’s failure.”

Not true. Your excess only disappears if the institution fails AND the firm has previously stolen or lost your assets. Investment firms are not allowed to commingle your assets with theirs, so unless there is fraud or gross mismanagement where they simply lose your securities, your investments are safe. Even if the investment firm fails, your assets (including assets over $500,000) are kept distinct from the firms assets and therefore are recoverable. Only in frauds – like Madoffs – does the SIPC come in. In the case of Lehman – a bankruptcy in absence of fraud – all customer accounts were fine. No SIPC insurance payout was required.

“Finally, avoid investments that don’t have SIPC insurance.”

Investments don’t have SIPC insurance, investment firms do. You cannot find investments with SIPC insurance, only investment firms.

By: Aaron

Aaron — Thu, 06 Jan 2011 22:59:00 +0000

Dan, there’s a new article on Infoworld.com, “Hackers find new way to cheat on Wall Street — to everyone’s peril:
‘Side-channel’ attack on high-frequency trading networks could net a hacker millions of dollars in just seconds — and leave everyone else that much poorer.”

This is why I have so little faith. This sounds a lot like what Goldman Sachs does with their trading software.

By: Dan @ Casual Kitchen

Dan @ Casual Kitchen — Tue, 04 Jan 2011 15:11:40 +0000

@Aaron: Don’t assume the deck is stacked against you as a small investor. As a former professional investor, I can say with 100% confidence that the so-called “big guys” can be just as herd-like and just as dumb when it comes to investing as any of the so-called “little guys.”

Dan @ Casual Kitchen

By: Kevin

Kevin — Tue, 04 Jan 2011 13:22:55 +0000

“First, make sure that your investments are in an institution that carries SIPC insurance. Visit their websites and click around a bit to find out, and if you can’t, send them an email asking about it. Virtually all large investment houses are covered by such insurance.”

If I’m suspicious that my investment firm is doing shady things with my money and lying about it, why should I trust them if they claim to carry SIPC insurance?

Wouldn’t it make more sense to query the SIPC about my investment firm, instead of the other way around?

By: Aaron

Aaron — Tue, 04 Jan 2011 02:16:09 +0000

The obvious solution is to convince the right people to say that you’re too big to fail during the next round of bailouts.

I think there’s a bigger issue with stock and bond investments. Most of the trading is done by big investment banks and firms using automated electronic trading and with little regulation. If that doesn’t scare you away from the stock market, then nothing will.

By: chuck

chuck — Mon, 03 Jan 2011 21:28:59 +0000

made me think of george bailey trying to cover the withdrawls in Its a Wonderful Life.