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Re: SIPC insurance?
Old 11-28-2006, 01:26 PM   #21
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Re: SIPC insurance?

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Originally Posted by brewer12345
I think that you would be better served by spending the time and money to put a meteorite deflector on your car...
For the safety of our posters, even our veterans, I think such comments should be preceded by the label "HUMOR WARNING!!". I was choking so hard laughing on my coffee that I could hardly spew it evenly across the monitor. EMS didn't know which one of us to wipe down first...

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Originally Posted by Running_Man
Why is it anytime one asks a question and there is a disagreement over a low probability event happening that the response is "tinfoil hat territory". I take answers such as that as insulting the person since you are not able to provide an intelligent and rational counter-arguement so you demean anyone in disagreement. I find this type of arguement very disrespectful.
Because the person asking the logical question was already given logical answers-- "very low probability of occurrence" and "adequate insurance". When the questioner keeps on arguing that it's still a concern, despite being a lower probability than a meteor strike, they're not being logical anymore... they're being paranoid. But somehow you've decided that the subsequent paranoid question wasn't disrespectful of the logical answer? What other logical argument is supposed to be put forth?

I think subsequent illogical questions can appropriately be met by the "tinfoil" or "meteor deflector" words to try to jolt the questioner out of their rut. (No disrespect intended to those who are already wearing tinfoil hats while designing their deflectors.) If a questioner can't use those comments for self-examination without getting their feelings hurt then they should probably find another Internet discussion board.

Quote:
Originally Posted by Running_Man
Do we honestly all believe a fraud cannot occur? If Amaranth can lose 2/3 of it's value in 2 weeks from 1 broker who independently lost over 6 billion dollars?
No. We just believe that it has a very low probability of occurence and that appropriate risk measures have been taken. When I wear pants, I draw the line at belts & suspenders and I'm not tying a rope around my tinfoil hat in case the first two fail.

Ye gods, if Sarbanes-Oxley isn't reducing fraud then we're wasting a lot of money on audits. As for Amaranth, that seems to be more "poor volatility management" or even "stupidity" than "fraud".

Quote:
Originally Posted by Running_Man
All in one basket allows one lightning strike to wipe you out.
Diversification only works if the asset classes are uncorrelated (reducing volatility) and if the returns aren't hammered by some other adverse effect (like inflation). Frank Armstrong calls diversification for the sake of diversity "diworsification". And if spreading your money around two or three brokerages results in higher expenses then it strikes me as a high premium for little or no additional protection.

One could argue that staying with one broker is also the benefit of SIPC & private insurance. Otherwise I'm wasting my money on other types of insurance (property, auto, & liability) where I could be using the premium payments to diversify into REITs, gold, and beever cheeze futures. And yes, the probability of my diversifying into those asset classes is just as great as the probability of your basket being struck by lightning. No disrepect intended.
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Re: SIPC insurance?
Old 11-28-2006, 05:10 PM   #22
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Re: SIPC insurance?

Forget SIPC, what about the other issues? A poster on this board had access to their account blocked just last month when Vanguard suddenly decided to shut out their entire country. Or what if a hacker breaks into your account and runs it down to nothing pumping and dumping penny stocks? And even with SIPC or too-big-to-fail protection, your money could be locked up for a while waiting for the dust to clear.

As for costs, there are enough reasonably-priced providers out there that I don't see that as a big issue.

Now excuse me while I go work on my meteor deflector.
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Re: SIPC insurance?
Old 11-28-2006, 05:21 PM   #23
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Re: SIPC insurance?

re: costs - let's say splitting the money in two at vanguard and elsewhere means you can't get into the admiral funds and save the 0.1% in expense ratio. That's $1000 per year on a $1,000,000 portfolio. I think I could find a better use of the money than diworsifying into multiple account providers just to have that triple redundancy.
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Re: SIPC insurance?
Old 11-28-2006, 05:26 PM   #24
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Re: SIPC insurance?

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The San Diego County pension fund made a bad investment. Simple as that. Their loss is not the kind of loss SIPC insurance covers. Why did you throw the San Diego County pension fund issue into this discussion at all?
The only reason the SIPC is not covering that is that Amaranth was strictly in the hedge fund business. Many brokerages are both into Hedge Funds and the Brokerage business. One individual broker was able to lose 6 billion and as a matter of course the investigators could not determine the amount of the loss until weeks after the mismanagment of the funds occured. Had Amaranth had a brokerage unit, it too would have been bankrupted if not doing well enough to save them, and the SIPC would have stepped in for an orderly transition. In such a case you will not have access to your money for anywhere from 1-9 months.

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Re: SIPC insurance?
Old 11-28-2006, 05:31 PM   #25
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Re: SIPC insurance?

Quote:
Originally Posted by Running_Man
Why is it anytime one asks a question and there is a disagreement over a low probability event happening that the response is "tinfoil hat territory". I take answers such as that as insulting the person...".
Not at all! This thread is about examining a low probability event and trying to determine how low the probability really is. Brewer did exactly that. I appreciate his candor.
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Re: SIPC insurance?
Old 11-28-2006, 05:42 PM   #26
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Re: SIPC insurance?

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I think subsequent illogical questions can appropriately be met by the "tinfoil" or "meteor deflector" words to try to jolt the questioner out of their rut. (No disrespect intended to those who are already wearing tinfoil hats while designing their deflectors.) If a questioner can't use those comments for self-examination without getting their feelings hurt then they should probably find another Internet discussion board.
I do not understand how another poster agreeing with the original poster is being disrespectful to another who a different point of view. Has absolute consensus of such importance to your state of mind that those with opposing views are to be either corralled back to the herd or expelled from the ranch? That to me appears to be the point of your post.
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Re: SIPC insurance?
Old 11-28-2006, 05:55 PM   #27
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Re: SIPC insurance?

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Re: SIPC insurance?
Old 11-28-2006, 07:13 PM   #28
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Re: SIPC insurance?

Quote:
Originally Posted by Running_Man
I do not understand how another poster agreeing with the original poster is being disrespectful to another who a different point of view. Has absolute consensus of such importance to your state of mind that those with opposing views are to be either corralled back to the herd or expelled from the ranch? That to me appears to be the point of your post.
And you seem to be desparate for us to agree with you. Careful, or I will repeat the thing about the goats...

If it makes you feel safe to split up your accounts, have at it. Free can of tinfoil hat polish with every new account opened at Gnomes of Zurich Brokerage Inc.
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Re: SIPC insurance?
Old 11-28-2006, 07:49 PM   #29
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Re: SIPC insurance?

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Re: SIPC insurance?
Old 11-28-2006, 08:29 PM   #30
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Re: SIPC insurance?

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Originally Posted by brewer12345
And you seem to be desparate for us to agree with you. Careful, or I will repeat the thing about the goats...

I do not recall taking a position on this as I have not yet decided what would be the best course of action. I was curious as to the thought of impossible bankrupcty of a major brokerage house. I have monitored this website for several months and enjoy the good thoughts brought here, but the frequent taunting of unfavored opinion is detrimental to the points attempting to be made. My few posts should indicate I am in no way desperate for attention despite the several months of following this website for good ideas. I enjoy more than one point of view myself
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Re: SIPC insurance?
Old 11-28-2006, 09:31 PM   #31
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Re: SIPC insurance?

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Originally Posted by Running_Man

I do not recall taking a position on this as I have not yet decided what would be the best course of action. I was curious as to the thought of impossible bankrupcty of a major brokerage house. I have monitored this website for several months and enjoy the good thoughts brought here, but the frequent taunting of unfavored opinion is detrimental to the points attempting to be made. My few posts should indicate I am in no way desperate for attention despite the several months of following this website for good ideas. I enjoy more than one point of view myself
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Re: SIPC insurance?
Old 11-28-2006, 10:34 PM   #32
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Re: SIPC insurance?

If a brokerage goes bankrupt, it doesn't mean your investments go to zero. Your mutual funds hold real company stock. That doesn't change no matter what the financial situation of the brokerage - what you own is securities.

Now if a company goes bankrupt, it's stock can go to zero - no insurance for that!

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Re: SIPC insurance?
Old 11-29-2006, 06:57 AM   #33
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Re: SIPC insurance?

Quote:
Originally Posted by Running_Man

I do not recall taking a position on this as I have not yet decided what would be the best course of action. I was curious as to the thought of impossible bankrupcty of a major brokerage house. I have monitored this website for several months and enjoy the good thoughts brought here, but the frequent taunting of unfavored opinion is detrimental to the points attempting to be made. My few posts should indicate I am in no way desperate for attention despite the several months of following this website for good ideas. I enjoy more than one point of view myself
OK, well, great. A question was asked and answered by myself and others. If you have an alternate view, then let's hear it. If your alternate view is "I am just terrified so I will split up my accounts", expect to be further mocked. If you have a cogent argument, we will all be interested since the question is of more than academic interest to many/most of us.
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Re: SIPC insurance?
Old 11-29-2006, 09:31 AM   #34
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Re: SIPC insurance?

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OK, well, great. A question was asked and answered by myself and others. If you have an alternate view, then let's hear it. If your alternate view is "I am just terrified so I will split up my accounts", expect to be further mocked. If you have a cogent argument, we will all be interested since the question is of more than academic interest to many/most of us.
Actually this thought has never crossed my mind prior to this thread as I do not have in excess of 500 thousand at the present time to invest as I have one broker and my 401K through my present mega corp.

But your post is further to my post, why must you mock? If the possibility of SIPC ever being used is so little as to be inconsequential then why does it exist at all? Is the 500 thousand also worthy of mocking as it is of so little use except to placate those you would insult who would seek it's insurance?

My posts did not really concern the topic per se but the frequency of which other stated alternated views which are in stark contrast to the voluminous posters, when the event is low probability, on a variety of topics. Brewer, I know from readings of your posts you have many good ideas, but you do seem to be troubled by low probability thoughts and find amusement in belittling others taht would hold them. I find no benefit in that activity, most great ideas that have developed in society you will find were openly mocked at the time by leading voices of the era which had no time for such out of touch views. (the earth is flat, sun revolves around the earth, etc..)

I am hopeful you will find room for some patience for the point of view of a minority, even when you feel it is misguided.
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Re: SIPC insurance?
Old 11-29-2006, 10:05 AM   #35
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Re: SIPC insurance?

I hear where you are coming from, and I have some sympathy for those with minority views. After all, I generally have a portfolio of the most hated stocks on the planet; I definately hear plenty of negative sentiment all the time.

The reason you will see me mocking the chicken little's that run around here from time to time is partially a conditioned reflex from dealing wth h0suc (consider yourself lucky if that name means nothing to you), and partially because you must pick what you will choose to worry about very carefully. By the latter, I mean that there are many, many possible outcomes in the world, including those that are lots of standard deviations away from the mean. Some things you can insulate against without spending undue time and effort (proper portfolio diversification will save you from a Depression or a 1966 scenario, for example). Other things you simply cannot reasonably insulate yourself against: catastrophic global warming, capital markets or inflation much worse than the historical record, collapse of the global financial system, etc. It isn't worth worrying about the second category because you cannot do anything about it anyway.

It is pretty clear to me that a major brokerage failing falls in the second basket. Most FIRE'd folks can either learn to properly classify potential worries into basket A or basket B, do what they can to stay safe, and get on with life. Worrying about basket B stuff will either keep you at work a lot longer or have you worried about stuff you cannot do anything about and ruin your life.
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Re: SIPC insurance?
Old 11-29-2006, 10:19 AM   #36
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Re: SIPC insurance?

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Originally Posted by brewer12345
Exactly. I wouldn't go over the limits on the West Coast Gay, Lesbian, Bisexual and Transgendered Mutual Savings Bank, either.
Off-topic, but DW wanted to move our checking account to Bowie Bank when it opened:

http://www.chartattack.com/damn/2000/01/1003.cfm

I said no, and the bank closed soon after it opened. Some risks are easier to spot than others.
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Re: SIPC insurance?
Old 11-29-2006, 12:33 PM   #37
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Re: SIPC insurance?

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Originally Posted by brewer12345
Some things you can insulate against without spending undue time and effort (proper portfolio diversification will save you from a Depression or a 1966 scenario, for example). Other things you simply cannot reasonably insulate yourself against: catastrophic global warming, capital markets or inflation much worse than the historical record, collapse of the global financial system, etc. It isn't worth worrying about the second category because you cannot do anything about it anyway.

It is pretty clear to me that a major brokerage failing falls in the second basket.
I don't agree.

1) It is trivially easy to do something about it -- simply keep some assets somewhere else.
2) Major brokerage failures are not unheard of (one happened here just 10 years ago -- I believe mikew had some assets there at the time). Yes, you would likely come out more-or-less whole eventually (so comparisons to global warming or financial system collapse are overblown), but it could be inconvenient to aggravating or worse if you don't have something somewhere else to fall back on in the interim.

Seems to me at it ranks as at least an easily avoidable nuisance, and not as a paranoid doomsday scenario, so I don't see the need for tinfoil hat analogies.
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Re: SIPC insurance?
Old 11-29-2006, 12:34 PM   #38
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Re: SIPC insurance?

Great, then open multiple accounts. Good for you. :
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Re: SIPC insurance?
Old 11-29-2006, 02:18 PM   #39
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Re: SIPC insurance?

Quote:
Originally Posted by brewer12345
The reason you will see me mocking the chicken little's that run around here ...
But Brewer, you are somewhat of a chicken little yourself, when it comes to insurance
companies, specifically with respect to immediate annuities. I realize, of course, that
the insurance company is agreeing to PAY me money, whereas the brokerage house
simply has to NOT LOSE my money. But still, it's a radically different attitude about
the potential risk of catastrophic failure of an established financial institution, that I
don't fully understand.

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Re: SIPC insurance?
Old 11-29-2006, 02:22 PM   #40
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Re: SIPC insurance?

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Originally Posted by JohnEyles
But Brewer, you are somewhat of a chicken little yourself, when it comes to insurance
companies, specifically with respect to immediate annuities. I realize, of course, that
the insurance company is agreeing to PAY me money, whereas the brokerage house
simply has to NOT LOSE my money. But still, it's a radically different attitude about
the potential risk of catastrophic failure of an established financial institution, that I
don't fully understand.
Simple:

Brokerage: Custodian of my assets. They have little or no claim to the actual assets, at least if we are talking about regulated US brokerage houses. If they blow up, I might have to wait a while for things to clear up, but the creditors of the brokerage do not have a claim on my stocks, bonds, etc.

Payout Annuity from an insurer: I loan the insurer money which they pay back to me. If the insurer blows up, my assets are NOT segregated; all I bought was a promise of repayment from the insurer. If they go balls up, I can stand in line with the other creditors.

Also, a brokerage account is only until I choose to move the account. A payout annuity is forever.
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