On Feb 16, 1:16*pm, Will Trice <wtr...[at]notmonitored.com> wrote:
- quote -

Securities Investment Protection Corporation covers stocks, as I
recall. In the event of broker bankruptcy it guarantees you get the
securities certificates you held in your account. The FDIC covers bank
deposits - not that I'm going to read the fine print, but that covers
$100,000 cash (and perhaps cash equivalents). Brokerages carry their
own private sector insurance, usually for much larger amounts than
100k, and that kicks in above the FDIC insurance.

Honestly, the thing that kind of bothers me about insurance is that in
a domino-effect scenario, where does the moeny come from? We are
seeing the effects of that with the so-called "municipal bond
insureres" who ALSO insured CDO's marketed by hedge funds.

Apparently, few wish to listen to me on this, and I kind of got
bounced off this forum once for trying to defend my position on risk.
Ben Graham's "Security Analysis" dedicates about one page to risk. The
idea is to analyze whatever you're investing in until you have a
thorough understanding of its fundamental soundness - and that's how
you eliminate risk. The oh-so-popular notion that risk is positively
correlated with reward is no more than a fractured extrapolation of
purely untested academic hypothesis, bandied about by those who wish
to sound sophisticated. The facts are that return is higher when one
reduces risk by careful analysis.

The riskless rate of interest (T-Bills) is only called that because
there is nothing safer. But as some have pointed out here in this
thread, municipalities have remarkably low default rates. By inquiring
about a municipality, its financing, and "times interest covered," one
can further reduce the already small "historical risk" of default. As
someone similarly pointed out, all CD's are not equal - some banks are
less sound than others. (I'm so happy and proud to see the correct
idea about analysis and risk talked about!!)

The nature of SIPC and FDIC and supplemental insurance is not to
insure the quality of the investments, but the distribution of those
investments to the account holders in the event of institutional
failure.

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote in message
news:kekvj.639458$kj1.509944[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -


The local rag published these links to check bank safety last week:

www.bauerfinancial.com

www.institutionalriskanalytics.com

www.FEDFIS.com

www.bankrate.com



I barely skimmed them and have no opinion as to their value.

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On Feb 22, 5:25*am, "Gil Faver" <rowdy'sb...[at]xxyz.com> wrote:
- quote -

If the bank is publicly traded, you could look at how the stock has
done recently. A big drop would raise flags. You could look up the
rating of the bank's debt, for example Googling "moody's rating
citigroup". I think bank deposits rank higher in the capital structure
than traded debt, so the deposits should be a little safer.

Bankrate.com http://www.bankrate.com/brm/safesound/ss_home.asp has
"safe and sound" ratings. I don't know how reliable they are.

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How can one quickly access the status of an issuing bank of a brokered CD?
The FDIC website has lots of data on the banks, but isn't there some rating
service that summarizes this data? I am not planning on exceeding the FDIC
limit of $100k, but would like to avoid any bank that is teetering on the
edge, just to keep my life simple

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"Will Trice" <wtrice[at]notmonitored.com> wrote in message
news:47B70EAB.5030300[at]notmonitored.com...
- quote -

That number (0.1%) is the figure I usually quote for A-range munis, but I've
never taken a good look at the time scale. Obviously the longer the bond,
the greater the cumulative probability of a default somewhere along the
line. The point of my cite was simply to offer evidence that all A-range
munis have similar default probabilities.

If one wants to look at (annual) default rates instead of default
probabilities, we have this CNN/Money article asserting that the default
rate of single A munis is historically 0.0084%; BBB's default at a rate 7
times as high (0.06%), or about 1/10 the default rate of AAA corporates.
This is why muni insurance is more about marketing than real risk.
http://money.cnn.com/magazines/fortu.../04/103006904/

Mark Freeland
BnetOnewsX[at]sbcglobal.net


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joetaxpayer wrote:

- quote -

How does SIPC insurance and the extra insurance some brokerages buy play
in this?

-Will

william dot trice at ngc dot com

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Mark Freeland wrote:

- quote -

For what it's worth, I was reading an article in the Wall Street Journal
yesterday (I don't have it in front of me - second page, first column of
"Money and Investing" section?) that said 0.1% of munis default. It may
have broken this down into credit ratings, can't remember.

-Will

william dot trice at ngc dot com

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beliavsky[at]aol.com writes:

- quote -

Um, recent evidence suggests that the uninsured portion of one's
deposits may, in fact, not come back to you:

<http://www.marketwatch.com/news/story/how-risky-uninsured-bank-deposits/story.aspx?guid={03FBB3D6-6F11-455A-8730-04DC7082FEEA}&siteid=yhoof
If you have uninsured deposits at a bank, should you worry?
Possibly. Depositors without FDIC coverage lost money in at least
two recent failures -- NetBank, Alpharetta, Ga., and Miami Valley
Bank, Lakeview, Ohio.

Of $109 million in uninsured deposits at NetBank, nearly 30% has not
yet been reimbursed. Of $14 million in uninsured funds at Miami
Valley, only 5.9% of uninsured funds, so far, has been
reimbursed. All deposits in the most recent failure -- Douglass
National Bank, Kansas City, Mo. -- have been reimbursed.

If one is concerned enough that one is putting one's money into
an FDIC insured account or institution, it seems reasonable that
said person should be concerned about the limits of that protection.

I see no reason to think that the Fed will guarantee any more
than the well known FDIC limits. Which are reasonably
substantial - $100,000 and $250,000 on IRAs.

It's easy enough to spread more than that across multiple banks
or to just buy treasury securities directly. I see no need to
take on bank credit risk by exceeding the FDIC limits.

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"Douglas Johnson" <post[at]classtech.com> wrote in message
news:d917r395gh86nqb8fbptlgitpgjebg5qbl[at]4ax.com...
- quote -

True as far as this goes. I mentioned AAAs simply because that's the yield
data readily available; personally, I tend to go after AAs. They are
virtually as safe as AAAs. All A-bands of munis (A, AA, AAA) have similar,
low default rates.

(I did a quick search on default rates, and came up with this Fed paper
showing that for 20 year maturity munis, "default probability" [don't know
the scaling] for AAA was 0.557, for AA/A was 0.631, for BBB was 1.211
http://www.federalreserve.gov/pubs/f.../200535pap.pdf)

The paper seems to suggest that the relatively high yield on munis
(typically 85% of treasuries) is due to a lack of liquidity. That's real,
and why one ought to buy munis to hold to maturity.

In the muni market, insurance is largely a marketing tool - people are
willing to pay up for AAA, even though the default rate is already very low.
If anything, I regard the downgrading of insurers as a significant buying
opportunity (though you need to estimate what the "natural", uninsured,
rating of the bond would be).

Mark Freeland
BnetOnewsX[at]sbcglobal.net

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"Mark Freeland" <BnetOnewsX[at]sbcglobal.net> wrote:

- quote -

Be careful with AAA munis. Many of them hold AAA ratings because they are
insured. Many of the insurers are in trouble because of the subprime mess. If
the insurer losses it's AAA rating, so does the bond.
-- Doug

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote in message
news:RsednUZ8FtWS5C7anZ2dnUVZ_sednZ2d[at]comcast.com...
- quote -

looking at my online broker, buying a fist full of brokered CDs seems pretty
easy, although I do agree with beliavsky. Also, buying a fist full makes a
smoother ladder.

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beliavsky[at]aol.com wrote:

- quote -

The time and effort to buy the brokered CDs, and thus eliminate that
risk (of inconvenience if nothing else) is minimal. The FDIC limits are
stated, and while I agree that the government will likely not let banks
fail, assuming you'll get back the excess deposits is not what I'd
advise. (not to mention the better rates one finds on those CDs. )
JOE

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On Feb 13, 12:55*pm, "Gil Faver" <rowdy'sb...[at]xxyz.com> wrote:
- quote -

Warning, opinion ahead .

Federal bank governors, including Bernanke, often talk tough about
inflation, but they are clearly pansies who will cut the Fed Funds
rate and take other steps to avoid "systemic risk". There used to be a
Greenspan put, and now there is a Bernanke put. The recent Tuesday
morning surprise 75bp cut in the face of plunging stock markets was a
dramatic example. I am confident in predicting that the Federal
Reserve will never let bank depositors, especially those of big banks,
lose their capital. If a big bank such as Citigroup got in trouble,
they would entice some other bank to take it over and protect the
depositors. Shareholders and possibly bondholders would be allowed to
take a loss, but not depositors in plain-vanilla instruments such as
bank CDs. The Federal Reserve will do anything to prevent a run on the
banks, which might be precipitated by a default on the CDs, savings,
or checking accounts of a bank. So I would not lose much sleep over
having amounts of money, over the FDIC limits, on deposit at a bank,
except for liquidity concerns. If a bank failed it might take some
time for accounts to be unfrozen.

In the UK, I believe their central bank is guaranteeing the deposits
of the Northern Rock to prevent a bank run. The same thing would
happen here. I could be wrong about this, of course. Nor am I saying
there is a free lunch. The side-effect of what I see as an implicit
Fed guarantee of all banking deposits is that monetary policy is
looser than it otherwise would be, and inflation is higher.

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote in message
news:8GFsj.595230$kj1.377710[at]bgtnsc04-news.ops.worldnet.att.net...
- quote -

Munis. Under normal conditions, they yield about 85% of treasuries.
Currently, according to this FT article
(http://www.ft.com/cms/s/0/b1c031c6-d...0779fd2ac.html, Feb
12), AAA yields are about equal. And according to Fidelity's bond search
engine, the muni AAA GO curve is actually above the Treasury curve out to
five years.

With a couple hundred thousand, you can build a nice diversified muni
portfolio.

Mark Freeland
BnetOnewsX[at]sbcglobal.net

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote
- quote -

I have a few brokered CDs I was thinking about selling
recently. They are with Fidelity. The commission for selling
them online is $1 per $1000 value, with a minimum commission
of $8 required. I expect the cost of buying a secondary
market CD is the same.

One problem it seems to me is that the market for secondary
market CDs is small. With Fidelity at least, pricing
information is not all that readily available. At Fidelity,
ISTM one has to work with a live representative to trade in
secondary market CDs efficiently. Even then, it may not be
financially efficient. Secondary market CDs are going to pay
the same rates as new issue CDs. The risk is the same,
assuming all are FDIC insured. So I would say because many
more new issue CDs are available, they are easier to buy.

Plus your friend is likely stuck with the problem of having
over a dozen CDs, even if purchased on the secondary market.

The alternative is either to stick with laddering or be
patient. Laddering will smooth out drops in the benchmark
interest rate and its effects on CDs. Patience can pay,
since inflation looms, and rates are going to go back up at
some point. As usual, slow and easy wins the race.

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In article
<8GFsj.595230$kj1.377710[at]bgtnsc04-news.ops.worldnet.att.net> ,
"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote:

- quote -

Brokered CD's are traded by big brokerage houses and some banks.
You get access to all kinds of CDs that your local bank doesn't
handle. For example, people may sell off their CDs to use the
cash elsewhere, and the brokerages act as a secondary market
for this paper.

I just bought some this morning. Treasuries were in the 2% range.
The best 90 day CD was at 3.29%. I picked up some brokered CDs
at 3.45% and 3.50% return in the 4 and 5 month horizon.

The fees are built into the yield, so the broker quotes you the
rate that you will get.

I have no idea how the insurance works. The individual CDs are
FDIC insured. I rarely buy fixed income, and I don't put more
than $5K at any one institution incase something goes bad.
That is obviously not the scale that your friend is working on.

The other item that my broker suggested was taxable munis. You
can find rates over 6%, but you are looking at a year or more
tie up. I didn't want to tie my funds up that long since I am
looking for a turn-around in the 3rd quarter and I want cash
to invest at that time.

-john-

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ok, T-Bill rates have sunk well below CD rates, for the time being. A
friend has a lot of money in a 6 month T-Bill ladder, and wants to see if he
can increase yield. CDs would be better, but even if he puts a couple
hundred thousand in each CD institution (well over the FDIC limit) he would
need a dozen CDs.

any other alternative?

What is the scoop on "brokered CDs"? costs/fees?

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