Can I short one of these CDs! Only a criminal can sell that product! Amazing - what will they come up with next?

First product ever to explicitly guarantee a loss.

Poof! it's gone....

From your link:

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Banks benefit from issuing structured CDs, which the FDIC insures up to $250,000, by raising deposits at lower funding levels and collecting commissions, said Tim Bonacci of CD Funding Securities LLC, who’s helped about 30 financial institutions set up their own proprietary CD business since 2005.

Doesn't this mean any losses are covered by the taxpayer?

Thread title is perfect.

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The FDIC is supposed to protect depositors, not firms that set up hinky derivative structures with depositor funds.....

There was a time that I believed that.

The reason is because they (apparently) get to call it a "CD" which will confuse the crap out of even reasonably experienced folks.

This is fricken brilliant! They call it a CD so they can sell it to non sophisticated investors (seniors hurting for a return) and give them a massive shearing! And if the market is negative for that month it appears to eat into your principle. Goldman is basically shorting the market without having to put up margin. GS bonuses all around!

Wow, it tracks the monthly percentage change as well. So it compounds like a leveraged ETF, albeit on a slower timescale.

Nice - so if everything purrs along, GS makes a nice, safe, guaranteed profit.

And if GS blows up and dies - it means the entire market will be falling like a stone - and the taxpayer picks up the losses.

The only kicker we need is having GS bet against its own product massively, crash itself and the market in general, then buy itself back for pennies on the dollar, along with other companies, - using a subsidiary based in London.

Genius!

Let friction reign!

This sounds like a prominent financial product of exceptional quality. I hope all of our members of Congress and other politicians seriously consider investing their own retirement savings in such instruments, which have the confidence and security of FDIC backing!

It's another doomsday device.

But my question is - if the bank issuing this doomsday device doesn't go under in the short term, say the market goes down 10 percent in a month, then stops, and some principal is lost in the 'CD', is the FDIC on the hook for that loss? Or does the FDIC only come into play if the bank goes under?

Insurance companies have been selling Index Annuities for 15 years. Every year they come up with a new way to compute returns. Thanks to Bernanke, the only way to show any kind of return is via derivatives.

They claim guarantees, but they are all using Bernanke accounting. This is why there are trillions in Derivative contracts. This has grown by leaps and bounds in the past few years to "enhance" yields. Nothing but a major ponzi scam that will implode in a major way. This is another "index" scam to suck people in to more risk. All ZIRP has done is to revitalize wallstreet in selling more worthless crap. It shouldn't be long before the entire middle class is broke............

I have enough vitriol for equity indexed annuities. They at least pretend to protect your principal. This is unbelievable.

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is the FDIC on the hook for that loss

Doubtful. If I had to guess, the loss would be structured as a bank fee, any profit as interest paid.

The FDIC isn't on the hook for accrued interest that hasn't been credited, and would likely consider the loss to be a fee.

The article states that the return can be anywhere between .5% and 24%. That sounds like they are guaranteeing the deposit and a minimum interest rate, so only the rate of return is subject to market risk.

Even if true, though, it is a product for suckers.

The FDIC is not on the hook for your guaranteed loss on the investment, only if the issuer goes belly up would the FDIC become involved.

****ing parasites doing what they do best.

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The article states that the return can be anywhere between .5% and 24%. That sounds like they are guaranteeing the deposit and a minimum interest rate, so only the rate of return is subject to market risk.

I think what they are saying is only the .05% interest payment is guaranteed. However the losses are not. If over the course of the year your initial deposit of $1,000 lost $100 via market risk, they would still pay you the $5 guaranteed return making your loss only $95.

They have had annuities that worked like this for years. They can't go down and can only go up. The guarantee is based on an amount less than the principal compounded by a guaranteed rate. People that don't know better have probably bought tens of billions of these pieces of crap. Problem is there isn't enough return to buy enough options to allow for the upside to be bigger.

I have seen very few equity linked interest rate programs that were worth a damn once you moved past the originals. But, the originals had higher interest rates to allow for more potential gain, reset annually, had a guaranteed gain and were point to point. Every adjustment since has diluted what you could make out of them.

I never considered a monthly point to point to be a viable deal. Even when the point to point was 3% or higher, there were too many 5% down months in a typical year and too many months the market moved 5% when you got 3% or less. With the insurance product, you were at least guaranteed not to lose your money.

The poor idiot that buys this stuff sees he can make 18% to 24%. I'm trying to think of a year this strategy would have made 10%? Maybe 1996, if the adjustment missed the July plunge, which was rapidly erased. 97 had a large October plunge and a rough early part of the year. 99 would have probably been the exception, but I recall the Dow had pretty wide swings that year.

I'm curious what this strategy would have done in 2009? January and February were so bad that I doubt a perfect record for the last 10 months would have made any money. 2010 had a couple of monthly plunges and that mark laid there until November when the idiot bought more debt. I suspect we got another zero.

If this strategy has no floor, it is nothing but a game to give Goldman free money to play with. They aren't so stupid to believe the upside to be any more than an average of 3% on these things. Plug 1995 to 2002 into this strategy without a floor and see if you didn't lose 30% of your money and I doubt it made 25% in the 1995 to 2000 six year period. If memory serves me correct, 1995 would have probably produced a nice gain, but remember what you could have earned in 10 year treasuries at the end of 1994. The strategy has almost no upside potential and the downside is Goldman steals your money. Buy an annuity if you are tempted to play this strategy and be picky. State insurance boards pay much more attention to where your money is than the SEC, FDIC or the Fed.

My suggested product acronym: HWWTYL (heads we win, tails you lose)

And wonder myself who in the hell would buy these. Unbelievable.

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On the stated maturity date, we will pay you for each $1,000 face amount of your CDs, an amount in
cash equal to the sum of $1,000 plus the supplemental amount.

http://www.fisn.com/resources/pdf/Goldma....


While I am not defending this structure, some of y'all are misunderstanding the way it works. While the upside is capped, the downside is return of investment (FDIC guaranteed) plus the "supplemental amount" which appears to be a minimal rate of interest, substantially less than a plain vanilla CD would offer.

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They call it a CD so they can sell it to non sophisticated investors (seniors hurting for a return) and give them a massive shearing!

Great. Yet another senior citizen scam that causes us the need to keep an eye on our older relatives' finances so they don't get sucked into. Now there's even less of a difference between Goldman Sachs and small-time con artists that regularly scam old people.

Nanna -

As I asked in the "Breaking" thread, is it not possible for the "supplemental amount" to become negative? How else to explain the unlimited cap on the downside?