> From enrique at anise.ee.cornell.edu Sun Nov 7 10:42:03 1999
>
> The way I see it, a Bank One - GS merger would give GS access to
> Bank One FDIC-insured depositors' capital, effectively putting
> FDIC behind GS trading activities. Is this incorrect?
Yes, I think it's incorrect. If anything, the division between customer money and house money is much more cleanly made at investment houses, mostly because they are arrogant and believe that house bets will pay off and they don't want to share the winnings with the "depositors" -- typically an investment account will be either a) invested in securities which won't be affected by a bust of the house or b) invested in a cash money market fund, which is typically fully invested in US Govt. bonds, or whatnot. SIPC typically insures up to $250k, but most big firms provide up to $1M of insurance; this is expected only in fraudulant cases where small firms have dipped into the customer cash. GS certainly provides the higher level of insurance coverage. But money "under supervision" at GS is not available for proprietary trading activities; there's zero chance you'd be affected by proprietary trading losses. On the other hand, Bank One specifically says that the money you deposit in your savings account wil be used to fund (possibly bad) loans.
In fact, the only thing that can happen to you at an investment firm along these lines is that they can loan out any stock (to be shorted) you own (they of course keep the float, you sign that away when you sign up for a margin account). So in a sense, loaning out stock to be shorted is much less risky than loaning your savings deposits out to the branch manager's buddy who wants to open a Burger King or worse.
Net net, you're probably better off at a brokerage house than a bank, especially a bigger one.
/jordan