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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Thursday, December 15, 2011

Goldman Sachs and CDs

Goldman Sachs sees another opportunity for screwing investors by tapping retail deposit funding with FDIC guarantees of the principal. Oh, that squid is so innovative and smarmy! Goldman offers 'structural' CDs (Certificates of Deposit) with a 4-year CD linked to the performance of the DJI index. These are only for 'sophisticated' investors, you understand.

However, Dan Caplinger of The Motley Fool has some cautionary information about individuals who may want to invest in Goldman Sachs's CDs--Don't!

Yet Another Goldman Investment You Shouldn't Buy
By Dan Caplinger - The Motley Fool

Goldman Sachs (NYSE: GS ) earned a terrible reputation during the financial crisis. It ended up paying $550 million to the SEC to settle charges, admitting that it offered complex investments involving subprime mortgage-backed securities to investors -- without bothering to tell them that the hedge fund that helped choose those securities also had a short position against the offering.

You'd think that having paid such a high penalty for its misdeeds, Goldman might have learned its lesson. But late last week, reports surfaced that Goldman is planning to offer a new investment that unsophisticated investors may find just as misleading -- and which may disappoint them nearly as much.

The best of both worlds?
According to reports, Goldman plans to offer equity-linked certificates of deposit. In contrast to regular CDs, with which you can predict with absolute certainty exactly how much interest you'll receive throughout the length of their term, equity-linked CDs typically use well-known stock indexes like the Dow Jones Industrial or S&P 500 to help determine their total return. And as their name suggests, the idea is that if the stock market does well, then your CD's return will be better.

The key incentive for most investors, though, is the downside protection that equity-linked CDs provide. Obviously, investing in a stock index fund exposes you to the full extent of any losses for the market. By contrast, equity-linked CDs usually guarantee that you'll at least get your full principal back, no matter how badly the market does. Reports suggest that Goldman's four-year CD will give a minimum annual return of about 0.5%, while potentially maxing out at 24%.

To be clear, Goldman isn't the only bank that offers equity-linked CDs. JPMorgan Chase (NYSE: JPM ) sold the first such market-linked product back in 1987. Today, you can find such CDs at banks including Wells Fargo (NYSE: WFC ) and HSBC (NYSE: HBC ) . Each bank has a slightly different angle on how it ties returns on its CDs to the stock market, but they all share the same general idea: Limit your downside while potentially boosting your upside.

Why these CDs aren't worth your time
The problem, though, is that "equity-linked" doesn't mean that you'll get the exact return of the index the CD tracks. According to Bloomberg, the Goldman CDs will look at the Dow's returns every month. If the Dow rises, then the gains are capped at 1.5% to 2% for purposes of calculating the CD's total gain. If the Dow drops, however, then the losses are fully incorporated into the tracking value for the CD.

Obviously, that puts a downward bias on the CD's total return. And again, while investors may have guaranteed return of principal -- a guarantee that the FDIC backs -- the chances of them earning exactly no interest whatsoever are a lot greater with such artificial calculations underlying the deposit.

Get smarter
In fact, last month's issue of Rule Your Retirement included some information on this exact subject. With insurance companies like ING (NYSE: ING ) offering similarly structured equity-linked annuities, Foolish retirement expert Robert Brokamp talked with special guest Allan Roth about cheaper alternatives to get the protection you want. The problem, in Roth's eyes, comes from two places: complicated prospectus materials that obscure the actual calculations involved, and huge fees that make these CDs losing propositions. The Bloomberg article cited one structured CD expert who says that fees on a five-year deposit can be around 3%.

With banks like Goldman, Citigroup (NYSE: C ) , and Bank of America (NYSE: BAC ) having taken so much taxpayer money in bailouts, the American public is outraged at practices that try to trick customers into thinking they'll get better returns than they actually will. Equity-linked CDs are exactly the type of innovation that you don't need to get richer for your retirement.

Read the entire article here

Since posting this article, I have found a better one explaining why you should not buy Goldman's structured products like CDs here


Kleptocratic Power Elite rule said...

The "Rothschild's" Plan of 2012

Lets bring things down, buy up the real-soverign assets hard-assets that belong to the people in various countries, and then control the super-nationalality (Empire) though financial sponsorship. The names have changed to Goldman Sachs and JP Morgan and other corporate too big to fails, the personalities are different be they Jamie Dimon, Lloyd Blanenfien, Warren Buffet, George Soros. The game plan seems to have remained the same. Get insider deals with lots of leverage with you yourself lacking the capital, manipulate markets to cause distress, buy those distressed assets, cause chaos in the streets, tell nations what to do, then control the super-nation of Empire using the financial puppeteer's strings.

JEHR said...

Dear Mr. Blankfein

You must have learned as a small boy how important it was to be truthful.  Remember how you blushed and stammered when you were asked if you had told a lie?  Well, we gain the ability to lie well and truly as we get older and I'm sure you have had ample opportunities to use Truth to suit your purposes.  Let me give you an example.

During the FCIC inquiry and the Levin/Coburn questioning, you did not feel that you had done anything wrong.  You were only making a market.  Market making!  But as you pocketed your $68.5 million earnings in 2007, did you not think even once that you were pocketing a working man's pension money so that he would have to work beyond retirement age in order to have enough money for a decent living?  Did you not think of the single mother who was left homeless because she was foreclosed on so that your bank would have enough sub-prime mortgages to make securities with?  In your pocket also were the savings of many people's 401ks.  How many individual people's savings does your $68.5 million represent, do you think?

If you had told the truth, you would have acknowledged that your securities were secure only for you and Goldman Sachs, not for the investor who got toxic securities (and no security at all!). As you put that money in your pocket, it should have burned an enormous hole in your suit just as your untruthful testimony should have set your pants on fire!

As you get older, you will begin to understand that truth is something to aim for.  When you die, you do not want to be known for anything but your integrity.  But if you have damaged your integrity, you get to be known only as a "vampire squid."  What kind of legacy is that?

The Truth Will Set You Free.


A Believer in the Better Aspects of Human Nature

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