Goldman Sachs, the second-largest bank in America and frequent target of scorn at Wall Street Insights & Indictments, has launched a new venture.
Starting right now, for one measly dollar, you can partner with Goldman Sachs to make money.
It’s a safe bet, at least up to $250,000, so go ahead and get your tentacles on.
All you have to do is deposit a dollar in Goldman Sachs Bank USA – not by visiting a branch, because there aren’t any, but by going to GSBank.com and opening an account.
Goldman will pay you interest on your savings account well above the national average offered by other banks.
And it will use your money to make money for itself.
It’s a typical Goldman partnership with their customers – one for you, ten for them.
How will Goldman make a ton of money off you? They’re starting another bank, an online lender they’re calling Marcus, and they’re going to use the savings you park in GSBank to fund loans made by Marcus.
Here’s how the game will work and why you might not want to deposit more than FDIC insurance will cover, just in case things go wrong (and if the past is any indication, they likely will).
Why the “Vampire Squid” Needs Retail Deposits
Goldman Sachs wants – make that needs – to get into retail banking, meaning gathering deposits from Joe Six Pack and anybody else who wants the cache of having an account with Wall Street’s bad boys, infamously described by Rolling Stone magazine’s Matt Taibbi as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
The great vampire squid needs retail deposits because they are “sticky.”
Ever since the financial crisis and the demise of Bear Stearns and Lehman Brothers due to their inability to raise short-term funds when they desperately needed them, regulators have been pushing banks to have more secure sources of funds.
Retail deposits are the safest sources of short-term funding. Sure depositors can withdraw their money, but according to the Basel Committee, an international bank regulatory authority, retail deposits have only a 10% chance of fleeing within 30 days of some major financial turmoil.
That makes them “sticky.”
Banks use short-term funding sources, like issuing commercial paper, to finance their trading books and “assets.” For banks, loans and their trading positions are assets. Their liabilities are what they owe, which includes deposits.
But because deposits as liabilities are sticky, regulators are more comfortable with banks holding more deposits as a means of financing their assets.
Goldman’s almost always been an investment bank, but became a bank holding company (so it could borrow directly from the Federal Reserve) like a commercial bank, on a Sunday night at the height of the financial crisis in 2008.
Goldman created Goldman Sachs Bank USA (GSBank) a wholly-owned, direct subsidiary of Goldman Sachs Group Inc. to be its retail bank. GSBank is a New York State chartered bank, a member of the Federal Deposit Insurance Corporation (FDIC), and regulated by the Federal Reserve System.
In April, Goldman closed on the purchase of General Electric’s GE Capital Bank’s online deposit platform with $16 billion in deposits ($8 billion in direct deposits and $8 billion in brokered deposits). That new hoard was put into GSBank, which Liz Beshel Robinson, Goldman Group Treasurer, called a “new funding channel.”
GSBank already has more than $128 billion in assets (about 15% of Goldman’s total assets) against its deposit base of about $89 billion today.
This month, Goldman created Marcus, named after founding partner Marcus Goldman who in 1869 joined with Samuel Sachs to start Goldman Sachs. Marcus, formally, Marcus by Goldman Sachs (sounds like a line of men’s underwear) is an online lender, like Lending Club or Prosper (which, if you’ve been following along with me for a while, you know I’m not a fan of).
Marcus is slated to launch in October, when it will issue consumer and possibly small business loans just the way other online lenders do.
Online lending has taken a beating lately, which makes Goldman’s timing look terribly off – they’re supposed to be smarter than their peers and will supposedly make online lending work where others are failing.
With trading revenue, investment banking revenue, and other traditional revenue streams taking it on the chin lately, Goldman needs new revenue streams.
And that’s where you come in, partner.
To attract deposits GSBank is paying five times more interest on six-month CDs than national banks. On an annual basis, it’s paying almost 1.05% for your money.
Go ahead, “partner’ with them and help finance their lending business at Marcus.
But don’t deposit more than $250,000 in GSBank if you’re afraid Goldman’s notorious greed might imperil the bank and your deposits there, because $250,000 is individually what you’re insured for by the FDIC.
And you should be worried. Goldman, the vampire squid, has a long rap sheet when it comes to looking out for themselves while duping customers doing business with them (you can check out their rap sheet here).
Goldman Has a Long History of Duping Its Customers
As far as the squid’s big-time foray into retail, the story of the Goldman Sachs Trading Corp. (GSTC), Shenandoah, and Blue Ridge Corporation is a worthwhile reminder.
In December 1928 Goldman got into retail investment trusts in a very big way. With the bull market “long in the tooth,” it formed GSTC, an investment trust that pooled investors money to buy shares, pretty much like a mutual fund.
While the plan was to create a $40-$50 million pool (trust?) it began life as a $100 million fund formed with 1 million shares at $100 a share. Goldman bought all the shares GSTC accumulated and sold them to the public on the opening day at $104, netting a $3 million profit, which today is equivalent to $1 billion fee for one transaction.
When the share price got as high as $222.50, twice the value of the underlying cash and securities, Goldman got greedier. It sold more shares to the public, bought $57 million worth on margin for itself, formed another investment trust, Shenandoah Corp. that was seven times oversubscribed. GSTC owned 40% of Shenandoah while Goldman Sachs owned 10% of GSTC.
Then in August 1929, Shenandoah sponsored Blue Ridge Corporation, a $142 million investment trust, 86% of which was owned by Shenandoah. In the end, Goldman with $20 million in partnership capital leveraged itself on the backs of retail suckers wanting a piece of the Goldman mystique, up to $500 million.
Just before the October 1929 crash, shares reached $326, then fell to $1.76.
According to “Goldman Sachs: The Culture of Success,” Lisa Endlich’s beautifully researched book:
When asked many years later what sparked Goldman Sach’s desire to embark on this frenzy of activity, Walter Sachs sadly replied, “To conquer the world. Not only for greed for money, but power sparked it and that was the great mistake because I confess to the fact that we were all influenced by greed. We were carried away by the bull market, we thought these values were going to be justified…and the bottom fell out of everything as we were caught with our pants down.”
So go ahead and partner with Goldman – up to your protected limit. Otherwise you’ve got no one to blame if the squid’s tentacle pops a bubble somewhere and wipes out your savings.
At 10:00 am Eastern this morning, Federal Reserve chair Janet Yellen gives her greatly anticipated opening speech at the Federal Reserve Bank of Kansas City’s annual economic symposium held in beautiful Jackson Hole, Wyoming.
Today, I’m going to tell you what she says before she says it. If you’re reading this after the speech, you can gauge whether or not I was right.
This exercise, “guessing” what Yellen is going to say, before she speaks, is important.
It’s important because if I’m right, you’ll know I wasn’t guessing and you’ll know exactly how the actors in Jackson Hole are burying us alive.
And you’ll know what’s going to happen with financial markets.
Here’s what she’s going to say…
You Can’t Fight the Fed’s Future
The title of the meeting this year in Jackson Hole, which is usually attended by the Federal Reserve chair, the world’s central bankers and economists, is “Designing Resilient Monetary Policy Frameworks for the Future.”
The title of Janet Yellen’s speech, according to the symposium’s agenda, is “The Federal Reserve’s Monetary Policy Toolkit.”
So, first of all, I’ll tell you the symposium is about covering central bankers failed tracks and offering up a witch’s brew of monetary concoctions that, if necessary, will be implemented in the future, just so the world knows these gods of monetary manipulation have our backs and will make everything alright, no matter what fears we have.
Excuse me while I laugh my head off.
Yellen’s speech, and she’s wearing the tallest, most pointed black hat at the barn-raising event, will be about how the Fed hasn’t failed, how unemployment is better because of the Fed’s policies, how the U.S. is leading the world out of global recession, and how, not matter how it looks, there are other tools the Fed can drill and thrill us with, just in case we’re worried that what’s not really been working, stops working, or implodes us.
All this is necessary because the Fed’s credibility is in a ditch somewhere in Detroit.
Yesterday, the Wall Street Journal’s Jon Hilsenrath penned a fantastic piece titled “The Great Unraveling: Years of Fed Missteps Fueled Disillusion With Economy and Washington.” The subtitle was, “Once-revered central bank failed to foresee the crisis and has struggled in its aftermath, fostering the rise of populism and distrust of institutions.”
Hilsenrath cites how steeply confidence in the Fed has fallen, saying,
An April Gallup poll found 38% of Americans had a great deal or fair amount of confidence in Ms. Yellen, while 35% had little or none. In the early 2000s, confidence in Chairman Alan Greenspan often exceeded 70%.
Back when the cryptic Alan Greenspan spoke in tongues when he spoke at all, most Americans, and a good part of the world, thought he was some kind of monetary god. The economy was humming along and his mostly low interest rate policies seemed to be doing the trick. Of course, in hindsight, we know the original modern central bank cranks set us up for the financial crisis and Great Recession.
So much for black magic.
One reason the Fed gets it so wrong, so often, is their economic “models” are like trash trucks – garbage in, garbage out. They’re consistently wrong in their predictions and prognostications. Still, people believe they have some black box that predicts economic futures. They don’t and they’ve proved that for decades.
According to Hilsenrath’s article (which is impossible to argue with) the Fed:
…missed signs that a more complex financial system had become vulnerable to financial bubbles, and bubbles had become a growing threat in a low-interest-rate world; were blinded to a long-running slowdown in the growth of worker productivity, or output per hour of labor, which has limited how fast the economy could grow since 2004; and had no idea inflation wouldn’t respond “to the ups and downs of the job market in the way the Fed expected.
What’s Actually Being Said in Jackson Hole
So with all that in mind, and knowing the symposium is about “Monetary Policy Frameworks for the Future,” and that Chair Yellen is going to talk up her toolkit, here’s what she’s going to say:
What the Fed’s done has worked, look at unemployment at 4.9%
Look at the U.S. economy, it’s not good, but the Fed expects it to get better
Global markets still need help, but other central banks are doing God’s work
If there’s any slippage in the U.S. the Fed’s got the fixes
They can always do more QE since they have an unlimited balance sheet
They can buy other assets
They can take rates negative if they absolutely had to
They have other tricks in their bag that they don’t want to trot out unless they’re needed
Here’s what she really means, and what she’s not saying:
The only thing the Fed has to point to is lower unemployment, and if you’ll notice, financial assets are enjoying bubblicious highs, but let’s not talk about the bubble-making aspect of that.
The economy is crawling along at a 1.2% growth rate and that has to change because our models, that show inventories are depleted and will get restocked, say a better growth’s coming. Only, it may not happen, on account of the fact that our models are almost always wrong.
Global markets are in a death spiral and central banks are doing everything they can to save the world. Negative rates aren’t helping, and God help us all if any of these big economies slip back into recession or some black swan sinks some big financial market somewhere.
The Fed’s done all this before, it knows where its tools are and how to use them. More is always better if something’s not working.
The Fed’s done a couple rounds of QE, so it’s ready and willing to go the full 15 rounds if it has to. QE has never been an effective trickle-down policy, but it helps the banks stay profitable.
The Fed’s willing to buy more assets like more Mortgage-backed securities and other government-backed assets, not just Treasuries. Hell, we’ll buy corporate bonds, and stocks if we have to, because you know we can.
Negative rates are on the table. If the goes negative, they’ve lost all control.
There’s nothing the Fed can be stopped from doing. If it comes down to black magic they’ll try it because it’s about saving the Fed and its constituent big bank shareholders more than the economy.
Sure, the markets are flat, waiting with baited breath to whatever the witchy woman says.
They’ll be some reaction.
If Yellen is perceived to be dovish, meaning she’s leaning towards more easing, more stimulus, if necessary, markets will rally for a while. Maybe a few hours, days, or weeks.
If Yellen is hawkish, meaning she indicates things are so rosy a rate hike isn’t off the table (she won’t give a timeframe), markets will drop. Maybe a lot.
In the end, Janet Yellen’s job now is to not spook markets. It’s not about the economy, stupid. It’s about the markets holding up long enough for the economy to prove they’re not in bubble territory and that their lofty levels are justified.
Folks, there isn’t enough time on any economic clock for that to happen.
Janet Yellen and the Fed, like all the world’s central banks, believe they’re gods and can corral the free market and manipulate the world spinning on its axis to their beat.
Words will never be enough to control markets when they decide they’ve heard enough.
That’s what we have to look forward to, no matter what Janet Yellen says today.
Perhaps the most valuable piece of advice Shah had for viewers of a recent Varney & Co. episode was for investors to watch out for a repeat of last year’s 1000-point “flash crash.” Fundamentally speaking, there’s even less liquidity this year than there was last year. If the markets start to slip, it could get very ugly very quickly.
In a Washington Post interview earlier this month presidential candidate Donald Trump said “If the election is rigged, I would not be surprised, the voter ID situation has turned out to be a very unfair development. We may have people vote 10 times.”
Whether or not you like The Donald, as New Yorkers call him, you can’t fault him for saying the election could be rigged – because he’s right.
In fact, it’s even worse than he thinks.
But there’s a fix on the way – and it’s one of the hugely disruptive technologies we’ve been following over the last few months.
Here’s how easy it is to rig an election, how to fix voting to eliminate fraud, and how you can make money getting in on the fix…
On Making Money with Charles Payne, Shah addressed the question on everyone’s mind right now: will the Federal Reserve raise interest rates in September?
If so, what effect with that have on global markets?
It could have a huge impact on U.S. equities, the bond market, and even the presidential election.
That the markets are making new highs right now indicates that the Fed has the leeway to raise rates, but as Shah correctly points out, the central bank keeps moving the goalposts when it comes to rate increases.
What will happen come September? Click below for the full video:
If you have any intention of ever retiring, I’ve got some bad and good news for you.
The Federal Reserve’s zero interest rate policies were designed to benefit big banks with the hope that their flushed-up profits would trickle-down into the economy and spur growth. That hasn’t happened enough to benefit many Americans.
On Wednesday, I told you just how much money Americans have missed out on in the Fed’s near-zero interest rate environment – an astounding $470 billion between 2008 and 2013.
By the end of 2016, that number will balloon to $752 billion.
The Federal Reserve’s low interest rates – the same ones that caused the credit crisis and Great Recession – are absolutely killing savers, retirees, and the economy.
A landmark report from insurance giant Swiss Re shows how the Fed’s misguided interest rate policies cost savers $470billion in forsaken interest income between 2008 and 2013.
Based on Swiss Re’s math, by the end of 2016 savers, retirees, and pension funds will have been shortchanged by an astounding $752 billion.
Swiss Re calls the Fed’s actions “financial repression.”
I call it tyranny.
And it’s getting worse. In fact, it’s about to feel like torture.
Here’s how savers, retirees, and the economy are being repressed by the Fed’s manipulation of interest rates and what’s about to happen that’s going to turn tyranny into outright torture…
Let’s get to it…
Keeping Interest Rates Low Hurts Savers
By the end of 2016 Americans will have lost out on $752 billion of interest income they should have banked.
Not only have they not made money on their savings and fixed income investments, they’ve been cannibalizing their principal to buy food, pay rent and mortgages, utilities, and live.
The population segment suffering most are folks nearing retirement and, of course, retirees.
That’s because every financial lesson ever taught, every investment plan laid bare before investors tells them to reduce their exposure to risky equities and load up on safer fixed-income products, and bonds as they head into their later years.
In fact the old rule of thumb used to be subtract your age from 100 to determine the percent of equities you own, keeping the rest of your savings in bonds. So, every year we get older we’re holding more and more bonds, collecting less and less income.
In fact, fewer households and individuals are invested in the stock market than ever before. The market’s almost 60% drop in 2008 through early 2009 sidelined millions of investors who’ve totally missed out on the market’s astounding rise since March 2009.
Right now, if you have a nest egg of $1 million parked in super-safe 10-year U.S. Treasuries – yielding 1.55% right now – your interest income per year would be a whopping $15,500 a year.
Not only can’t you live on that, I’m about to show you how that won’t even pay your health insurance premiums starting in 2017.
Here’s How Things Will Go From Bad to Worse
It would be one thing, maybe, if the Fed’s low- and zero-interest rate policies stimulated economic growth enough to lift rates, give investors confidence in the stock market, and power the economy so “all boats rise with the tide.”
But that’s not happening.
Imagine how the public’s lost income of $752 billion would have affected economic growth.
That’s a lot of capital that would have been available for long-term investment, which would have gone to businesses to expand, hire workers, and increase the velocity of money throughout the economy and power growth.
Instead, low rates allow corporations to borrow cheaply to buy back their shares, as opposed to them planning long-term capital improvements, expending capital, hiring and growing earnings. But earnings are shrinking and buybacks, or so-called shareholder payouts, that are supposed to benefit equity stakeholders, get almost completely erased when the market falls and artificially pumped-up share prices fall back to earth.
No wonder the economy isn’t growing.
According to the Swiss Re report:
Financial repression is likely to remain a key tool for policymakers given the moderate global growth outlook and high public debt overhang. Whether the costs outweigh the benefits largely depends on the ability of governments to take advantage of the low interest rate environment by implementing the right structural reforms. So far the record for doing so hasn’t been comforting.
Sadly, that’s the good news.
The bad news is healthcare costs are increasing so rapidly that whatever savings low-income workers and retirees have is about to be decimated.
According to ZeroHedge:
A new study by independent analyst Charles Gaba – who has crunched the numbers for insurers participating in the ACA exchanges in all 50 states – we can also calculate what the average Obamacare premium increase across the entire US will be: using proposed and approved rate increase requests, the average Obamacare premium is expected to surge by a whopping 24% this year.
How does that translate into dollars and cents, you ask?
Fidelity Investments crunched the numbers into the future for us. Keep in mind these numbers came out before the latest calculation of premium increases expected by year end and in 2017.
Assuming a woman lives 22 years after retiring, Fidelity calculates her insurance premiums, co-pays, and standard medical costs for things like eye exams and glasses will cost $135,000.
A man’s cost will be $125,000, because men live on average only 20 years after retirement.
If you’re a couple, you’ll need to have about $260,000 to cover healthcare.
These numbers don’t include any long-term care or nursing home costs, because they aren’t even covered.
That’s torture on top of tyranny.
The truth is the Federal Reserve hasn’t just imposed financial repression on America’s savers, its retirees and the whole economy – it has doomed us to a future of low rates, a widening income and wealth gap, and probably another Great Depression.
I’ve been trading professionally since 1982 and I’ve seen some crazy you-know-what.
But, I’ve never seen anything like this.
Markets today are “twisted.”
They’re so twisted that while the major stock market indexes are making record highs, most individual investors have been on the sidelines, most institutional investors are raising cash, and everybody’s wondering whether to get in or get all the way out.
Right now, as twisted as things are, in fact, because they are so twisted, something’s got to give one way or another, there’s a perfect trade set-up that’s just right for everybody.
It’s so simple you’re going to want to jump right on it.