Goldman Fraud Charges Reinforce "Safe Haven" Appeal of FDIC-Insured CDs
April 17, 2010
Perhaps you've heard the news that investment bank Goldman Sachs has been accused of fraud.
The accusations revolve around a young trader at Goldman Sachs who had the clever idea to package subprime mortgage-backed securities, sell those "assets" to Goldman Sachs clients, and then at the same time, short (bet against) those assets on behalf of Goldman Sachs. You know, one of those "heads I win, tails you lose" kinds of deals.
The accusations of fraud, it's worth noting, pertain to Goldman Sachs not disclosing this strategy to the clients it was selling the junk assets to. Actually selling the assets and then betting against them is not illegal at all.
Meanwhile, on the very same day--and the timing appears far from coincidental--allegations emerged yesterday that the SEC suspected fraud was being committed by now-indicted money manager Allen Stanford as early as 1997.
But the SEC did nothing until 2006. By then, Mr. Stanford had defrauded more than 21,000 people by selling questionable certificates of deposit from a bank in Antigua.
Yes, low bank rates on FDIC-insured CDs, money market accounts, and savings accounts can cause frustration. And yes, savings investors have ample reason to feel like the banking system needs to treat savers better.
But no, as yesterday's news proves beyond the shadow of a doubt, having a low rate on an FDIC-insured, guaranteed return CD is most definitely not the worst thing the investment world has to offer.