TGT Episode 7: Does SIPC Really Protect My Stock and Bond Portfolio?

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Originally published at: https://peakprosperity.com/tgt-episode-7-does-sipc-really-protect-my-stock-and-bond-portfolio/

If a broker gets into deep financial difficulty, are your stocks and bonds safe? That’s a more difficult question to answer than it should be.

The only correct answer is “it depends.”

Some of it depends on the type of account you have (cash vs margin), some on how much you have above and beyond the protected limits, and some of it depends on how fair and non-preferential the court system is to Wall Street’s interests vs yours.

In this episode I dive into SIPC insurance protection and what it can realistically cover during a major financial disaster. The short answer is “not very much.”

The longer answer rests on each of our individual assessments of the likelihood of the US government riding in with walls of current cash to be paid back by future taxpayers.

As always, the devil is in the details and I’m here with the necessary context bringing the receipts.

Links:

SIPC 2022 Annual Report

https://www.sipc.org/media/annual-reports/2022-annual-report.pdf

Bankrate on What Does The SIPC Cover?

https://www.bankrate.com/investing/sipc-insurance

SIPC on Pro Rata Coverage

https://www.sipc.org/for-investors/investor-faqs

Margin Debt Chart – Doug Short

https://www.advisorperspectives.com/dshort/updates/2024/03/22/margin-debt-up-5-8-in-february

FINRA statistic on Margin Debt and Cash Account Balances

https://www.finra.org/rules-guidance/key-topics/margin-accounts/margin-statistics

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The dollar itself, as a Federal Reserve Note (IOU) is woefully under capitalized. There’s nothing backing it. It’s really not much more than a claim on future goods and services, which may or may not exist in the future.

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I can’t square this up with what I read in The Great Taking about no one owning their securities in the event of the everything bubble popping.

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Well, this is an evolving landscape for me.

From having discussed all this at length with steeped lawyers it seems that the 15(c)3-3 rule is pretty solid…assuming you can trust that the regulators are keeping a close eye on the overall landscape.

In part II I lay out a few cases where that definitely didn’t happen, and recently too.

I wish it wasn’t this opaque and difficult to divine, but here we are.

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Well, thanks man. I have a severe/high function autistic son. Works at WallyWorld (15 years) and has 100k in 401k and stocks. 401k is all Blackrock. I just want to protect what he’s earned so when this unsustainable SHTF, his 401k doesn’t go to zero. Started converting half his stocks to PM. Dad’s not the sharpest knife in the drawer but trying to learn as fast as I can. Thanks much for busting you butt doing the hard stuff.

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Here’s one particularly galling and terrifying case where a big Wank Street firm steamrolled over the entire premise of segregated customer funds and only got a very light, non-criminal slap pone wrist:

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That last part that’s highlighted…when you think through what could have happened if those funds went missing in a derivative nightmare…I guarantee you, they would have been gone - poof! - and the court system would have been powerless to retrieve them, even if it were so inclined (which it wouldn’t have been).

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You’re doing great dad!

Thank you, and good on you for being proactive!

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Thanks for this analysis Chris. I’m a retired bean counter but my head is spinning.
I have some money in Roth IRA from when I worked in US/PR and am wondering whether I could reduce my risk by transferring the lot out to a European jurisdiction.

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Not as far as I understand it…the systems and laws have been “harmonized” which means “no easy escape hatches left.”

This is also the dictum of financial repression the goal of which is to force people into negative real rates of return which slowly bleeds them dry while rescuing a profligate government. I used to write about and explain that process a lot, maybe I should pick that back up…

At any rate, that explains the gold suppression regime all these years because gold represents an escape hatch. It still is, but by suppressing the price ‘they’ make it seem like it’s not.

But that’s an illusion…

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Chris,

I had two questions asked of me today regarding TGT.

  1. What about annuities? Do these fall under collateral that can be taken?

  2. Can one still get paper stock certificates if one owns a stock?

Thanks!

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The answer to 2 is yes, if the company offers them. Many still do, but none are required to do so any longer.

Answering 1 is harder, because it depends on who is offering the annuity. Annuities are derivatives in the sense that the premium is paid within a contractual arrangement which goes into a financial machine with unknown assets and exposures, and you are paid a set amount on the back-end of all that.

Insurance companies are a whole separate category of inquiry that I’ve not undertaken, and it would be a huge lift to begin to unravel, so it’s not currently on my list.

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