How to Deal with the E*Trade Run on the Bank

by Johnny Debacle

So of you may have heard how some Citi (NYSE: C) sell-side jockey named Prashant Bhatia (nickname being “Capital IQ”) said that E*Trade has a 15% chance of bankruptcy and faces a potential run on the bank. This is probably the most hysterical piece of sell-side analyst I can recall, but it may be a self-fulfilling prophesy. The best way to create a run on the bank that would lead to a serious dimunition in the E*Trade’s share price is to talk about how you think a run on the bank is likekly to happen and then publish that report as “research”.

Hysteria aside, how does an E*Trade customer protect his assets, if they are above $100,000 (FDIC guaranteed) or $500,000 (SPIC guaranteed)?

I have devised a simple strategy. Assuming a binary outcome that E*Trade (NASDAQ: ETFC) is either 100% effed or 100% ok, the dominant decision is to sell all of your assets and use the proceeds to go 100% long E*Trade. This way either E*Trade stock’s rebounds to its pre-hysteria levels and you have what I like to call a double or maybe a triple. Or you lose all your money that E*Trade would not have been able to give you anyway, so you in effect lose nothing.

Full Disclosure: I now have 100% of my PA long ETFC. Also E*Trade accounts are guaranteed up to $500,000 under SIPC for anything other than loss in the actual value of securities, so let’s step back into the real world.

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