Goldman Sachs has a Great Deal for you, and it's FDIC-insured!

Feeling a little short of cash because your life savings is only getting 1/2% in that CD? Don't worry, Goldman Sachs has an "investment" that I'm sure you'll love. Only the "smartest guys in the room" could create a financial product this amazing.

It's a CD - Certificate of Deposit, so the FDIC insures the first $250,000. Sounds good so far, right? Words like FDIC and Guaranteed make me feel good. It gets better. It pays 0.5%, so nothing too exciting there. But wait! It's also linked to the changes in the Dow Jones Industrial average, so if this stock market index goes up, you earn more than 0.5%. You can earn up to 2% extra per month if the stock market goes up 2% or more! Amazing! Only Goldman Sachs could come up with a CD that is FDIC-insured and, as Bloomberg quotes the Goldman sales literature, offers "annual returns at a minimum of about 0.5 percent and a possible maximum of 24 percent, according to a preliminary sales document."

But wait, there's more! 

If you read down in the Bloomberg article, there's one paragraph that catches my eye: "The four-year CD tracks the monthly percentage change in the Dow, with gains capped at 1.5 percent to 2 percent and no floor on the declines. That means if the Dow advanced 5 percent, the monthly return would be recorded as no more than 2 percent, while a drop of the same amount would be taken in full."

Let's see, "a drop...would be taken in full"...so that line about "a minimum of about 0.5 percent" taken from the Goldman Sachs literature isn't exactly accurate, is it?  It should be "we'll give you a small taste of gains from the stock market in good months, and we'll keep everything you make above 2%, but in down months, you're going to eat the entire loss."  Goldman gets the gains, the investor takes the losses.  Perfect.  It's just like being a taxpayer.

Let's take a hypothetical example of the CD linked to the S&P500 that is structured this way using recent history.  The S&P500 was up almost 11% in Oct-11.  You get 2%, great!  Your banker gets 9%, but they deserve it for being such smart guys, right?  Sep-11, S&P500 down (7%), you lose (7%), your banker gets their fee.  S&P500 down (5%) in Aug-11, you lose (5%), your banker gets their fee.  It's the perfect product - for your bankster!

Disclaimer: of course, the CD may be structured using annual returns or net returns over the entire 4 year period, so my hypothetical example using monthly returns may be unfair.  If you're really interested, go read the sales document.  Lay down with the dogs, and get all the fleas you want.  I just enjoy anything that lets me say "your bankster keeps the gains, you take the loss."