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Matt Levine

Wells Fargo Brokers Loved Structured Notes

Also de-stressing the stress tests and cryptfluencing.

Structured whatsits.

The way a lot of bank structured notes work is that you give the bank $100, and in a few years, if the S&P 500 index or whatever is up, the bank gives you back more than $100, based on some multiple of the index’s performance. If the index is down, though, the bank gives you back your $100. Heads you win, tails you don’t lose: You get a guaranteed return of your principal plus some extra money if the stock market does well. The bank has sold you a bond (or a certificate of deposit), and instead of paying you interest on that bond, it uses the interest to buy an option on the S&P 500 or whatever. You get the combination of (1) a bond that doesn’t pay interest and (2) a “free” option.