0
0

High Interest Rates Fix Everything


 invite response                
2008 Nov 16, 10:02am   21,435 views  251 comments

by Patrick   ➕follow (59)   💰tip   ignore  

moon

Perhaps the entire credit crunch could be fixed with very high interest rates. Currently, banks and other institutions have to compete with the suicidally low interest rates of the Fed and the Treasury bailout programs.

Say you're a bank and you know that a new mortgage loan has a 10% risk of default. Then you have to charge at least 10% to compensate for this risk before you can even begin to make a profit. But you can't charge 10%, because you're competing with the Fed's 2% rates, and the Fed is lending without regard to default risk. So you would be committing bank suicide to make loans in a market poisoned by the Fed's rates, knowing such loans will generate a large loss on average.

OK, the bank can get something from the defaulted loans by foreclosing and selling off the houses, but still, the point holds: the Fed is ruining the market for credit. It's kind of like American manufacturers being ruined by cheap Chinese imports, only it's American banks and savers being ruined from within our own country, by the Fed.

The directors of the Bank of England once bragged that a 10% interest rate could "draw gold from the moon". If it's credit we lack, let rates rise, and watch credit problems disappear.

Patrick

#housing

« First        Comments 250 - 251 of 251        Search these comments

250   FuzzyMath   2008 Nov 21, 2:40am  

William Black is my new hero.

He is the first I have seen to come out and clearly explain who the perpetrators are in this crisis, and why our government is not prosecuting them.

A MUST see.

http://finance.yahoo.com/tech-ticker/article/133224/Former-Regulator-Clear-Fraud-in-Financial-Crisis----Why-Isn%27t-Anyone-in-Jail?tickers=BAC,WM,CFC,XLF,JPM

(ignore the 2 yahoo douchebags)

251   SP   2008 Nov 21, 7:57am  

justme Says:
Inquiring minds want to know — Larry and Sergey?

LOL, but no.

Two different idiots cow-orkers. One of them is still a little hopeful that Tesla will pull through.

« First        Comments 250 - 251 of 251        Search these comments

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions