Interest rates, banks, and loans

Discussion in 'Economy' started by Wiseacre, May 24, 2011.

  1. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    It's all the Fed's fault. Or so an op-ed in today's WSJ says. Interest rates are rock bottom right, and banks are sitting on hoards of cash. Most of it is sitting in large commercial banks as excess reserves. So why aren't they lending it out to small and medium size enterprises (SMEs)? Why does the near zero interest rate have anything to do with the credit constraints?

    When a bank lends out money, they typically open lines of credit to borrowers. Since they don't know for sure how much the borrower wants or when he/she wants it, it creates uncertainty for the bank to know what it's future cash positions will be. So the bank looks for credit from another bigger bank in case they need funds.

    But, the interest is so low, the bigger banks are not willing to offer credit for such a low return, risks being what they are today (50 smaller banks have failed so far this year.). So the big guys find other safer places for their money. Interbank loans in March 2011 were only one third of what they were in May 2008 before the crisis hit. Tthe low rates intended to boost the economy have instead restricted lending to SMEs, who are the primary job creators.
     
  2. expat_panama
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    expat_panama Silver Member

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    Actually, 50 banks is less than usual. We had much higher failure rates during the S&L crisis which was nothing compared to the '30's, but 50 is still enough for everyone flipping into into complain mode. The WSJ leads the choir and whines about what it hates while nobody's got a clue what they want.

    Enough is enough, we've got a choice. We can blame bankers for holding back and force them to make riskier loans to SME's, or we can call that behavior 'predatory lending' and force them to hold back more. Either way can work but we can't have it both ways.
     
  3. Jessica Blume
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    Jessica Blume Took the RED pill.

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    Interest was called usury.
    Bank(ers) were money changers.
    Loans with interest attached is slavery.
     
  4. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    And this is only part of the problem, lending more money to SMEs won't help if those enterprises go bust due to a continuing lack of demand. People are still running scared, with food, energy, and other prices going up and home values going down. The debt and deficit issues are now in the public consciousness, and people are insecure about how SS and healthcare are going to be affected. And right now they're not feeling too good about the way our elected reps are handling the situation.
     
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  5. expat_panama
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    expat_panama Silver Member

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    You're not with the 'cut-off-banker's-hands' crowd are you?
     
  6. Jessica Blume
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    Jessica Blume Took the RED pill.

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    No, but we do need to rid ourselves of private central banking and the fractional reserve system we have in place at least.
     
  7. expat_panama
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    expat_panama Silver Member

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    You seem to be saying all interest payments are bad and all banking is bad. If we're 'miscommunicationizing', please help me out and describe a kind of interest payment that's good and a kind of banking that's good.
     
  8. sparky
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    sparky VIP Member

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    Central banking's creation was foisted upon the public under the guise of stability

    when they recinded Glass Stegal, they trashed said stability with fiscal instruments like CDS's manipuating (legally) any tried/true fractional reserve that had served us for generations

    Today, the Fed is buying up as many T bills as it can, in a last ditch effort to portray stability

    It's a falsified confidence, but the only card Bernake has to play right now

    i say we all blame Clinton.....
     
    Last edited: May 25, 2011

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