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Old 09-23-2011, 07:59 AM
 
Location: San Diego California
6,797 posts, read 6,625,449 times
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Quote:
Originally Posted by user_id View Post
Well....because they can't. Banks can borrow at the discount window, with collateral, at the rate of .75% or 1.25% depending on whether its primary or secondary credit. The Fed pays .25% on bank reserves.....

Also, the lending that occurs at the discount window is very modest, the fed has around 50~100 billion in loans at the discount window. That is for the entire banking sector.....where as even just FDIC insured deposits are ~$4.5 trillion.....


Competitive rates? The market determines what rates are "competitive" and right now the banks are followed with deposits....

Lending has decreased, and bank deposits have gone up....and for some reason you guys think its some big government conspiracy that interest rates on CDs, etc are low.......it couldn't be supply and demand right? No way! That would make sense.....
Except, we are not talking about them borrowing at the discount window.

Largest Banks Likely Profited By Borrowing From Federal Reserve, Lending To Federal Government

"A newly-released study from the Congressional Research Service bolsters claims that the nation's largest banks profited off the Federal Reserve's financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates".

And if you go back and read what I said, it was that CD/savings rates were low because of a lack of need of savings due to lack of lending, not that it was a government conspiracy.
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Old 09-23-2011, 09:19 AM
 
19,337 posts, read 16,932,211 times
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Quote:
Originally Posted by jimhcom View Post
Except, we are not talking about them borrowing at the discount window.

Largest Banks Likely Profited By Borrowing From Federal Reserve, Lending To Federal Government

"A newly-released study from the Congressional Research Service bolsters claims that the nation's largest banks profited off the Federal Reserve's financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates".

And if you go back and read what I said, it was that CD/savings rates were low because of a lack of need of savings due to lack of lending, not that it was a government conspiracy.

Under normal circumstances the FOMC has a huge influence on short term interest rates. You have reminded us that it has gone even way beyond this.
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Old 09-23-2011, 10:57 AM
 
Location: Seattle
1,369 posts, read 3,048,616 times
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I think Bernanke is fundamentally trying to lower mortgage rates and stimulate consumer spending by encouraging a refinance boom. Of course for this to have optimal effectiveness it will need to be done in conjunction with fiscal policy that makes refinancing easier, but it will still be effective on its own. Perhaps one of the most painless ways to stimulate the economy is by reducing consumer's rate on debt payments.

Operation twist, to a degree, is done at the expense of long term rates which may benefit banks and insurance companies, however, the raise in prices (remember when yield drops the price increases) can give them an opportunity to sell long term treasuries at a profit if they need to sell to raise capital.
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Old 09-23-2011, 11:06 AM
 
Location: WA
5,538 posts, read 22,574,384 times
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It seems to me that all modern monetary policy is manipulation based upon theories and models usually resulting in negative unintended consequences.

A simple formula to insure there is sufficient currency to cover economic activity should be adequate to let a free market set rates... I would prefer a less active fed.
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Old 09-23-2011, 12:02 PM
 
Location: 3rd Rock fts
749 posts, read 1,004,755 times
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Default The banks are all dressed up with nowhere to go/lend.

Quote:
Originally Posted by user_id
....The banks have more [devalued] deposits than they'd like, they have no reason to pay higher rates which would attract even more [devalued] money they don't need
You forgot to add the word devalued in the appropriate places. The banks' got hoodwinked by their own creation--the irrelevance of devalued/liquid cash. Their strategy of copious lending, without relevant/realistic Capital, is backfiring big-time!

Here’s another article that matches up with Jimhcom’s link. http://mail.marketoracle.co.uk/index...icle&sid=29338

Possibly off topic but interesting: IRONICALLY, in the 1890s president Grover Cleveland was called "the bloated Wall Street" puppet" because he would not inflate the money supply (free coinage of silver). Even back then, the idea of unjustly inflating the money supply was bad for the banks.
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Old 09-23-2011, 12:38 PM
 
19,337 posts, read 16,932,211 times
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Quote:
Originally Posted by DSOs View Post
You forgot to add the word devalued in the appropriate places. The banks' got hoodwinked by their own creation--the irrelevance of devalued/liquid cash. Their strategy of copious lending, without relevant/realistic Capital, is backfiring big-time!

Here’s another article that matches up with Jimhcom’s link. http://mail.marketoracle.co.uk/index...icle&sid=29338

Possibly off topic but interesting: IRONICALLY, in the 1890s president Grover Cleveland was called "the bloated Wall Street" puppet" because he would not inflate the money supply (free coinage of silver). Even back then, the idea of unjustly inflating the money supply was bad for the banks.

Hi DSOs,

They very well should have inflated the money supply with silver at that time. It was the retiring of the green backs and the demonetization of silver that caused the disastrous long depression in the first place.

It also does illustrate just how brain washed and stupid the average American is. They whined about the horror of increasing the money supply as a credit implosion was imminent. They still whine about deficits when they should be whining about taxes that are too high. Since our money supply is composed of da guberment debt + plus privately created business and consumer debt, which entity can expand the money supply given the credit implosion? The only new money during credit contraction is from da guberment. Yet, balancing the budget is all the talk, the complete opposite of what needs to be done. As a matter of fact, the sub prime collapses is almost a direct analog of demonetized silver. Rasing credit standards has the exact same effect because it essentially demonetized sub prime credit which set deflation into motion. Unfortunately the brain dead American is going along with the private debt engine of the FED to restore the money supply with business and consumer credit.

What da guberment should do is lower taxes, as in the complete removal of the SS withholding and then demand they raise short term interest rates. This would create money while stopping the credit machine. However that is a direct repudiation of bank created money which will not allow them to profit.

The whole premise that banks create money with "flexibility" is a complete fraud. They speculate badly at best, and now engage in outright fraud.
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Old 09-23-2011, 12:57 PM
 
Location: Seattle
1,369 posts, read 3,048,616 times
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The reality is the banks needed help, major help, to stay capitalized and prevent a run on the banks 3 years ago. Morgan Stanley alone borrowed 107B from the fed during the crisis. Without the fed, Bernanke and loose monetary policy, the economic situation would have been much worse. The banks certainly got a bit of a free ride during the crisis.

However, in exchange, the gov't is attaching lots of controls on banks, forcing them to be more capitalized than before, regulating them much more stringently, etc. I agree the gov't is, in many cases, over regulating business, but IMO the banks deserve heavy regulation for treating balance sheets like casinos and requiring 100s of billions of dollars in taxpayers help.

A big reason why there is so little lending despite all the loose capital is because the banks need that "free money" to rectify their awful balance sheets from a few years ago, and SHOULD be hoarding cash to meet new capital requirements instead of lending it out too aggressively. Yes, this creates a weak credit market and to a certain degree prolongs slower growth, but it also nearly prevents a collapse of the financial system a second time. See what's going on in Europe with banks and a system where banks are under capitalized. The latter is much worse. Eventually banks will return to adequate levels of capital and things can resume back to normal.
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Old 09-23-2011, 01:28 PM
 
19,337 posts, read 16,932,211 times
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Quote:
Originally Posted by drshang View Post
The reality is the banks needed help, major help, to stay capitalized and prevent a run on the banks 3 years ago. Morgan Stanley alone borrowed 107B from the fed during the crisis. Without the fed, Bernanke and loose monetary policy, the economic situation would have been much worse. The banks certainly got a bit of a free ride during the crisis.

However, in exchange, the gov't is attaching lots of controls on banks, forcing them to be more capitalized than before, regulating them much more stringently, etc. I agree the gov't is, in many cases, over regulating business, but IMO the banks deserve heavy regulation for treating balance sheets like casinos and requiring 100s of billions of dollars in taxpayers help.

A big reason why there is so little lending despite all the loose capital is because the banks need that "free money" to rectify their awful balance sheets from a few years ago, and SHOULD be hoarding cash to meet new capital requirements instead of lending it out too aggressively. Yes, this creates a weak credit market and to a certain degree prolongs slower growth, but it also nearly prevents a collapse of the financial system a second time. See what's going on in Europe with banks and a system where banks are under capitalized. The latter is much worse. Eventually banks will return to adequate levels of capital and things can resume back to normal.
Hi drshang,

No doubt the lending was all about bank accounting rules, but isn't it time we discard this hybrid medieval banking system? How can blips on a computer go missing? That is why all the people talking about a hyper inflationary avalanche fundamentally had no idea what and why this was happening. The insolvency was due in large part to a banking system engineered feedback loop that depressed the value of their assets which then tripped the rules on capital requirements. Why is such a system with such obvious flaws a god to worship? Why do we need to temporarily infuse assets into banks to satisfy a book entry? Its a model-T without a seat belt with real time rocket boosters attached. We should not have whiplash ponzi schemes behind our money supply.
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Old 09-24-2011, 10:49 AM
 
Location: Conejo Valley, CA
12,470 posts, read 18,190,386 times
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Quote:
Originally Posted by gwynedd1 View Post
Apparently there is a lot of disinformation out there. The FOMC also controls the federal funds rate.
Right, like how you are now confusing the discount rate with the fed funds rate, only the former involves direct lending from the fed....


Quote:
Originally Posted by gwynedd1 View Post
I am not sure what needing collateral is supposed to mean either. Its as if you are quoting something from a book.
Funny...you should mention quoting from a book since all your misinformation is from a very particular book. But I'm quoting something from the fed and if you are having difficulty with the definition of collateral I would suggest a dictionary.

Discount window - Wikipedia, the free encyclopedia
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Old 09-24-2011, 10:53 AM
 
Location: Conejo Valley, CA
12,470 posts, read 18,190,386 times
Reputation: 4343
Quote:
Originally Posted by jimhcom View Post
Except, we are not talking about them borrowing at the discount window.
The discount window is the only way for banks to borrow directly from the fed. During the crisis there were some other mechanism used by the fed as well, but they didn't involve direct borrowing instead the purchasing of assets. The banks certainly benefited from fed action during the crisis, that was after all the point, but suggesting that the banks aren't lending right now because they can borrow from the fed for 0% and then get paid interest from the fed on these some funds is fundamentally wrong. Not to mention...that banks are lending right now just at reduced levels.

The article you posted doesn't cite a single detail...the fed doesn't pay banks interest except in the case of reverses....but that rate is .25%.
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