Posts tagged banks
Posts tagged banks
by Gonzalo Lira
WEDNESDAY, FEBRUARY 1, 2012
This is the problem Ben Bernanke and the Federal Reserve currently have—and it’s their own stupid fault: They have promised to maintain interest rates at effectively 0% until at least the end of 2014—they have in fact announced this zero interest-rate policy (ZIRP) as the hallmark of their strategy to reignite the economy—
—but then they’re surprised when businesses aren’t borrowing more. They’re surprised when lending is in fact contracting. They’re surprised when the American economy doesn’t start borrowing—and thus growing—like crazy.
So the American economy obviously doesn’t benefit from ZIRP. In fact, it stagnates because of ZIRP.
Leaving aside the deplorable notion that debt-fueled consumption is “growth”, businesses are not going to borrow to expand during the announced period of ZIRP, because business owners will say, “I’m really not sure if my market is growing—and since I can get a low-interest loan for at least the next three years, I think I’m going to hold off on any expansion of my business, hold off on hiring new workers, and instead wait and see if the economy really does pick up. If it doesn’t pick up, I won’t have more debt to service. And if it does pick up, I can always borrow and expand later.”
“I can always borrow and expand later”: That’s what every sensible business owner is saying today. Why eat free chocolate now—when I can eat it for free later? Why borrow for free now—when I can borrow for free later?
And of course, later becomes never.
So then, if businesses—and the wider economy—do not benefit from ZIRP, who does?
Why, the banks and the Federal government! (Yeah, I know:How am I not surprised … ?)
See, the banks get their 0% loan from the Federal Reserve—and promptly go out and buy U.S. Treasury bonds, yielding 2% or so. Sure, a 2% yield is nothing—but it’s a whole lot of something when it is risk-free, and adds massively to the banks’ bottom line. And ultimately to the banksters’ bonuses. After all, the Federal government isn’t borrowing twenty bucks for gas: It’s borrowing $1.6 trillion a year—every year.
Thus the Federal government, that glutton for debt, also benefits from ZIRP.
Worse still, ZIRP is a disincentive to reduce the deficit and the overall debt. Since Bernanke and the Federal Reserve are putting out 0% money over the next three years, the Federal government will be under zero-pressure to reduce the deficit and pay down the debt. In fact, ZIRP encourages fiscal irresponsibility. After all, it is the rising coupon payment which eventually leads to rising debt levels being choked off.
ZIRP doesn’t eliminate the Minsky Moment—that is, the Day of Debt Reckoning. Rather, ZIRP merely postpones it—while making it a whole lot bigger.
Thus the Federal Reserve’s zero interest-rate policy does not help businesses expand and thus hire more workers to restart the economy; it does not encourage banks to lend to economically productive sectors; and it does not get the Federal government to begin reducing the deficit, let alone the debt.
In fact, ZIRP makes all these problems worse.
WHY 308,127,404 AMERICANS ARE GOING TO GET HOSED
by January 11, 2012
Last week, the US government’s Financial Crimes Enforcement Network (FinCEN), an agency of the US Treasury Department, published its 2011 annual report. There are a few numbers that are pretty startling.
We’ve discussed before that FinCEN is the executive agency tasked with ensuring that every US banker is an unpaid government spy through Suspicious Activity Reports.
A Suspicious Activity Report, or SAR, includes details of any transaction that may be deemed ‘suspicious’. Naturally, there’s no clear guidance on what is/is not considered suspicious. Banks, brokerages, money service businesses, precious metals dealers… even casinos are required by law to fill them out.
If you withdraw an unusual amount of cash from your bank account, that could be deemed suspicious. If you set up a new payee in your billpay service, that could be deemed suspicious. Anything and everything is fair game.
Banks and other businesses who do not fill out SARs face hefty penalties, including imprisonment. If they disclose to a customer that s/he is the subject of a SAR, they have hefty penalties, including imprisonment.
When push comes to shove and they have to choose between a nasty penalty, or submitting a SAR about your unusual cash withdrawal, which option do you think they’ll pick?
Unsurprisingly, nearly 1.5 million ‘suspicious activity reports’ were filed across the US banking system in 2011, well over twice the number reported in 2004. On top of this, there were an additional -14.8 million- ‘currency transaction reports’ filed in 2011, a 6% jump over last year.
It’s an unfortunate trend which highlights not only the end of financial privacy, but also the massive amount of data being collected by the government to keep tabs on its citizens.
This does not bode well for the global economic climate. When economies are stable interest is paid, not charged, on money loaned. Our times are out of whack and getting ever worse. European countries have elected to save the banks and the banking system and let the citizenry and investors go to hell. Unfortunately the system will still eventually fall apart one way or another.
Published on Jan 9, 2012 by Euronews
Germany is the latest country that investors are paying to lend it money.
As it sold 3.9 billion euros worth of short term government bonds, Berlin paid a negative return for the first time.
Investors are so worried about other countries defaulting and not repaying what they have borrowed that they are prepared to accept not getting any interest in return for their money being in a safe place.
JANUARY 4, 2012
“A new wave of startups is working on algorithms gathering data for banks from the web of associations on the internet known as “the social graph,” in which people are “nodes” connected to each other by “edges.” Banks are already using social media to befriend their customers, and increasingly, their customers’ friends. The specifics are still shaking out, but the gist is that eventually, social media will account for at least the tippy-top of the mountain of data banks keep on their customers.”
by December 21, 2011
Let’s speak plainly. If you are in the United States or Western Europe, chances are incredibly high that your bank is simply not safe. In other words, your money is at risk. Big time. Let’s review some of the chief concerns:
Yesterday Fed chairman Ben Bernanke attacked Bloomberg claiming that its reporting was misleading. It looks like the Fed missed the mark on just about every issue.
Perhaps the most important issue is the Fed’s claim that it did not lend at a below market rate to banks, thereby effectively giving them a subsidy. In fact, it is almost definitional that the rate did provide a subsidy.
No one forced the banks to borrow from the Fed. If they had better options, they would have borrowed elsewhere. Instead the Fed made large amounts of money available to banks at a time when liquidity carried an enormous premium. This meant that the banks could relend the government’s money to others and earn a substantial profit.
This lending may have been justified to stem the financial crisis, but in principle the government could have imposed conditions (e.g. real caps on executive pay, downsizing the too big to fail banks, modifying mortgages) on the banks as the price of getting access to credit at below market rates. Bernanke and Congress did not seek to impose such conditions.
Given Bernanke’s strenuous opposition to the release of data on the bailout programs it would be interesting to know if he now feels that it is more difficult for the Fed to conduct monetary policy.
Dropping truth bombs as always.