At Last--Banks Now Unwilling to Lend at a Better Rate
World's banks join up to slash interest rates
Sam Zuckerman, Chronicle Staff Writer
Thursday, October 9, 2008
(10-08) 21:43 PDT San Francisco -- Government banking authorities in North America and Europe fired another weapon Wednesday in their fight to contain a historic financial crisis that now spans the globe, pushing through coordinated moves to slash interest rates.
The Federal Reserve and five other central banks cut their key short-term rates by half a percentage point in bids to loosen the flow of credit and head off the economic disaster that would follow a prolonged breakdown of loan markets worldwide. That brought the Fed's benchmark federal funds rate - which banks charge each other for overnight loans - to 1.5 percent, its lowest level in four years.
Absurdly low interest rates are, of course, how Alan Greenspan got us here in the first place. But hey, when all else fails, go back to what is tried and untrue.
It's interesting to me that the thing that set off more global bubbles that a kid with a bubblestick, was too much capital looking for too few investment opportunities. $70 trillion floating around out there in the world and the one thing it didn't need to find a home, was low interest rates.
Low interest rates only helped exacerbate the float (as in floating-rate). The float is the difference between what banks (and their assorted credit cards and mortgages) pay for money and are able to charge. The float helped Wall Street investment banks profit from what they were able to charge for public stock offerings and what they paid for the interim financing. The float got CEOs those $100 million salaries, stock options and parachutes. The float did not float all boats. The float set us adrift on a sea of uncollateralized debt, mortgages we can't afford, credit-cards we have no chance of paying off, crippling college loans and a wrecked economy.
Now, in a banking world where no one trusts anyone, where the Fed has arbitrarily saved some sinking ships and allowed others to slide to watery graves, the decision to lower already absurdly low interest rates is old medicine for a new epidemic.
Credit is not unavailable because of interest rates.
Money is unavailable because of enormous fraud in the markets and no one yet knows who has looted what and where the bodies are buried. Until that unease shakes out, that $70 trillion has shown itself well satisfied in safe havens (U.S. bonds, etc.) at essentially a negative interest rate.
If someone can explain to me why 0 interest is an incentive to easing the flow of credit, I would love to hear it. A bank that will not loan when the cost of money is nearly zero, surely will not loan at a lower cost.
Only Mr. Mumbles, Alan Greenspan, could argue that case and he's too busy at the moment, trying to maunder his way out of responsibility for the current collapse. One can forgive a Fed Chairman for not foreseeing the future (although that's a job-description). What one cannot forgive is a financial commander-in-chief not understanding the present.
Greenspan achieved both and left Ben Bernanke to clean his dirty laundry. Now Ben is stuffing the same soiled underwear into the washer. The only difference is that this time the detergent is taxpayer debt in place of liar-loans.