Free milk and a cow

NPR Sunday Morning laments that savers are not getting much interest these days, interest from banks that is.

Risk-averse savers who shun stocks and bonds often turn to government-insured Certificates of Deposit. With these investments, savers tie up their money for a set period — anywhere from three months to five years — in return for a steady, reliable payout from a financial institution.

But these days, CD interest rates are so low, many investors feel cheated.

Interest rates have been at very low levels ever since the financial crisis hit in the fall of 2008. The shock caused the stock market to plunge, credit markets to freeze up and housing sales to stall. To help bolster the economy, the Federal Reserve decided to drive down interest rates.

Low-cost loans helped make housing more affordable, and made it easier for businesses and consumers to get loans. But the strategy of propping up borrowers came with a cost — and savers had to pay it.

The point missed by NPR is that there is no demand for cash by the banks. The Government is giving money away. Why buy the cow when the milk is free? At no cost, banks have no need to go to the private sector to buy money. Host Lian Hansen asks somewhere in the audio, since the economy is more stable why can’t banks just raise their cd rates. Yeah, why pay more for something you have plenty of, and is anyone convinced of the economy being stable?

The Fed needs to start shrinking the money supply. This will help thaw the iced up flow of money. Stop giving money away.

PS  it appear Fannie and Freddie, the smoking gun of this whole financial mess, not included in financial reform bill.

One thought on “Free milk and a cow

  1. Why do Fannie and Freddie employ lobbyists? It strikes me as completely unethical for a government entity to use tax dollars to lobby Congress. Too bad it’s not illegal.

    But I know why they are not included in the financial reform bill (such as it is): Fannie historically and Freddie (since the mid-nineties or so) have been patronage sinkholes. Rahm Emmanuel is an alumus, as is Jamie Gorelick and a host of other less well-known but now very wealthy Democrats and paramours (see Barney Frank.) And let’s not forget Franklin Raines- who cleared $90 million in compensation (mostly bonuses which were based on phony earnings) for 6 years work, was found to have cooked the books, had a measly fine of $25 million levied against him which was covered by Fannie’s insurance so he never paid out of pocket for his own criminality. Fannie, meanwhile, paid $400 million in fines- and now we know, that’s just recycling taxpayer dollars.

    Nice.

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