Do you understand that we are paying banks not to lend??

[galileoreloaded]

http://www.federalreserve.gov/monetarypolicy/20081006a.htm

"The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.

Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions' reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances)."

The FED pays interest on all bank reserves, but why??

http://www.reuters.com/article/ousivMolt/idUSTRE5AG2UJ20091117?pageNumber=1&virtualBrandChannel=0

"Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising the interest rate it pays on reserves," he said.

The Fed cut its target for the overnight rate to near zero in December and has flooded the banking system with money in an effort to stem a financial crisis and deep recession, more than doubling its balance sheet in the process."

Why, that's how they will drain the cash out of the system, by paying the financial institutions MORE interest to keep their borrowed money at the FED. Make alot more with the FED than by lending it you see, so why lend it??

So the banksters are getting paid to borrow money, and the payment will, at some point, be going up just to make sure that money doesn't make it into the system and spark inflation.

I should have been a banker.....

[jdlh8894]

1. Sorry. I call BS

Just refied @ 4.25 for 15 years.No closing costs or fees.Knocked $300 off my original and paid everything on cards.

[galileoreloaded]

5. The money you got came from FNM/FMC. The bank didn't loan you that money, they just originated. n/t

[anigbrowl]

2. "Make alot more with the FED than by lending it" ...uh, no you wouldn't.

Mortgages and commercial loans earn much higher rates of interest than deposits at the Fed, which are required by law so that banks have a capital cushion to deal with volatility. Capital requirements have been increased, interest is now paid to offset the loss of income to the banks that results from having to keep more capital on deposit. It's like one of those checking accounts where you can earn interest but you have to keep a minimum balance of $1000 or more to get it.

Why do you think that the Fed would pay more in interest, considring that all commercial lending takes place at an interst rate consisting 'prime + xx%'?

[jdlh8894]

3. But who determines what"prime" is?

[anigbrowl]

6. the fed does. What I'm saying is that banks lend to the public at a premium to that.

In other words, if you're a banker (or a bankster) and you have a spare billion sitting around, you could deposit it at the Fed and get (say) 1%, or you could lend it out and get (say) 1% + 8% for a total of 9%. So why do you think it would be more attractive to leave it at the Fed? Of course, a bank has to consider the possibility of having its loans defaulted on, but that risk is built into the interest they charge.

[galileoreloaded]

4. Loss severity rate.

safe and easy, almost no discernible risk. Lend it, and lose say 30% to a BK court. Couple of those in the first two years, and you would wipe out any gains from ten other investments. It is a bet against the borrower(s).

[anigbrowl]

7. shareholders aren't going to support a bank with zero appetite for risk for too long.

Certainly, you wouldn't want a bank you invested in to take too many risks. but on the other hand, taking no risk at all means no real growth, at best you'd be keeping pace with inflation. After all, people invest because they hope for a return, otherwise they might just as well stuff it under the mattress (metaphorically speaking).

[galileoreloaded]

8. The banks that the government has stakes in???

the FED allows the banks to dump the losers into TALF, and gets rid of the non-performing junk. The financial services guys aren't making money on loans, that's the point. They are making money from existing customers, until they can't and then the FED buys the paper. Oh, and they are making a killing on the trading desk.