shadowrelm wrote:
looking into refinancing after the fed rate cut. the fed rate is down to 1.5
but banks are not giving that discount to borrowers. the best rate i could find on a fixed 30 year without paying alot of ponts was 6.5 to 6.7.
at 1.5 it should be down to 5.5 tops. 4 percent is the average, or used to be the average for servicing a loan.
the feds are pouring OUR tax dollars into these banks and they are thumbing their noses at consumers. we should either repeal the bail out alltogether, or take over the banks. why in hell should we spend our tax dollars on them if all they are going to do with it is prop up their assets and buy out failing banks for a profit and thumb their noses at taxpayers?
the bail out was wrong to begine with. what banks are doing now is contemptable.
LET THEM FALL.
Ok, I'm not talking about the federal rescue package here, whether you approve or disapprove about that doesn't affect what I'm about to say.
Banks used to have a certain margin in which they would make their profits, sort of using the difference between the fed rate and the rate they charged their customers. It was a little more tricky than that, because in a country like the USA,
where people don't have as much in savings deposits as they do in loans and credit that they take out, that means the USA banks have to borrow money from each other and overseas banks in order to then loan it on to their customers the general public.
With the collapse of Fanny and Freddie and a few dozen other banks around the world, worldwide banks have stopped lending money to EACH OTHER. They don't trust other banks not to fall over, taking their money with them. This is the "credit freeze" that is hurting the economies of nations world-wide at the moment.
Lets take a typical store, a supermarket or hardware. What they usually do, because profits are so much smaller than costs and turnover as a whole is they buy all their stock and pay their staff wages month by month on credit, and then pay the credit off next month with the income they took for the month. If banks don't lend money to each other, then American and Australian banks literally don't have enough money each to give out to every business that depends on it, from the pool of money they have deposited with them. (American and Australian businesses are running on money that ultimately is on loan from China and Japan.)
Banks have decided each other are much MUCH higher risks at the moment to lend to each other, so if they are lending at all, they have majorly jacked up the interest rates at which they'll part with cash. (they've decided they have to factor-in not getting their money back at all from some banks they lend out to.) This means that at the moment, American and Australian banks' costs have suddenly skyrocketed. This is a real phenomenon, no matter how we got here. The relationship between the Fed rate, and the banks' loan rates to the public, has undergone a sudden and dramatic squeeze.
In Australia the executive government has no power over the Federal Reserve, which has only one government law applying to it: "Set rates so as to keep the national rate of inflation between 2%-4% per year." Our government also has no legal say in the retail rates all our other banks set. However in practise our government can often influence how much the retail rate moves when the Fed rate moves, from sheer moral pressure via what the government says to the press.
In this case, recently our Fed cut rates by a full 1 percentage point, in response to the economic crisis, and all our banks kept 0.80% of that cut, only passing on 0.20% of the cut, with the full blessing and support of our government, who were at pains to explain to the public that the banks' costs have risen dramatically, and that it was completely reasonable and expected for the banks to keep the cut to themselves in this instance. That there was no question that keeping this particular cut would increase bank profits at all, let alone increase profits one iota at the expense of anyone else in Australia.
Edited, Oct 31st 2008 11:51am by Aripyanfar