"A wise and frugal government which shall restrain men
from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."
(Thomas Jefferson)

Saturday, August 27, 2011

Are Banks Forced to Charge Investors for Large Deposits Because of Low Interest Rates?

Is this another casualty of the Bernanke low interest plan?  The simple answer is 'Yes.' Banks cannot make money off of loans because of the low interest rates so they have been looking for new ways to make a profit.  The Bank of New York found a new way as it is now charging the big depositors to safeguard their money as they flee European markets and banks.  Banks have to make a profit to stay in business so someone came up with this idea since Bernanke has already stated the Fed Rate is going to be kept low until the first part of 2013.  What a idiotic approach if he thinks it is going to help Obama which seems to be his aim.

When the history of Obama is written, Bernanke playing politics for Obama is going to be viewed as a huge mistake leading in part to the lack of recovery by keeping interest rates near zero.  Some of regional Fed Governors have opposed Bernanke's low interest rate approach but only four of them plus the Governor of the New York Fed have a vote.  The rest can only voice their opinion as they are outnumbered by the political appointees 7-5 on the Feds Open Market Committee that determines the Fed Rate.

Never thought we would see the day when banks charge their customers for putting large sums of money in their bank.  What part of artificially low interest rates that are hurting this recovery does Bernanke not understand.  Keeping the Fed rate at basically a zero level is hurting savers who are getting almost zero interest rates so they don't have any extra money to spend and this is going to continue until early 2013 per Bernanke?  Who is profiting from the Bernanke low interest policy?
The paradox is that it's the ones who are doing well anyway: corporations, banks. But retirees on fixed incomes? People who are struggling with their mortgages? Not at all.
To be it in perspective, those who already doing very well are doing better with the Fed Rate at near zero while the middle class continues to struggle with high gas, grocery prices, and little interest on savings or on investments.  They have also seen their 401K go in to the tank with the roller coaster stock market.  Try buying or refinancing a home right now without perfect credit and the door will be slammed.  The lending companies are not interested in taking a chance.  All of this is leading to a lack of a real recovery.

What does Obama want?  Another stimulus when the first stimulus has been labeled a failure?  There is a lack of leadership in this whole Obama Administration starting with Obama.  Hiring more Government employees is not answer but cutting the size of Government along with regulations that hamper business investment would be a good start.  

Obama went into campaign mode the minute he took office, and it has only gotten worse.  He has declared an emergency along the East Coast now to open up funds from FEMA immediately but let a storm hit in the middle of the Country or extensive fires and it takes months to get funding out of this President.  He is playing politics with this Category 1 hurricane for votes.  That is cynical but this President does nothing unless he thinks it is going to buy votes IMO.
Restraining Government in America and Around the World
An Amazing Indictment of Obamanomics – Banks that Don’t Want Deposits
August 26, 2011 by Dan Mitchell 
I’ve commented on the failure of Obamanomics, with special focus on how both banks and corporations are sitting on money because the investment climate is so grim. Not exactly flattering to the White House. 
Using Minneapolis Federal Reserve data, I’ve compared the current recovery with the expansion of the early 1980s. Once again, not good news for the Obama Administration. 
And I’ve shared a couple of cartoons – here and here - that use humor to show the impact of bad public policy. 
But here’s a Bloomberg story that provides what may be the most damning evidence that the President’s big government agenda is a failure.
U.S. regulators have asked some banks to take more deposits from large investors even if it’s unprofitable, and lenders in return are seeking relief on insurance premiums and leverage ratios, according to six people with knowledge of the talks. Deposits are flooding into the biggest U.S. banks as customers seek shelter from Europe’s debt crisis and falling stock prices. That forces lenders to raise capital for a growing balance sheet and saddles them with the higher deposit insurance payments. With short-term interest rates so low, it’s hard for financial firms to reinvest the new money profitably. …At least one firm, Bank of New York Mellon Corp., tried to recoup some of the costs by charging depositors 13 basis points, or 0.13 percent, for holding unusually high balances.
Let’s think about what this article is really saying. Banks normally make money by attracting deposits and then lending that money to people and businesses that have productive uses for the funds. 
Yet the economy is so weak that banks are leery of taking more money. The story is complicated by other factors, including flight capital from Europe, taxes (or premiums) imposed by the Federal Deposit Insurance Corporation, and various regulatory issues. 
But even with these caveats, it’s still remarkable that banks want to turn down money – or charge people for making deposits. 
Sort of like McDonald’s turning away customers because they lose money by selling Big Macs and french fries. Or, better yet, like McDonald’s turning away free goods from suppliers because not enough people want to buy the final product.
Welcome Instapundit readers. Some of you are asking what should be done instead of Obamanomics. 
The honest answer is that there’s no silver bullet. Lower tax rates would help, as would a reduction in the burden of government spending. Free trade agreements also would be good, and let’s not forget the importance of reducing red tape and counterproductive regulations. 
There are lots of such reforms that would boost economic performance and help make the economy more efficient. Any one of them might not make a big difference right away, but the cumulative impact would restore normal growth. And the most damning indictment of Obamanomics is not that we suffered a downturn, but that we haven’t bounced back. 
This video, based on data from the Economic Freedom of the World Index, was released more than two years ago to show that there was an alternative to Obama’s failed stimulus. It’s still 100-percent relevant today. 

Source:  International Liberty

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