Wednesday, October 31, 2007

Fed Cuts Rates By A Quarter-Point!

And in another story sure to upset my favorite conspiracist friend, the Federal Reserve has cut the fed funds rate by another quarter point and apparently also the "discount rate" by a quarter point.

Oh, yes - God willing and the creed don't rise some of these variable rate mortgages will start to be a little more affordable again for a while.

This is the second cut in six weeks, apparently induced by continuing chaos in the credit markets.

Yes, this is going to further depress the U.S. Dollar and cause other - issues, but apparently it's the best our goofy system can arrange.

Essentially it is a "back-door bail-out". Apparently because certain people think it encourages "risky behavior", the government has yet to grow the gonads to do what would actually be the right thing.

Let me repeat it again for those of you who have not been paying attention.

The federal government should DIRECTLY lend ANYONE with an OUTSTANDING MORTGAGE enough to pay it off at 6.5% for 40 years.

You heard me right.

Instead of doing that, these idiots are pumping mass money into the SHORT TERM market where, yes, some of it will end up going temporarily against lines of credit and whatnot, but, what seems to be more common is that this money is ending up going into CREDIT CARDS.

Now, don't get me wrong - some of these offers aren't bad overall - "7% until it's paid off" and whatnot, but they have some BRUTAL side effects.

If you miss ONE payment you may be looking at interest in the 25% range.

They also are almost like baloon payments in reverse. "Until it's paid off" credit card offers are like nuclear waste - they have "half-lives". Basically, if you are making the minimum payments (and why on Earth would anyone want to pay MORE than the minimum payment on an "until it's paid off" loan?) and your interest rates are relatively low, the "half-life" of the loan tends to run in the 4-year range. In other words, if you have an "until it's paid off" balance transfer offer at low interest rates for $10,000 and you make the minimum payments every month, in about 4 years your balance will have declined to $5000.

In another 4 years, $2500.

And so on.

Now, I don't have any advanced degress in finance or economics or anything of the sort, but I'm guessing these idiots are borrowing money from the Fed on overnight repos at 4.5% and lending the money out at 7%. That's all fine and dandy of course unless we hit some post-apocalyptic early '80's type deal where Fed Fund hits 12% or something of the sort and then we'll be looking at bank failures that make the Depression look like a bad night at the track.

No ... someone needs to start putting some kind of regulations in place on this mess and enforce them.

Either that or someone needs to start a new video series called "Banks Gone Wild" ...

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At November 5, 2007 at 2:13 PM, Anonymous conspiracynut said...

What it is is rewarding rich ppl for gambling, while not helping the first damned individual, except those oily execs at the top. i'm livid; what more can i say (sorry, was away not paying attention to news/fave blogs while dealing with actual real life issues, and look what i get!) Limey bastards.


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