Explain to this Aussie

Discussion in 'Economics' started by pneuma, Oct 8, 2008.

  1. pneuma


    You probably know that the Reserve Bank in Australia just cut interest rates by 1% to 6%. The result of this is most mortgage holders will have their interest rates cut by about 1% to around 7.5-8%. Essentially the difference between the Reserve cash rate and the mortgage rate is the bank's profit - the 1.5% spread. Thus interest rate cut = economic stimulus, because most Aussies have variable rate mortgages and lower interest = more cash in pocket.

    In the US the Fed rate is 2% (so they tell us), and yet the Bank of America has interest rates at 6-7% on 30yr fixed interest. Thus the bank makes a profit from the 4-5% spread - to me that's just rude - and when rates are cut there is no economic stimulus because your rates are fixed.

    How can US banks get away with such are margin on mortgage interest rates? An Aussie mortgage holder would expect an interest rate at about 3% if the Reserve Bank rate was 2% - and trust me, we would hunt down the bank manager if otherwise.

    How can an Fed cut stimulate the US economy? Do you chaps have variable rate mortgages - ie the rate changes with the Fed rate?

    Clear it up for me please.
  2. Explain this to an American ...

    What will you guys do when your currency goes to zero - which is where it is rapidly heading.:eek:
  3. sho-tim


    You think long term mortgage rates should be pegged to short term borrowing costs?

    CRIKEY! Study up on finance, mate!
  4. You need to go and do some research as to how exactly the feds rate and the prime rate works in the USA...I am not going to tell you as you will then realize the folly of your absurd comments.

    Until you do that, please don't eat any more meat pies:D
  5. roo or horse...w have both
  6. You're right on the money about the banks gouging mortgage customers in the US. That was the first thing I saw as the Fed rate came down yet mortgage rates remained a constant.

    Same thing is happening with fuel here. Wholesale went from $3.90 to $2.05 yet pump price went from $4.10 to $3.70. That's just how Bush wants it. Screw the consumer for the benefit of big business.

    The banks have lost billions of dollars. That's a given.

    The Treasury Dep't is under the executive branch of government. Hank Paulson, Sec-T, is appointed by Bush. Bush is all for big business, "trickle down economics", and shit on the middle class. Hank Paulson is former CEO of Goldman Sachs, a very large investment bank. In the interest of his alumni (and personal wealth) he is always at the Fed bending Bernanke's ear. He is always lying to America (remember his statement regarding this issue being "contained"?) Don't believe anything you hear from the US Gov't.

    This huge spread between the Fed rate and mortgage rates allows banks to survive and absorb their losses from their bad practices. Said bad practices instituted by Hank Paulson "for the benefit of the banks" as soon as he went from CEO of GS to being Sec-T. He and Cox (another Bush appointee) raised the leverage rate from 7:1 to 40:1 for banks. The saying "Be careful what you wish for" could not be more true. Look what it got them.

    When they stole $700B from the taxpayers to give to the banks last week they were telling us "If we don't do this you can't get a car loan." then it was "If we don't do this you can't buy a washing machine."

    Americans prefer fixed rate mortgages because back in the 1980's mortgage rates were 21%. Anyone on a variable rate mortgage who got stuck paying 21% interest will always go fixed. It's safer for the consumer and costs a little more. As a whole we're willing to pay that extra premium for the security of a fixed, stable payment.

    A fed cut in the US does not stimulate the economy as much here as it does where most mortgages are variable rate. It does in theory promote lending, spending and construction, but that's just not happening here right now. It stimulates the stock markets (Bush philosophy). Banks/ Financials are a major part of the stock markets. Bush's theory is the higher the stock market, the greater the wealth so if he makes is rich friends richer, his trickle down economics will benefit the lower classes. But it doesn't work. We're screwed. Good news is Bush is gone in January.
  7. pneuma


    Thanks for the reasonable reply. Sorry that you have had to put up with Bush.

    Our's are, what's your point? Why do you put up with extortion from your institutions? We have regulators that promote competition over here, if the bank want your business then they will give reasonable rates and fees.

    Have you noticed that the Aussie economy is fit and healthy? We don't have a subprime problem, we don't need to start a war to stimulate the economy.

    If we had a spare $1T it would be spent on hospitals, the environ and making Australia more efficient and productive country NOT bailing out banks and other companies for their fuck ups, and destroying the homes and lives of foreign citizens. Look in your own backyard before you mention folly again.

  8. Hey pneuma, changed your views at all? :p

    ..Living in the flat yield curve world..
  9. they need an oldies but goodies thread on ET.

    I've often thought it would be extremely entertaining for CNBC if when the market closes on Friday, that they just start airing reruns from 5 years ago.
  10. Genuine question. I've read some of pneuma's recent posts (seems like a clever guy), and wondered whether he's changed his mind by now. Perhaps we'll get a response..
    #10     Jul 8, 2012