What is the point of lowering rates to 1%?

Discussion in 'Economics' started by cybtropic, Oct 30, 2008.

  1. Mortgage rates have gone up over the last week by almost 0.5%. What was the point of the FED cutting rates?

    How many times has the FED cut rates yet the mortgate rates are still around 6% and do not decline.
  2. gnome


    Mortgage rates are staying "high" on purpose. The banks want a steeeeep yield curve... that's how they are going to heal their balance sheets and replenish capital.... pay nothing on deposits and charge all they can on loans.
  3. And I thought it was to help the public.
  4. Psychological IMO.
  5. gnome


    Much like the cowboy "helps" the sheep over the fence...
  6. Yea I don't see any reason why the current american banks should not be totally nationalized.

    Why keep them private and have the gov bail them out every few years?

    Why keep them private, have to bail them out, and have them still NOT lend money or worse use the money to pay bonuses to executives?
  7. But on the other hand, banks borrow money from the fed. The lower the interest rate they have pay to the fed, the better it is for the banks reserves. The banks will be more willing to lend out in the future. The banks will just keep their rates high until their competitors start lowering, whenever that will be :)
  8. gnome


    I don't think so.

    The WANT to lend only (a) at high rate, and (b) to highly qualified/collateralized borrowers.
  9. Oh yes, but don't forget how this credit crisis started, they just peddled tons of balloon mortgages to everyone at low rates because people would take them, rather than take a higher rate mortgage. They're subject to supply and demand of loans and mortages. They can't survive being too cautious or not cautious enough with their loans(as we have seen with the failures). They'd love to give people high interest loans, but there isn't strong demand for high interest loans. They have to be competitive when they can, and the fed lowering rates will help this eventually. They could lend at lower and more competitive rates when the economic situation calms down. It's going to take while for the feds interest rate cuts to trickle down to people taking out loans and putting in savings. But these rate cuts immediately helps the banks reserves because they get cheaper access to money, they just won't decide to lend it out so soon.
  10. I say let em keep the paper money, screw em.
    #10     Oct 30, 2008