Re:Bankruptcy, not bailout, is the right answer
by netcan on Tuesday September 30, 2008 @08:55PM
(#320224)
Here's what i don't understand. If the global pool of money is getting tighter, why aren't interest rates going up?
Re:Bankruptcy, not bailout, is the right answer
by MaysonL on Wednesday October 01, 2008 @05:35AM
(#320543)
Some interests are going up: Google "TED Spread". Also, note that 3 month Treasury securities, the safest investments in the world, have been selling to yield less than 1%. LIBOR - the "prime" rate for loans between banks, hit over 5% - for 1 day loans! Banks are very scared of lending to other banks, because they don't have any idea whether the other guy is broke.
Re:Bankruptcy, not bailout, is the right answer
by netcan on Wednesday October 01, 2008 @09:16AM
(#320652)
Does 'increasing the supply of money' fix this?
Re:Bankruptcy, not bailout, is the right answer
by abijlani on Wednesday October 01, 2008 @04:51AM
(#320516)
The interest rate is not tied to the amount of money available for lending but the amount of lenders out the there. So if there a huge demand for loans the interest rate goes up to counter balance the demand.
With the economy tanking and the money tightening if they raised the interest rates, nobody would borrow and the situation would get even worse.
Act I: "Alan Greenspan: 'The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance.'...
What he’s technically saying is he’s going to keep the Fed Funds rate at the absurdly low level of one percent. It tells every investor in the world: you are not going to make any money at all on US treasury bonds for a very long time. Go somewhere else. We can’t help you."
Act II "And they sold so many mortgages that there came a point in 2003 where just about everybody who wanted a mortgage and was qualified to get one .... had gotten one.
But the pool of money had just gotten started. They wanted more mortgage backed securities.
So Wall Street had to find more people to take out mortgages. Which meant lending to people who never would’ve qualified before."
"At the height I was making between 75 and 100 grand a month" -Glen Pizzolorusso, who was an area sales manager at an outfit called WMC mortgage in upstate New York."
Act III: "The global pool of money is avoiding anything with even the slightest hint of risk and that affects everybody, no matter who you are. It's harder to borrow money to buy a house, or build a factory, or bring your country boldly into the 21st century. Take Iceland. A year ago it was easy for them to borrow billions. Now, they're seen as too risky. Their central bank has to pay more than 15 percent interest get anyone to loan them money. They could do better putting their national debt on a credit card."