Comments on: Historical Interest Rate Cut http://www.findfinancialfreedom.com/96/historical-interest-rate-cut Your guide to getting yourself out of debt and out of the rat race Fri, 18 May 2012 01:26:47 +0000 http://wordpress.org/?v=2.5.1 By: Tristan http://www.findfinancialfreedom.com/96/historical-interest-rate-cut#comment-3546 Tristan Sat, 07 Feb 2009 12:09:45 +0000 http://www.findfinancialfreedom.com/96/historical-interest-rate-cut#comment-3546 There is some truth in the fact that lenders need savers to save money so that they can lend money out, however, the banking regulations in this country (UK) and elsewhere throughout the world are such that the capital ratios are in the region of 10:1 i.e. for every £10 lent out in mortgages, there must be £1 being saved, the other £9 can be borrowed on the wholesale markets, which is what got the banks into this mess in the first place. The borrowed huge amounts of "cheap" money at 3-4%, then lent it out to un-credit worthy individuals at 7-10%, making a very healthy 3-7% margin on 90% of the money lent out, and a much smaller margin on the money they borrowed from savers. Regardless of how much money being saved by the frugal in our society, the banks aren't lending at anywhere near the full capacity. Which is probably why the savings rates are so poor currently, as the banks aren't making the big margins on money borrowed from the wholesale money markets anymore. There is some truth in the fact that lenders need savers to save money so that they can lend money out, however, the banking regulations in this country (UK) and elsewhere throughout the world are such that the capital ratios are in the region of 10:1 i.e. for every £10 lent out in mortgages, there must be £1 being saved, the other £9 can be borrowed on the wholesale markets, which is what got the banks into this mess in the first place.

The borrowed huge amounts of “cheap” money at 3-4%, then lent it out to un-credit worthy individuals at 7-10%, making a very healthy 3-7% margin on 90% of the money lent out, and a much smaller margin on the money they borrowed from savers.

Regardless of how much money being saved by the frugal in our society, the banks aren’t lending at anywhere near the full capacity. Which is probably why the savings rates are so poor currently, as the banks aren’t making the big margins on money borrowed from the wholesale money markets anymore.

]]> By: cornish dragon http://www.findfinancialfreedom.com/96/historical-interest-rate-cut#comment-3536 cornish dragon Fri, 06 Feb 2009 20:52:05 +0000 http://www.findfinancialfreedom.com/96/historical-interest-rate-cut#comment-3536 Interesting thoughts there John to say the least! Just one tinsey problem.... borrowers can only borrow if savers ..well you guessed it.....save! This is part of the reason why we are in this mess. This dire political manipulation of the interest rates is appalling news (although I personally will benefit in the short term). One of many great quote about the "credit crunch" is Mish's "You can't mend a broken dam by adding more water" and Dr Ron Paul ... "the best cure for a recession is a recession". It certainly is NOT the "borrowers we really need to help". Quite the reverse by destroying careful peoples' hard worked for savings and pensions plans (their future dreams) and rewarding profligate borrowers we have undermined the whole work ethic of our society... Although it really doesn't matter that much now any way just learnt that the worldwide derivatives market waiting to implode is $100 trillion of worthless fiat junk bonds, level 3 "assets" (?!) cdo's and "off book" "investments" ..... (apparently equal to $100,000 for every person on the planet.. so not much really !) ....more fun and games coming soon ;) Keep smiling Austrian Dragon Interesting thoughts there John to say the least!

Just one tinsey problem…. borrowers can only borrow if savers ..well you guessed it…..save!
This is part of the reason why we are in this mess.

This dire political manipulation of the interest rates is appalling news (although I personally will benefit in the short term).

One of many great quote about the “credit crunch” is Mish’s “You can’t mend a broken dam by adding more water” and Dr Ron Paul … “the best cure for a recession is a recession”.

It certainly is NOT the “borrowers we really need to help”. Quite the reverse by destroying careful peoples’ hard worked for savings and pensions plans (their future dreams) and rewarding profligate borrowers we have undermined the whole work ethic of our society…

Although it really doesn’t matter that much now any way just learnt that the worldwide derivatives market waiting to implode is $100 trillion of worthless fiat junk bonds, level 3 “assets” (?!)
cdo’s and “off book” “investments” …..
(apparently equal to $100,000 for every person on the planet.. so not much really !)
….more fun and games coming soon ;)

Keep smiling

Austrian Dragon

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