|
 Now that the Fed lowered the key interest rate (the rate the Primary banks are charged to borrow money from the Federal Reserve) to one percent, I had a customer ask me if this meant he could now start looking for that investment property to purchase.
Well, not exactly, you see the problem is not only what the Fed charges the Primary banks to borrow, the next step is that Primary Banks are reluctant to loan money to secondary banks, because they still have not figured out who to blame for the subprime loans and so the the banks you and I are doing business with aren’t doing what they should be doing, which is loaning money.
There are buyers with good credit scores, secured employment and collateral who are finding it very difficult, if not impossible to borrow. If they are having a hard time, what do you think the average “Joe” is having? In the meantime, homes are sitting on the market, contractors are shutting down, sub contractors are without work and drawing unemployment and our economy is sinking lower.
I have given this some thought. I wonder what would happen if the Fed were to dramatically increase the interest rate they charge banks for funds, then start discounting the rate of their next loan based on the amount of money they put on the street to consumers and businesses. I bet this would get their attention.
Banks are not designed, and the Fed should not allow the hoarding of funds, especially in a time of National crisis. I read with interest this past Monday that the Administration was now getting involved and telling the banking world to start lending money, and this revelation only took a year to figure out. In the world of Government I guess this is considered “the speed of light”. Lets keep our eye on the Fed and see if they're planning to reinforce this directive. After all banking has already been mostly nationalized, so why not go for step 2 and start telling them what to do?
|
