Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to Bankrate.com (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."
Sure you are. Wholesale inflation has soared 9.8% in the past 12 months, the highest clip since 1981. The more widely cited consumer price index jumped to 5.6%. In other words, while your saved buck was adding 2 cents or so on one end (and even less after taxes), three times as much was getting singed off the other end of that dollar bill.
Isn't there some other way to save the financial system from collapse that involves more pain for those who made the mistakes that caused this state of affairs and less pain for those who were prudent and who lived within their means?
Update: The Congressional creatures Fannie Mae and Freddie Mac, semi-part of government, misrepresented their financial positions.
Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.
What, companies that were like public-private partnerships, working according to Congressional demands to benefit society, could be so corrupt? But wait, it has happened before, recently even.
Accusations of improper accounting are not new for either company. Earlier this decade, both companies paid large fines and ousted their top executives after accounting scandals.
Fool me once shame on you. Fool me twice shame on me. But I'm sure the Congressional allies of Fannie and Freddie feel no shame and want to make Fannie and Freddie once again ladle out risky loans to favored groups.
Congress pushed for the flood of credit to poor people that made the failure of Freddie and Fannie inevitable. So if you are getting low interest on bank deposits Congress is to blame.
Over the previous years, as the housing bubble inflated, Fannie and Freddie stepped up their purchases of the risky but profitable subprime and alt-A loans that were at the root of the mortgage crisis. Though Congress had just pushed Freddie and Fannie to accelerate purchases of loans to give the housing market a boost, Mr. Paulson was now urging lawmakers to establish stronger oversight and push the companies to raise more capital.
The intent of Congress was to help poor black and Hispanic people buy homes. (see more here). The result was disaster for those poor people and for savers and many other home buyers.
|Share |||By Randall Parker at 2008 September 08 05:02 PM Economics Inequality|