FED Making Banks Richer
Stocks continued their decline today, and have closed below 10,000 for the first time in 3 months. Watch out below.
Everything else went sideways.
In the news today…..
Citibank – is trying to sell its car loan business. It has a $3B portfolio of this junk, and is trying to unload it. They are sweetening the pot by adding some future financing for the buyer. Citibank is really just trying to get rid of its bad assets off its books before they implode.
FED Tightening – while not started yet, is being discussed by the FED. They have stated they will raise interest rates (no sooner that a few months from now), and they will be raising the overnight rate they pay banks who park their money with the FED. This is the new interest rate that I advised you of – the one that replaces the FED Funds Rate. Keep your eyes and ears open to any changes in this rate.
Thain – one of the CEOs at the center of our economic meltdown is getting a second chance. Thain was CEO of Merrill, and is now taking the CEO reins at CIT, the largest lender to small businesses. I wonder what trouble he can create in that job. Why do these guys get second chances anyway?
Tonight’s Dinner Conversation…..
The FED is going to pay the banks MORE interest for doing nothing. That is the story that I just reported “FED Tightening” above. Why? Well, the FED is caught between a rock and higher interest rates.
The FED bought those stinky mortgage securities from the banks, and gave the banks big chunks of cash, and that cash is being deposited at the FED and is earning interest. This is the money that will earn MORE interest when the FEDs start to tighten. So, why doesn’t the FED do the right thing and sell those stinky securities on the open market and pull back the cash obtained that way? Well, it will drive up interest rates. So, instead, they will pay the banks MORE interest to do NOTHING.
This is infuriating. The purpose of giving the banks money in the first place was to get them to start lending. BUT, they aren’t lending AT ALL. They are just sitting on their money, and getting rich off the taxpayer paying interest to them on money WE gave them in the first place.
Here are the last numbers for today:
Dow Jones 30 Industrial – 9908 (down 104)
10 Year Treasury Bond – 3.59%
Euro – $1.3648
Gold – $1066 (up $14)
Oil – $71.68 (up $0.41)
Gasoline – $1.89 (up $0.01)