If banks would have done that, we wouldn't have a problem now. And banks do pass the low rates. Their lending rates are very roughly: risk free rate (currently ca. 0%) + risk premium (currently huge)
Do you mean that banks are following central bank policies and that's precisely why we have a problem? I don't follow you here. The data is very clear showing the difference between Euribor and the end rates payed by costumers. Also mind that if that was the case we would have paper currencies falling against commodities and not going up (velocity and supply would both be rising).
I pretty much agree with you in your final comment. As I noted previously, in our case we don't really need to nationalize private banks to get liquidity back, all it's needed is to enforce low rate premia at the state bank. That won't happen lightly for traditionally the only direct intervention government has on the bank is the board nomination.
Then again, this tactic doesn't guarantee deposits by itself.
In my view your last comment pretty much obliterates your previous comment and more broadly the thesis you put forward with this essay. Vencit omnia veritas.
And how do you know, that the banks don't think that customers should pay a risk premium higher than those banks, to which they lend, that determines the Euribor?
Do you mean that banks are following central bank policies and that's precisely why we have a problem?
The reason why following central banks created a problem is not NOW, but before, mostly up to 2006. I do think that after the bust of the .com bubble, the central banks kept rates too low too long, which created an environment of strongly increasing asset values and corresponding expectations, that perpetuated the process (as asset prices can go up without fundamental changes, just when people believe they will go up). Once you are at that point, it is very difficult to stop it. One side effect of that (or maybe the intended effect), was, that people and businesses were willing to pile up debt, creating a highly unstable situation. Then some small disturbance, may bring the system over the tipping point, where lenders start to want their money back, because they doubt the long term financial health of their debtors. This process is as well self enforcing, because the worse refinancing conditions enforce more defaults. The lowering of the risk free official rate doesn't make borrowing really cheap any more at this point, because the rates demanded by banks are not dominated by the risk free rate, but by the risk premium.
I see the need of the existence of some banks, but much less, than there are. The key to the solution of the current crisis is not making banks to lend as previous, but to make banking less necessary. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
Even in the US this perhaps would have worked. There are about 10 Million home owners in trouble. About 1 trillion $ were spend to rescue the banks. With 100000 $ cash, probably most home owners could avoid any trouble. Der Amerikaner ist die Orchidee unter den MenschenVolker Pispers
And, I will need a great powerpoint document to show to all those who made the wrong decisions and gave free bail-out money to the people who caused the problem (and probably the solution) in the first place.
Oh, and a super-incredibly great powerpoint doc on ethics and society, the needs of the many and so forth. You think that it will be so good that those 10% with 60% of the assets will allow 20% of their assets to those 50% who only have 0% of the assets?
How about a 'rousing round of Kumbaya, at least? Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
