There's an interesting article today on Bloomberg.com, by Ann Woolner. That's Ann on the left. She's not real big on banks right now, because they're hoarding the cheap money the Federal Reserve has made available.
She makes the point that if she went under financially, none of her creditors (the yard guy, housekeeper, hairdresser, credit card companies, etc.) would suffer significant damage to their businesses. So why do investment banks get the special treatment? They're big. So big, apparently, that their failure threatens to topple the US economy.
Bear, Stearns, in the Fed's opinion, was too big to fail. (Ironic, because a co-author of the book by that same title, Too Big To Fail: The Hazards of Bank Bailouts, is none other than Gary Stern, president and CEO of the Federal Reserve Bank of Minneapolis. Apparently, Stern has changed his mind. The book came out in 2004.
Here's an excerpt from Ann Woolner's article that Real Estate agents need to understand and communicate to buyers who aren't in the business:
And now, fully qualified, would-be homebuyers looking for low-interest mortgages get turned away by lenders unwilling to pass along rate cuts the Fed gave them specifically to make lending easier and revitalize the economy.
And so, the gap between the rate the banks pay and what they charge for money widens. They are gorging themselves on a historically wide spread -- 2.7 percentage points, according to Bloomberg data -- between the 10-year government bond yield and the interest rates they charge for 30-year fixed mortgages.
Are the banks getting fat? I jumped all over SunTrust back on March 10th in my post Mortgage Pricing Is Out of Whack! for not passing on the savings to the consumer. Banks don't make money by borrowing from the Fed unless they can lend it out at a higher interest rate.
If real estate buyers put their hands in their pockets because they perceive the cost is unreasonable, the banks won't get fat. They'll continue their downward spiral.
I'm Mike in Tucson, your preferred Tucson, Arizona mortgage lender.
Think of me as your local expert.
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