On Jun 26, 2007, at 4:59 PM, Jayson Funke wrote:
So the Fed is favoring Wall Street when lowering interest rates more than say bankers, yes? Real interest rates would drop and thus bankers would lose out because it is also, I imagine, short-term low-interest lending.
To some degree, bankers don't care. They make money on the spread between the rate they borrow at and the rate they lend at. If short rates get really low while longer-term rates remain relatively high, they can make money by borrowing short and lending long - which is how Greenspan helped recapitalize the U.S. banking system after the 1980s debacle. Short rates were around 3% and 10-year Treasury bonds around 6%, meaning that the banks could pocket the 3 point difference. Doug
