Fortune Magazine tells us that “For banks, it’s getting harder and harder to earn a buck.” That’s because interest rates are so low. Or at least that’s what “conventional wisdom” would tell us. Please cry for the banks and demand higher interest rates!
Not so fast. If banks are having such a hard time making an “honest” buck, then how come “U.S. bank earnings rose 21% in the April-June quarter and lending to consumers increased, adding to evidence that the industry is strengthening four years after the financial crisis.” Turns out there’s actually a good reason the banks are doing so well:
That’s because most of them have increased the historic spread between the interest they charge for mortgages and the interest they have to pay for their own borrowing and, of course, the now minuscule rates they pay to folks with savings accounts. As a result, according to a recent news story in the New York Times, bankers are enjoying ballooning profits from their mortgage business.
If the banks were using the formula that was in effect up until a couple of years ago, the 3.55 percent rate for a 30-year mortgage would be close to 3.05 percent. Or, they could increase the rates they pay savers by about a half percent.
So yeah, the gap between “what they pay you” and “what we pay them” got bigger despite mortgage rates near record lows.
I hope Fortune Magazine isn’t hoping for a subscription fee from me anytime soon.
In Closing: you might want to disable Java; trying to change the law without bothering to involve lawmakers; 14.8% of Americans are on food stamps; and Boehner admits that the easiest way to win is for poor people to stay home on election day.