1. Savers Pay for Spendthrifts (“No Kidding!” Edition)

    Not that this is breaking news to readers here, but at least we have a sizeable media outlet stating the obvious — that stupid-low interest rates mean savers get to pay for banks’ mistakes:

    NY Times: At Tiny Rates, Saving Costs Money

    If you haven’t figured it out by now, you and I as Designated Savers get to subsidize the spend-happy folks (and the banks who lend to them, and the financial system that craters without them…) pretty much in perpetuity. I rather appreciate this comment from PIMCO’s Bill Gross, explaining things oh-so-well:

    “What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said William H. Gross, co-chief investment officer of the Pacific Investment Management Company, or Pimco. “It’s capitalism, I guess, but it’s not to be applauded.”

    Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.

    And don’t we savers know it. I mean, Mr. Gross ought to at least get acquainted with ING Direct.

    We go on to learn that (SURPRISE SURPRISE) low interest rates are particularly painful for seniors. Why? Because so many of them are on fixed, safe-investment-based incomes:

    Eileen Lurie, 75, is taking out a reverse mortgage to help offset the decline in returns on her investments tied to interest rates. Reverse mortgages have a checkered reputation, but Ms. Lurie said her bank was going out of its way to explain the product to her.

    “These banks don’t want to be held responsible for thousands of seniors standing in bread lines,” she said.

    Ms. Lurie needs to wake up and smell the Starbucks Holiday Blend.

    Firstly, were I the reporter on this story, I’d have to ask Ms. Lurie, “Exactly who is it that’s paying you those on-the-floor savings rates, thereby forcing you to reverse-mortgage your home equity to them, thereby (again) generating some sweet banking monthly fee income?”

    (Answer: the banks)

    Secondly, I’ve formed the opinion that if your nearest Really Big Bank and/or Bank Holding Company could find a way to book record profits and earn management bonuses simply by putting seniors in bread lines, they’d do it. And a millisecond later they’d leverage-up their bets at 37-to-1, utilizing some variety of “Seniors in Bread Lines” default-swap derivative.

    (“Jenkins!” yells the Goldman Sachs guy who’s reading this. “We need some financial innovation over here — STAT!”)

    I dunno. Ms. Lurie seems pretty naive. Perhaps we could arrange for her to make a social call with the Rickmans, late of Denver:

    Denver Post: Credit-Card Squeeze Angers Elderly Couple

    Our geriatric anti-heros, the Rickmans, are mighty miffed at Bank of America.

    [Rickman] is 81 now, seven years his wife’s senior. They have had a Bank of America credit card for 20 years. They never once in all that time, both say in near unison, missed a payment.

    Rickman slides his December bill across the table, with instructions to read it. No, not all of that, he spits, a Pall Mall cigarette hanging on one side of his mouth. Look at the interest rate, he says.

    Sixteen-point-nine percent, it reads.

    “I was paying 5.9 percent, which is what I have paid for years,” he says. “I always paid them $500 a month without complaint. Now, they want $1,074 this month. I can’t pay it. I won’t pay it.”

    That’s his prerogative, certainly. Whilst it is, admittedly, a bit late, I do have a simple yet valuable Life Equation for Mr. Rickman:

    It should go without saying that when card companies see their ability to do “Whatever the f__k they want” to their customers being limited at some specific time in the near future, as they do with the CARD Act, then they will all immediately rush to do “Whatever the f__k they can” to their customers immediately, if not sooner.

    This idea of banks frontrunning upcoming regulations ain’t rocket science. Really. I’d say “It’s so simple, even a congressman could figure it out,” but a cursory glance at today’s headlines would prove it’s not quite that simple, apparently.

    Ah well. Let’s see what this week’s news cycle brings…

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  2. 2 Responses to "Savers Pay for Spendthrifts (“No Kidding!” Edition)" ...

    1. On December 30, 2009 @ 11:04 pm,
      Anonymous wrote:

      And don't I know it! There's not many options available right now for investing new cash.
      * Cash is paying near 0%.
      * Bonds are overpriced right now. Anyone investing in them right now is almost guaranteed a small loss for the next year or two.
      * Stocks still seem too high for the fundamentals. The prices have a fragile feel to them.

      So what does one do with one's surplus cash for now? (besides being thankful one actually has surplus cash…)

      Well, you use it to pay down your remaining debt faster, until the markets improve. Which is what i'm doing.
      Maybe paying down debt isn't what the government had in mind, but it's a wonderful opportunity for it. You get a guaranteed return for your investment.



    2. On February 1, 2010 @ 8:45 pm,
      Chase wrote:

      I agree with the comment above. It almost seems as if the only useful thing to do with your money at rates this low is to spend it, hopefully paying down some debt or not buying anything that will depreciate too much.



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