My Sentiments Exactly: Why Can't I Be a Megabank?

Just in case you didn't read this in The New York Times: a piece called You're Welcome, Wall Street.

I have wondered about just this myself: why can banks borrow at near zero and then get Treasury Bonds for 3%, while I can get anywhere from 0% to 1.3% on my savings. Why can't I be a megabank? I promise: I'll spend locally and start a ripple effect in the economy.

And, why, if I want a mortgage do I have to pay about 5% (a spread of almost 5%) while, when I bought my house, the spread was 1%. WHY??????

The easiest and most profitable risk-adjusted trade available for the banks is to borrow billions from the Fed — at a cost of around half a percentage point — and then to lend the money back to the U.S. Treasury at yields of around 3 percent, or higher, a moment later. The imbedded profit — of some 2.5 percentage points — is an outright and ongoing gift from American taxpayers to Wall Street.

You’re welcome.

And now for the truly obscene part. By keeping interest rates so stubbornly low — and by remaining committed to doing so — the Fed is crushing the rest of us, especially senior citizens on fixed incomes and those who have rediscovered saving in order to have some peace of mind.

For instance, despite my bank calling it a “premier platinum savings” account, I am getting a measly 0.15 percent interest rate. On my “premier platinum checking” account, the interest rate is 0.01 percent. In an essay in The Wall Street Journal recently, Charles Schwab pointed out that there is more than $7.5 trillion in American household wealth stored in short-term, interest-bearing checking, savings and CD accounts. (The average interest rate for a one-year CD is 1.3 percent.)

Our savings is another source of virtually free capital for banks to use to lend out at much higher rates. These anemic yields are a “potential disaster striking at core American principles of self-reliance, individual responsibility and fairness,” Mr. Schwab observed correctly.