Wednesday, October 21, 2009

Wizards Of Finance

Allan Sloan notes that America's pathologically low interest rates, while they are a boon for investors and spenders, are a bane for savers: The Burden On Savers: Propping Up Wall Street

Here's the deal. The government is spending trillions to keep interest rates down in order to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers' incomes.

"It's a direct wealth transfer from savers and retirees to overly indebted borrowers," says Greg McBride, senior financial analyst at

Since October 2007, when government intervention in the financial system began picking up speed, yields on the ultrasafe one-year and five-year investments that many retirees favor have tanked.

Two years ago the average yield on a five-year federally insured bank CD was 3.9%, according to Now it's 2.2%, a drop of more than 40%.

Yields on one-year CDs have almost vanished: 0.92%, compared with 3.6%. On five-year Treasury securities, yield is down to 2.3% from 4.4%. On one-year maturities, you get a minuscule 0.3%, down from more than 4% in 2007.

The Bank of America in the neighborhood where I work is constantly promoting different savings vehicles - CD's, "student" accounts, etc. But the interest rates are pathetically small; the other day they were frantically promoting the highest rate I've seen in months: 1.75%! Whoopee. Can I have some table scraps, too?

One of the worst aspects of the current depression and Age of Bailouts is the inversion in our social values. The imprudent have been the focus of intense government spending and politicking, while the prudent and thrifty have been asked to shoulder the burden for both the Masters of the Universe and for the sub-prime borrowing class. We are simply told that accepting such a burden shift is our civic duty, and if we dare to attend a Tea Party or listen to Rush Limbaugh, we are hateful fascist racists. Granted, the government's default setting in a crisis is to start throwing money around, but the frantic pace of spending is getting ludicrous. What to think of the proposed payment of $250 to seniors to make up for a rare non-payment of the COLA? What the hell good is that going to do? It's a pittance, and a bit of an insult when you consider the billions that have gone to, say, the UAW.

The money machine is spinning wildly. Who will have the courage to turn it off?

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