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Thursday, August 07, 2008

Banks don't need my money due to government handouts

I have a CD maturing today.

You would think, with inflation running at 4% and banks having liquidity problems (i.e. they don't want to borrow from or lend to other banks), that banks would be eager to borrow money from me. My money's green, and in cash. None of this CDO crap.

But no. I was offered a 2.01% rate for a 2 year renewal at E*Trade Bank. This is a substantial negative real rate of return after inflation and tax payments.

Why is this? It's because banks can borrow very cheaply from the government (the Federal Reserve). The government can't really afford to loan money this cheaply; they lose money on this deal like anybody else. But the banks have everyone convinced that we need to bail them out by subsidizing them heavily or financial chaos will ensue.

They might be right, but if I'm not getting the interest I should ordinarily get, shouldn't I get a pound of flesh from the bank executive of my choice?