if they have to subsidize the machines.
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if they have to subsidize the machines.
Hi James,
It would be interesting to put some numbers to that anecdotal observation. Back when mortgage rates were around 10%, I don't recall savings interest rates around 8%, they were more like 4-5% at the banks that gave better deals.
Evie ![]()
that 20 years ago I was overseas with my savings in CD in the credit union back home and getting 11% interest on the money, by 1986 that had declined to 9%. One year later I was stateside getting a mortage and the rate was 8.8% and as I recall the interest rate on CD's were running about 7%. Maybe Kiddpeat has access to some history on that. My memory cells, even after 20 years remind me that the margin between what CD's were paying to seniors (or anyone that had them) and what mortages were costing the younger home buying population was about 2% and maybe less. Now Kiddpeat points out that I'm comparing short term funds to long term loans, and I realize that, but my comparison is for the purpose of showing the two largest areas of interest which affect the money of senior savings and young buyers costs. I already mentiond in another post addressing the short term funds borrowed as in CD's by banks and their short term lending rates for auto and other such loans.
Hi James,
Perhaps that is a snapshot in time? When mortgage rates started coming down, there was a lag before the CD and other interest rates followed suit. However, twenty years ago would have been 1984. When I pull up the mortgage rates for that time period, I'm not getting ~9%, http://www.hsh.com/natmo84.html Maybe you are comparing a subsidized rate VA loan to the general market?
Evie ![]()
I think you are talking 1987 now as pertains to the mortgage rate. That still seems to be lower than what I'm seeing for the rates at other yearly links at that site.
I'm no fan of Greenspan's use of interest rate manipulation to influence the economy. And his policies have had a very negative impact on savings in general in this country.
But I don't think that's relevant to his observations that the SS system -- putting aside everything else -- will go into a deficit regarding SS tax in - to - SS bennies out. This has nothing to do with banking or anything else, it has to do with the basic structure of the system.
Evie ![]()
I had composed a post but had to restart due to a lockup so this is in a graphic. The second graphic shows the legacy of Greenspan on savings income, which hits seniors the hardest since they are the ones that NEED the safer investment offered by CD's.
Reply
Savings Graph 1991-2003 found at www.bankrate.com
Clinton's financial guru, a woman whose name I don't recall, realized that if short term rates are kept low, the government could switch its borrowing from long term bonds to short term securities. By doing that, huge amounts of money were saved, and were a large factor in achieving the 'surplus'. The risk, of course, was that, if short term rates headed up, there would be he*l to pay. Remember what I said about funding long term needs with short term money? The gamble worked so far, but it's seniors who have paid the price.
you will see that in the Clinton years, while savings interest was heading consistently down, the CD rates were sufficiently high to cover seniors' income needs. It seems everytime a Bush gets into the White House that Greenspan starts tanking the economy, until a Democrat is back in. When I read someone claiming that Greenspan is a Republican I almost choked laughing. I do hope he's not using the Federal Reserve to influence elections, but I see that as a distinct possibility. GWB should have worked to get him out of there as soon as he could have after being elected.
Aside from the fact that Greenspan is being way too political -- he thinks he's a God or something and feels the need to testify to tax and fiscal policy which really is not his job! -- most "experts" agree that it was his handling of interest rates leading up to the '92 election that held the economy from rebounding from the mild recession just long enough ![]()
Evie ![]()
interest rates and inflation skyrocketed to almost 20%. It was Carter's ineptitude which caused a great deal of damage. It wasn't until Ronald Reagon was elected that that situation was brought under control. There was a lot of pain in that correction.
...that prior to those days all banks had to offer at least 5.25% interest on savings. When the interest rates went up that requirement was removed, it was thought no longer necessary. It is necessary now, once again.
As rates moved up, people pulled their money out of the 5.25% accounts to get a higher return on their money. The S&Ls had the money invested in mortgages which had fixed rates of interest. As their 5.25% funds fled out the front door, they had to borrow higher priced money from other sources. The result, since they couldn't increase what they received from mortgages, was a huge KRUNCH! The S&Ls went belly up, and the feds were left with a huge bill.
That convinced Congress, the regulators, and the industry that gov't set, fixed rates were a bad idea.
the generation that went through the Carter years, unable to have savings then due to the high inflation rates stealing that chance from them. Finally some relief beginning with the Reagan years and they are able to put aside savings for their looming retirement years. The support for interest rates was pulled out, the Federal Govt dallied over the S&L crisis which could have been fixed if they had alleviated their problem with lower cost loans to cover their outstanding fixed rate mortgages, but that didn't happen. But since there were other means of earning income from investment of savings that didn't signifigantly impact that aging generation. Finally they start reaching their retirement years, some having lost money in stock market corrections, most of them looking now for safe havens that will provide a livable income only to see their savings being whittled away by the lowest interest rates since the early 60's, except for that burp in 1992-3. I for one think it's time these seniors got some relief and higher returns on their government secured savings are the best way to accomplish that. Raising taxes, so it can be tossed into the various bureaucracies that deal with elder issues is the most inefficient.
it unjust for a long time, and have said it here, that the surpluses and economic stimulus was being achieved at great cost to seniors who are really taking a hit with these rates. I don't know how you turn it around until the economy is sufficiently recovered to allow the Fed to raise rates. I know the banks cannot do it. They don't have the revenues to cover the costs. The treasury could sell securities to senior citizens, but that would increase the deficit. It would also be overwhelmed by greedy people trying to milk the system.
This isn't exactly what I was looking for, but it's close to what savings rates offered by banks over time would have been. I simplified the page and put it on a server. What concerns me the most however is the period covered by the graph I posted which is specifically a 12 year history of the most common savings rates.
http://pages.prodigy.net/gbhs/misc/InterestRatesShortTerm.html
http://www.eh.net/hmit/interest_rate/intguide.htm
The encounters of most people with interest rates occur in the context of events such as obtaining a mortgage for the purchase of a home, paying a credit-card bill, buying an automobile on credit, borrowing from a bank or the federal government for college expenses, or receiving interest on a bank account. What Was the Interest Rate Then? is not concerned with the interest rates associated with these common experiences. Rather, the interest rates presented are those that set the tone for the wide array of ordinary interest rates. The interest rates in What Was the Interest Rate Then? play a major role in determining ordinary interest rates. By obtaining these series for specific years or periods of years, the user is deriving information about the behavior of the entire constellation of ordinary interest rates during these years or time periods. Two of the interest-rate concepts are short-term in nature, referring to borrowings that are repaid within a year. The short-term interest rate for ordinary funds emanates from the normal course of business of financial institutions, for example, the ordinary lending of funds by commercial banks for a short time period. The short-term interest rate for surplus funds involves the
short-term (in fact, very short-term) lending or borrowing of surplus funds, that is, funds that are considered excess by the lending institution and are required for immediate temporary use by the borrowing entity.
Yes KP,
Back in the early 80s I was rolling 91 day CDs at 17% at a Co-Op Bank, which was more than 1yr, 2yr and 5yrs.
Bank next door I was getting 16% on 1 yr.
George
Car purchase financing doesn't appear, from an outsider's perspective, to be particularly lucrative. Haven't the manufacturers been offering a lot of great deals on interest rates? At any rate, it seems like most of this activity is handled by finance companies. We don't do much in the way of car loans although other, more retail oriented, banks might.
Credit cards are not a panacea either. They're relatively high in risk, and have a lot of expenses associated with them. We don't offer them. However, Bank One had some serious earnings problems a year or two back which were caused by credit cards. Credit cards don't make as much as it looks like because, if the card's balance is paid before the end of the grace period, no interest is earned. Thus, the customer is getting a free loan, and is able to do so over extended time priods. There is also, of course, the matter of customers who wind up not paying.
One thing that does really frost me about credit cards is the late fee. I think these, charged in addition to relatively high interest rates, are unconscionable. I refuse to accept a card which has late fees, although I did make an exception recently for Sam's Club.
Bank One is my best credit card at less than 6%. Next is Wachovia about .2% higher.
read article logically and in the light of their own experience, rather than through the "how do conservative principles apply to this" prism you apply to everything. Your assumption that anyone who disagrees with you either doesn't know the facts, hasn't read the article, or isn't thinking clearly is grossly flawed.
-- Dave K, Speakeasy Moderator
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The opinions expressed above are my own,
and do not necessarily reflect those of CNET!
If you can show otherwise do so.
If you can't do so quit attempting to go off on a tangent.
Hi, Ed.
Just because you disagree with everything in an article doesn't mean you didn't read it. I read your posts, and I rarely agree with anything in them!
-- Dave K, Speakeasy Moderator
click here to email semods4@yahoo.com
The opinions expressed above are my own,
and do not necessarily reflect those of CNET!
comments that refer to what was NEVER said in the article.
When you do that it STRONGLY indicates that you never bothered reading the article at all.
JOSH -- "Cut benefits to people who can barely get by on what they get now -- on money they put into the system in the first place!"
Show anywhere in the article where any such thing was indicated. Can't do it because it wasn't.
Note that he's opposed to tax increases. He thinks the deficit should be cut by spending reductions. Gee, maybe President Bush's tax reductions were a good thing. Greenspan's just an economist though, what's he know?
'"Tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base," Greenspan said. "The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side."'
The preceding paragraph reads:
While not ruling out totally the use of tax increases to deal with at least part of the looming surge in spending on Social Security, Medicare and other entitlement programs, Greenspan urged caution in increasing taxes.
So he may not like the idea of tax increases, but he's not ruling them out as an option.