Thank you for being a valued part of the CNET community. As of December 1, 2020, the forums are in read-only format. In early 2021, CNET Forums will no longer be available. We are grateful for the participation and advice you have provided to one another over the years.

Thanks,

CNET Support

General discussion

Greenspan urges SS cuts. He's got to go !! NOW!!!

Feb 25, 2004 12:47AM PST

Discussion is locked

- Collapse -
Good for them! That sounds like a good business decision even
Feb 26, 2004 11:14PM PST

if they have to subsidize the machines.

- Collapse -
I didn't say that.
Feb 27, 2004 1:11AM PST
James, no banker worth his salt has funded mortgages with short term deposits (most individual accounts) for, probably, 20 years. The Savings & Loans
were the last ones to fall into that trap, and you remember what happened to them. These
days mortgages are funded by longer term funds which are considerably more expensive
than demand deposit, savings, or short term CD accounts. This means they are not as
profitable as you imagine. In fact, my employer, a large bank and trust company, has just
sold its mortgage business. It simply was not sufficiently profitable. Unfortunately, all the staff
was laid off when this happened.


I didn't say they were using short term funds for long term loans. I made a simple observation between two common areas of interest paid/charged by banks and noted the increased percentage difference I've noticed between them. Now if you want to relate CD's and other short term bank commitments to short term loans, such as for car purchases or credit card purchases, then the increased spread that has developed there makes the situation look even worse.

I was taking the most conservative approach to making my point.
- Collapse -
Re:I didn't say that.
Feb 27, 2004 1:57AM PST

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 Happy

- Collapse -
I remember
Feb 27, 2004 2:32AM PST

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.

- Collapse -
Re:I remember
Feb 27, 2004 2:40AM PST

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 Happy

- Collapse -
Oops ...
Feb 27, 2004 2:51AM PST

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 Happy

- Collapse -
My browser locked up but have screen capture. Also a Savings graph.
Feb 27, 2004 3:21AM PST

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

- Collapse -
James, that's how Bill Clinton financed the 'surplus' that Dave likes to brag about.
Feb 27, 2004 4:35AM PST

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.

- Collapse -
If you look at that graph
Feb 27, 2004 4:41AM PST

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.

- Collapse -
Total agreement here!
Feb 27, 2004 7:16AM PST

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 Sad

Evie Happy

- Collapse -
James, 11%, and higher, rates on CDs were brought on by Jimmy Carter when
Feb 27, 2004 4:24AM PST

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.

- Collapse -
You forget
Feb 27, 2004 4:35AM PST

...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.

- Collapse -
No, James. What happened was the Savings & Loan disaster.
Feb 27, 2004 5:04AM PST

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.

- Collapse -
And what you have now is
Feb 27, 2004 5:40AM PST

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.

- Collapse -
James, I agree with most of what you are saying. I have thought
Feb 27, 2004 10:35AM PST

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.

- Collapse -
You'll enjoy this.
Feb 27, 2004 5:55AM PST
- Collapse -
Very good find! A nice summary. (NT)
Feb 27, 2004 10:46AM PST

.

- Collapse -
Chart of Interest Rates - Short Term.
Feb 27, 2004 5:22AM PST

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.

- Collapse -
Re:James, 11%, and higher, rates on CDs were brought on by Jimmy Carter when
Feb 27, 2004 11:03AM PST

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

- Collapse -
OK, car purchases and credit cards.
Feb 27, 2004 3:42AM PST

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.

- Collapse -
Don't scare me!
Feb 27, 2004 3:53AM PST

Bank One is my best credit card at less than 6%. Next is Wachovia about .2% higher.

- Collapse -
Based on your comments I'll bet you didn't read the article. (NT)
Feb 26, 2004 3:07AM PST
- Collapse -
(NT) Message has been deleted.
Feb 27, 2004 9:30PM PST
- Collapse -
Message deleted at Mary Kay's request (NT)
Feb 28, 2004 12:48AM PST

.

- Collapse -
Re: I'll bet you didn't read the article -- Ed, some folks can actually...
Feb 28, 2004 1:27AM PST

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
click here to email semods4@yahoo.com

The opinions expressed above are my own,
and do not necessarily reflect those of CNET!

- Collapse -
In this case the post didn't agree with anything that was indicated in the article.
Feb 28, 2004 2:01AM PST

If you can show otherwise do so.

If you can't do so quit attempting to go off on a tangent.

- Collapse -
Re: In this case the post didn't agree with anything that was indicated in the article.
Feb 28, 2004 1:15PM PST

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!

- Collapse -
Agreement or disagreement does NOT include...
Feb 29, 2004 5:29AM PST

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.

- Collapse -
He also discussed the need to reduce the deficit.
Feb 25, 2004 2:04AM PST

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."'

- Collapse -
Re:He also discussed the need to reduce the deficit.
Feb 25, 2004 2:29AM PST

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.