Personal Banking

Fed Rate @ 1%

The Federal Reserve Bank lowered their primary interest rate another half percent to one percent. This makes it generally less expensive for banks, businesses, and people to borrow money. There is a lot of existing debt, including credit card debt, out there which is directly tied to this number, so over the past month, interest rate payments on those debts have lowered by one percent as well.

I have two loans from the Small Business Administration which are tied to this rate, so I will see a tiny bit of relief, thankfully. The danger here is that the low rate will cause inflation, and given how much money is currently being injected into the economy at the moment, I’d say that’s an important risk. I’ve heard on the radio that the treasury isn’t actually releasing any more “dollars” out into the economy, which should help offset any risks of inflation.

Yay! Fed Cuts Rate

Finally, the Federal Reserve Bank dropped their primary lending rate from 2% to 1.5%. Its a significant drop, and has been described as an “emergency” measure.

Around the time the $700 billion bailout was introduced, I suggested that the Fed held off on lowering rates to that they could later have more options if they needed them. Whether or not I was right, I’m sure the Fed is thankful that they still have some room to drop the rate.

The danger here is inflation, and while that is a serious problem to watch, a recession is a serious problem too. And worse, market stagnation can cause some serious loss of value in a short period of time, as we’re seeing the stock market plummet day after day.

The party is over folks, time to get back to real work.

Sovereign Bank, Rockville, MD

I took a picture of this Sovereign Bank building in Rockville, MD:

How much is 700 billion?

As just a regular Jane I find it very difficult to understand what is going on with the banking industry at the moment. The headlines talk about banks being insured up to $100,000, and the government is going to give 700 billion dollars to the failing companies to keep them from going under.

As I understand it if the banks go bankrupt that’s big trouble for the economy. Little businesses will be in financial trouble because the banks hold all their money, and then they can’t pay their bills or buy supplies to continue to operate. Individuals are impacted because they stand to loose all their life savings. The implications of all the money in my checking account disappearing is not lost on me.

The insurance of up to $100,000 is a guarantee, from a separate Insurance company, I can only presume. Should the bank ever go under individual customers would receive any amount of money they had in the bank up to $100,000. No problem for people like me. I have nothing to lose anyway. But lots of people have a lot to lose.

How does it work, if the insurance company has to come swooping in? Is it like when the bank takes you house? My guess is the insurance company seizes all the banks assets including mom and dad’s retirement fund and uses, it to pay everyone their insurance up to $100,000. And then sits like a fat cat on all the excess money they took?

Now if the government comes with their “bail out” plan. What an inspiring title for the everyday person, usually you bail out a sinking ship. Way to instill consumer confidence. Anyway this plan of a whole lotta moola, is it good or bad? Where’s that money coming from? Will it stop the swarm of foreclosures sweeping across the country? Will it allow people to keep their homes? Maybe it’s selfish, but $700 billion in tax payer money better be spent to help the tax payers, it sounds like it would be going to help the banks, which in turn would help the tax payers.

But what about the insurance companies? I assume the banks pay them a hefty monthly premium to insure all that money in the event of an economic crisis. If the government just steps in to take care of things, what have the banks been paying them for?

I don’t get it. Can anyone explain it to me, in simple terms?

Huge Spike in WaMu Interest

As part of my efforts to provide quality and up-to-date information about banks and the banking industry for everyday people, I keep track with Google Analytics. It provides information about our visitors, including what search phrases were used to find this site.

Upon reviewing the statistics this morning, I was surprised to notice a huge spike in the number of search phrases including “Washington Mutual bank branch locations”. When I mean huge, I mean going from practically zero to almost 200 in the last few weeks.

How come? A quick scan of the news reports doesn’t provide much. I wonder what is going on in consumers’ minds?

Another possible explanation is that the spike might not represent a shift in consumer sentiment, but instead a shift in how various search engines position Informed Banking in their database indexes. Hard to say what the ultimate reason is, but its interesting to think about.