What they're not talking about
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| Tue, 09-30-2008 - 12:07am |
With the bailout being in the top headlines and the credit markets in general over the past few weeks I expected to see journalists pick up on a particular angle, but have not seen any articles on the news sites I usually read.
The discount rate for Fed. Funds is only 2.25% (down from 5.25% a year ago to show the sharp drop). But this rate reduction isn’t being passed along to homebuyers. The typical home loans I see are about 5.5-6% for people with good credit. The difference between the two numbers is the bank’s margin for credit risk and that margin is pretty big.
When the rate of these foreclosures begins to dry up, these companies are going to be making huge profits due to these large margins of interest. I would’ve expected to see more articles and hear more coming from the Hill about how these companies will be making such large profits in the next several years as an offset to the bailout that’s been offered.
As it stands now, if legislation similar to what’s been offered up gets past, we’re going to wind up buying off all their bad debt and in the following year or two those companies will start turning near-record profits because of the high margins.
Some stories may have been done on this issue, I’ve not specifically looked. But as I said I would’ve expected to hear more along these lines and so far I’ve heard nothing.
