Can I ask a naive question?

n748

Now Fed is providing banks with free money, and bank can loan it for 4-5% of profit. without this supply of free, almost all the banks would be insolvant.

Now, with mortagage fixed fro 10, 15, or even 30%, what if Fed change their money policy? How do those banks deal with it?

Or is FED commited their money for 10, 15, or even 30 years? How does this thing work?

Thanks.

CoolMax

Good one, any one can answer it?

shawle

Fed is throwing the kitchen sink. There is no way they can keep rates this low. Once the economy starts to recover they will have to raise rates otherwise combined with its expanded balance sheet inflation will kill everyone. The hope is by that time the banks will already have earned their ways out of the current problem and they can borrow or raise capital elsewhere.

But I doubt banks will have any spreads on these crazy re-finances eventually. 5% for 30 yrs is really low.

李隆基

只有战争，才能终结危机！

colderdown

Let me give a try:

1. Banks' write down was mainly on their trading books (securities' side) before. Now, as economy goes to down, their load book will be a mess too. so, they fcked!
2. Bank indeed can make money, but their liabilities can wipe off their gain 100 times. so, banks are fcuked
3. FED can't hold interest rate low for too long this time after inflation kicks in. Since another bubble will have even worse pay back. Thus, banks are fcuked
4. Japan's mo rgage rate is 1.4%, did you check Japanese REIT. So, house price will keep falling, which will induce more tox assets. Hence, banks are fcuked!
5. It took 5yr for Japanese banks lost 80%, took US 18 month.

So, if you want to long banks, go ahead. C will reach $10 someday (My son will see that for sure). If you want to short banks, how much meat left? YMYD