Is this news? Yes, banks profit by lending money at a rate of interest.

[Mike 03]

Please.

Do I like it? No.

Is it fair? Probably. In fact, Yes. Yes, it's fair. When I borrow money, I expect to pay an interest rate. Okay?

When I give money to someone, do I get a tax break or benefit? No.

Do I lend money and charge interest? No, I don't. But a lot of people do.

If the banks are undercapitalized, then lending out money at no interest is just going to get them deeper in the hole, which means we will have to dig deeper into our own pockets to save them, because they are too big to fail.

This is all connected. Why is this so difficult for people to understand? If the bank goes down, you or your neighbor go down, your 401K halves (if you are lucky) or vanishes, your pension fund dissolves, there is a panic run on funds, including money market funds, and we all eventually are living out of cans (dog or cat, or preferably beans manufactured for human consumption).

[natrat]

1. yea sure, bussiness as usual throw em another unaccountable trillion,or a nonrecourse loan,party on

[texastoast]

2. So. Now. What do you think of ARMs? DO THEY WORK FOR PEOPLE?

NO, they do not.

And, when AMERICA worked, they were illegal.

IMAGINE a world where any interest over 10% APR would classify you as a scummy, back-alley loan shark.

[RB TexLa]

4. Of course they work for people.

Say you own a business and are concerned about months with lower revenue. You take a x year interest only ARM loan with a payment of interest only at say $1600, but instead you pay $2600 a month. Maybe there are a few months you aren't able to pay the extra and only pay the interest only payment, which is of course the reason you got this type of loan. At the end of the interest only period 5, 7, or 10 years you have paid more in principle than you would have in the same time on a 30 or 40 year note and you finance the last however many years usually with a lower payment if it's 7 or 10 years.

[customerserviceguy]

5. ARM's got really popular

during the early to mid 1980's when interest rates for fixed loans were in double digits. The lower rate on an ARM allowed people to pay a bit more for a house, and we didn't see anywhere near the drop in value during that time that we've seen in the last couple of years. And while interest rates were coming down, they were safe, one could refinance to a fixed rate at a time when the interest rates had finished dropping.

You really could say that ARM's saved the economy during the 1980's. Of course, today we have low interest rates, so ARM's are not the solution. In fact, they allowed people to pump up the housing bubble even more during the period from 1997-2005.

There's a time and a place for everything.

[Oregone]

3. "Yes. Yes, it's fair. When I borrow money, I expect to pay an interest rate."

First, "fair" is quite arbitrary and meaningless. I guess it depends on who you are.

Anyway...to move on. Well, when I bought my first home, I needed a loan for $125K (just 4 years ago, I bought modestly at $155K with down payment). I had a credit rating over 800 and a well paying job, well above average earner. If I repaid my loan, it would cost $125K + $147 K. Essentially, it makes $125 for a lower class person really cost $271K. A rich person could of made that purchase at face value because they inherited the wealth. Because I did not inherit the wealth, I have to pay an extra 118%, which goes to the rich person invested in the bank (who doesn't need it in the first place). This reinforces a perpetual class system, essentially. Additionally, our wealth has to go further to the banks, because they screwed up. Sort of sucks. How fair is this all really?

Rich people buy assets at face value. Poor people may pay 2X as much. Rich people earn off of interest AND buy things cheaper, while poor people suffer from interest at massive rates. Amoratized loans just make it easier for the rich to drain more wealth from the poor.

Yes, everyone expects to pay back interest. But sometimes its a bit overboard.


"If the banks are undercapitalized, then lending out money at no interest is just going to get them deeper in the hole, which means we will have to dig deeper into our own pockets to save them, because they are too big to fail."

Good. Then the government should loan it out directly at low interest. I know of a great system where a local government was loaning at 0% interest (no re-payment period), and it was an amazingly beneficial program for everyone.


"If the banks are undercapitalized"

Just to be clear, if the banks have liquidity, there is no guarantee they will lend money out to people and businesses in the worst economic climate in decades (assuming they would is ludicrous). Yes, banks want a profit. In fact, they want it almost guaranteed to some degree of risk. No loan in this environment has any profitability guaranteed.

[Toucano]

6. Not all banks lend money and charge interest.

That's only one model.

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha. Another approach is EIjara wa EIqtina, which is similar to real estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

http://en.wikipedia.org/wiki/Islamic_banking#Modern_Islamic_banking

[stevedeshazer]

7. So when you borrow at 9%, and your interest rate goes to 29.9%, that's okay?

Fair business, or profiteering?

[Bluebear]

10. +1

[Skip Intro]

8. Makes sense. We basically are slaves to the bankers. The people with money control those without.

Pretty clear.

[galileoreloaded]

9. You almost had it, but didn't quite get there.

The interest banks are now receiving is from taxpayers and ordinary citizens using dollars. See, the banks are getting interest from the FED right now on demand deposits, your checking and savings account. THEY ARE BEING PAID FOR YOUR RESERVES.

On top of that, with the funds rate at practically zero (or ZIRP, in the parlance) they are making HEALTHY returns on your mortgage, credit cards, etc. They borrow for .25% and collect 20% from you....isn't that special. Oh, and the mortgages, what do you think they are paying for your new 5% home loan......wait for it.......005%!!!

See, when the idiot Geithner came up with PPIP, he let the banks dump assets into the market for 7-9% of the cost. Government is picking up and/or guaranteeing the loans (@.25% and backed by FDIC, thank you very much) the other 90%+. Now, with the fucking dim bulbs in the administration allowing FASB to allow "judgement" in mark to market, Chase buys the traunch that your mortgage is in for 7 mutherfucking %, mark the WHOLE THING up 10-20%, and flip it out to say, Barclays. Government gets their money back, Chase makes 1000-2000% in the original investment, Government comes back in to guarantee the same traunch 6 months from now, because defaults are again smacking the portfolio, and taxpayers are on the hook again.

Interest is fine, recapitalizing banks via public, overt fraud is shitty, and has the full backing of the previous and current executive.

Hows that for closing the loop for you guys.

[Marie26]

11. You're missing something

Yeah, normally banks make money loaning out at interest. Where do they get that money? Private investors, savings accounts, CD's, etc. - individuals who voluntarily decided to turn their money over to a bank so they can make interest. Now, the banks are getting that money straight from the government & taking it from the taxpayers involuntarily. And those taxpayers can expect to make zero on the deal. That's the difference.