The first sentence is a masterpiece of DoubleThink:
Banks were shamed into passing interest rate cuts on to borrowers yesterday – but it came at the expense of millions of savers.
As any fule kno, mortgage rates and saving rates usually move in line and there is a 1% or 2% spread between them. That's what banks and building societies need to cover running costs, bad debt risk and to make a profit.
But that's the beauty of the Express. Focus on one half of the equation at a time and whine about it. If The Badger had another arm twisting session with the banks and forced them to continue paying higher interest rates to savers, The Express would be whining about banks' profits and share prices plummeting. And if the government then subsidised the banks even further, the Express would be whining about them robbing the taxpayer. I suppose it's only a question of time before they write a sob-story about a poor young potential first-time buyer couple who have built up a reasonable potential deposit which is now being eroded again by inflation and low savings rates.
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I suppose that this is yet another angle to the 'pushing a piece of string' argument that cutting base rates does not stimulate an economy; in the above example, the total gains to 'hard pressed homeowners' are going to be roughly equal to the losses suffered by 'hard pressed savers', so households' total spendable income doesn't change very much.
The implications of an argument
29 minutes ago
4 comments:
Agreed. To be honest, the more I learn about things (economics, the way politics works, moral theory, etc.), the more I think that this country is run by people that are either ignorant, stupid, deceitful, evil, or some combination thereof.
The media are supposed to reveal these failings but too often seem to suffer from them also.
These type of headline is referred to as 'financial pornography' in my circles.
As a lay person my understanding of how the savings and loan system works is as follows. I deposit with the bank £100,000 they class this as an asset and can then loan up to ten times this amount £1,000,000 they give me 5% on the £100,000 and charge 7% on the £1,000,000. Have I read this situation wrong? There seems a fair amount of leeway for savers if this is the case.
PW, nope. Your £100,000 deposit is a liability from the bank's point of view.
The bank can only on-lend 90% of your £100,000. If you were to invest £100,000 in the bank as new share capital, then assuming a 10% capital adequacy ratio, the bank could in theory make further loans of £1,000,000, but that pre-supposes that they can get a further £900,000 in deposits or loans.
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