There was a time when certain key lending and borrowing rates, determined with due consideration and caution by various international governmental agencies or special cooperatives of trusted institutions were incorporated into the terms of agreements.
1) You could have a variable-rate loan pegged to LIBOR or PRIME;
2) You could have a low point or a high point of "not less than" or "not to exceed" LIBOR or PRIME;
3) You could have a variable-rate or adjustable-rate mortage that was geared toward some formula based upon the U.S. Treasury bond or U.S. Treasury note yield at adjustment intervals.
These are becoming increasingly volatile, subject to manipulation, unrealistic in terms of real borrowers' (consumers and corporate) credit eligibility, and increasingly irrelevant. If you cannot trust in these published rates, planning and the creation of trade and payment instruments becomes increasingly difficult.
And the disparities between the rate that bankers, investment bankers and other fiduciaries can borrow (let's say that the Federal Funds Rate in the U.S. -- the rate at which banks can borrow from the Federal Reserve -- is 0.25%, while the Prime rate [usually called the Chase Prime Rate] -- the rate at which the best corporate and individual borrowers can obtain money is a whopping 9.0%),and the rates to which we of the real world are subjected are widening... a disincentive to savings, because the yield is less than the general inflation rate, and a magical profit margin to bankers and their other club members who pay very little to obtain great big chunks of investable cash to invest, virtually unpoliced, as they choose. Some of these investments have proven to be more like bad casino bets.
Let's also remember that those preferred customers eligible to borrow at Prime are an endangered species on this planet. Companies pay enormous fees and high rates to obtain bank loans. The interest rates and miscellaneous late fees, statement fees, overdraft fees, transaction fees, ATM fees and other inexplicable and unconscionable charges levied on credit cards or for store-issued (finance company or bank-backed) affinity cards are higher, when added up and actually computed on an annualized basis, than they have ever been in the history of the United States.
Don't you find it curious that some of the banks which have declared their highest profit levels in history during this recession (which many people find endlessly infuriating, from the U.S. to Uganda) could not pass a Treasury-sponsored "stress test" for solvency and liquidity in case of a worsening of the recession. Where do those profits come from? Where do those profits go when it's time to withstand toughening economic times? Is it "creative accounting?" Is it thievery - the raiding of the cash drawer on a colossal basis?
Moving on to Europe, there's some very interesting news concerning the manipulation of the LIBOR rate. After you've reviewed the article, please hit the "BACK" button on your browser and return to us here. I'll draw some interesting conclusions and discuss some predictions which will affect all of us, as Human Beings, as businesses and as Internationalists.
- Speculation mounts about future of Libor
Investigations into possible manipulation of the London Interbank Offered Rate are sparking speculation that changes are likely. "The methodology used to formulate Libor is totally unsuitable for the modern world," said Daniel Sheard, chief investment officer of GAM U.K. "The British Bankers' Association needs to come out on the front foot and say, 'This is a system that was appropriate 20 years ago but is no longer appropriate, and we are going to change it.' " Bloomberg (3/13)
Here's what I would predict over the next several years, worldwide:
1) Banks continuing their current practices with little discipline - with the exception of smaller privately-held banks, or newly-public local or sub-regional banks, which will be obsessive about transparency and customer service, knowing that they can acquire this increasingly disenfranchised market.
2) Savings accounts, demand deposits and other banking staples will be leaving the major banks, and heading for either the exceptional banks, referenced in #1, immediately above, or for credit unions. There will be an increasingly fragmented market comprised of small businesses, medium-sized businesses and some individuals (even very wealthy ones, with all of their investment, wealth and dynastic trust management) with significant borrowing needs to divide their business up amongst non-bank lenders and alternative sources of financing;
3) P2P (Peer-To-Peer) borrowing will be on the rise, as will manufacturer, wholesaler and distributor credit;
4) No government-directed austerity measures leveled against citizens will prove successful, and will cause an increase in sovereign instability and the underground economy;
5) Equity funding provided via crowdfunding, business cooperatives, non-bank financial institutions will be increasingly active. These sources will draw investors away from the banks because of the poor service and low interest yields (vis-a-vis the rising costs of living and inflation in general).
6) Contracts and financial instruments will tend to be drawn either at stated fixed rates, or with certain percentages of certain amounts used as a variable means of payment. Fixed rate loans will be financed with fixed rate borrowings, and maturities of sources and uses of funds will be ever more consistently matched. I like to think of this as "Creative Conservatism".
In sum, the reign of the great multinational superbanks will come to an end, and the world's wealth will ultimately be pumped into productive businesses once again -- and particularly those businesses that offer direct participation in revenues, profits or consistent dividend payouts, and even speculative chances at windfalls, the mindset being that it is better to gamble than to know that you will continually lose wealth with the "sure" thing.
Ingenious, frustrated and entrepreneurial visionaries will ultimately transform what remains of a persistent and increasingly avaricious plutocracy.
Sadly, big banks and overly-controlling governments will have to resort to initiating conflicts and financing warfare and "reconstruction" efforts in order to continue to feed those few powerful people who will do anything, without ethical or Humanitarian consideration, and without compunction or mercy, because no life-long glutton with a sense of entitlement wants to be put on a limited budget.
Douglas E. Castle [http://aboutDouglasCastle.blogspot.com]
Tweet
No comments:
Post a Comment