BANKS CARE ABOUT OUR LOST INTEREST!!!!!!!greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
I was going to answer another post with this, but decided to give it it's own thread. People should see this.
Below is yet another quote from a federal reserve official
"No one should take out any more money than they would for any normal holiday weekend," said Juan Del Busto, assistant manager of the Miami Federal Reserve branch. "We are doing everything we can to discourage people from taking out extra money. First, because they will lose interest. Second, of course, because of the chances they will be robbed."
I'll ignore the part about getting robbed, we all know how rdiculous that is. I want to talk about this interest thing.
Now this one REALLY pisses me off big time. Where do they get off saying that they are so concerned about my interest?
Let's look at this:
I take out $5,000 for 6 days, oh hell make it 10 days. I take it out December 28, and if everything is ok, I put it back on January 7, 2000 if the banks are up and running.
What has it cost me? Well, even if my interest bearing checking account or passbook savings account is paying a very generous 5%, here's the calculation (not accounting for daily compounding which is minimal on a ten day withdrawal):
$5,000 * 5% = $250 (simple interest for one full year)
$250 / 365 = $ .685 (interest accrued each day)
$ .685 *10 = $ 6.85 (total interest for 10 days)
Now in this example, we used an interest rate of 5%. I don't know of anyone paying that now, unless you lock into a CD, then you can get more. More likely, you'd be getting 3%. That means a forfeiting of a whopping $4.10!
Now, on the other hand, say the banks aren't fine, and I only had $300 for my "long weekend". Come January 5, how will I be purchasing necessities? I'm prepared, but I'm sure there are still some things forgotten. But what about all those people who haven't prepared, what will they do????
OK, OK, say the banks are fine "for the most part", but there are still spot outages or problems, and I have to get my money out of a "foreign ATM"? How much will I pay in user fees? $2-$3 on average between my bank and the ATM owner. I'll burn up that additional inters in less than two transactions!!!
All this assumes, of course, that I didn't take my money out of a Non-interest bearing account, which many checking accounts are. In that case, there's NO interest lost.
With the fees that banks charge...monthly checking charges, ATM charges, check printing fees, on-line banking fees, NSF (bounced check) fees....Does anyone TRULY believe that the banks care about our lost interest???
-- Duke 1983 (Duke1983@AOL.com), December 10, 1999
-- Duke 1983 (Duke1983@AOL.com), December 10, 1999.
good call Duke,
what about the gas you will use to get to an ATM that is in use, what if you don't have gas, during the Ice storm, some places had no electricity for 5 weeks, they had to drive 50-100km (20-40 miles0 just to get to a bank machine that worked, and also, gas prices will rise due to oil shortage, take you money out while you can.
-- Llama man (email@example.com), December 10, 1999.
One more time...
-- Dennis (firstname.lastname@example.org), December 10, 1999.
Did that work?
Anyway, I was similarly outraged when I read that Duke.
I have been withdrawing money gradually for 9 months now. Why should anyone including the banks care what I have done with my money?
-- nothere nothere (email@example.com), December 10, 1999.
I believe the real problem is fractional reserve banking. Banks can loan out (ha! ha! because they really loan nothing. Actually you loan yourself your own money when you sign the promissory note) $9.00 for every $10.00 on deposit. Now if everyone takes out tons of money that puts their loan ratio in bad straights. This they have to avaiod at all costs. This might be the hidden reason for them not wanting anyone withdrawing large sums of cash. Not having sufficient cash on hand is one problem but the above is another considerati
-- firstname.lastname@example.org (email@example.com), December 10, 1999.
Where the hell do you get 5% on a bank account. I'm lucky to get 3% and less effective rate on checking. The interest lost is a real joke.
-- kozak (firstname.lastname@example.org), December 10, 1999.
I think everyone is missing the point here.
Let's consider what the bank really cares about. First assume a fractional reserve of 1.5%. This means that the bank can loan out money and by using your $5000 as their fractional reserve. So .015x=$5000 or x=$5000/.015 Punch this through your calculator and you find your $5000 = $333,333.33 in lending power.
With credit cards charging 15% and home morgages charging 7.5% let's assume an average interest income to the bank of 10%. That means the bank has $33,333 in income potential from your $5000 per year.
Divide by 12 months per year and that's $2777 of lost income for the bank during the 30 days you have the money out of the bank. For their $2777 of income, they are willing to pay you $4.10 for the use of your money. Why am I starting to feel screwed here.
If an individual generated this kind of income from a loan it would be called loan sharking. In the banking world it's called fractional reserve. But never mind all this, the bank doesn't give a rats ass about you. All they want is your money so they can rake in the returns and pay you virtually nothing.
Now you know how banks can afford to pay outrageous salaries to their executives, build fancy new buildings, buy other banks, and so on. In addition, they assume almost no risk, the taxpayer does through the FDIC. You should now feel financially raped.
-- Tom Flook (email@example.com), December 10, 1999.
Are you trying to tell me that the banks are really worried about their money? Hard to believe in this day and age that a highly esteemed bank would be self serving.
-- Mark Hillyard (firstname.lastname@example.org), December 10, 1999.
...on the otherhand, the bank (by virtue of a Y2K induced financial error) may mistakenly calculate your interest rate to be 30000% instead of 3%! That'd be a nice twist. ;)
-- TM (email@example.com), December 10, 1999.
Tom Flook wrote:
"Why am I starting to feel screwed here."
Well, both your calculations and your assumptions are in error, to begin with. You should check your work.
The fractional reserve is about 1/17th of deposits. This means that the banking system, altogether (not one single bank) gets to lend out 17 times *original* deposits. $5000 times 17 is $85,000, NOT $333,333. Oops number one there, Tom. Your calculator works fine, but your algebra needs a bit of polish.
Second, no bank can lend in excess of deposits. Presumably, the banking *system* is paying interest on all deposits. Since $85,000 has been lent out, this means $90,000 are on deposit (since $5000 had to be kept as the fractional reserve, but the bank must still pay interest on it). If banks charges 7.5% interest on loans and pays 3% interest on deposits, we have banking *system* income per year of 7.5% of $85,000 ($6375), and banking payout of 3% of 90,000 ($2700). The net to the banking system is $3675.
Of course, banks must pay programmers and all other salaries, and all overhead, and make payments on the building, and pay taxes, and show profits, etc. Which all comes out of that $3675. Is it any wonder banks go broke? Believe me, if banks were the magic money trees some people here seem to think, *everyone* would go into banking. Fat city!
-- Flint (firstname.lastname@example.org), December 10, 1999.
From: Y2K, ` la Carte by Dancr (pic), near Monterey, California
The fractional reserve is about 1/17th of deposits. This means that the banking system, altogether (not one single bank) gets to lend out 17 times *original* deposits. $5000 times 17 is $85,000, NOT $333,333.
The way I understand the system to work is this: In the fictional example above, if the reserve is 1/17th, and someone deposits $5,000, then the bank may lend out 16/17ths of $5,000 or, approximately $4,705. The problem comes if more than 6.25% (1/16th) of the people want all their money back at the same time. They can't have it because it has been lent out.
-- Dancr (email@example.com), December 10, 1999.
That's correct as far as it goes. Say I deposit $5000. The bank can lend out 16/17ths of the original $5000. Say they lend it to you. Then you can deposit this loan back into the bank in another account. The bank then has over $9000 in deposits (yours and mine together). They then get to lend out 16/17ths of *your* deposit to someone else, who deposits this loan back in *his* account. This process continues until $85,000 (or so) has been lent against ALL these accounts together.
Of course, these loans are paid back through *future* economic activity -- the period of all the loans. Your car loan is already spent, and is paid back by future earnings incrementally. The depositors cannot all be refunded their deposits until all loans are paid back. In time, they will be. If all depositors want all their money in cash at one time, it can't be done because the future hasn't come yet.
If banks kept all their deposits in Scrooge McDuck's money bin, they could pay everyone back immediately without waiting for the future to arrive. But without loans, it wouldn't be much of a future. So the fractional reserve system is a gamble that economic activity will continue at some level sufficient to get those loans paid without excessive defaults. Sometimes this gamble loses, but this is kind of like betting that there will *be* a World Series. In over 100 years, once there wasn't. It's not a sure bet, but it's very safe under most circumstances, and extremely beneficial.
Will y2k be an exception?
-- Flint (firstname.lastname@example.org), December 11, 1999.
Flint, Tom's math was correct. So was yours.
The two of you are using two different fractional reserve requirements, however.
Tom used 1.5%, you used 1/17 (5.88%).
So you are both correct. The real question is, then, what is the required cash reserve, as well as the actual cash reserve. In my readings, I have generally seen reserve balances of approximately 3%. The banks may be allowed to go below that, I don't know.
3% would allow $166,666 in lending off of a $5,000 deposit.
Does anyone know the actual required reserves??
-- Duke 1983 (Duke1983@AOL.com), December 13, 1999.
I do not have exact reserve requirement figures handy, but I have read that the size of the Bank determines what the loaning parameters are. It differs from small to medium to large-sized banks(total assets).
What is really humorous about "lost interest" is this slick trick: I've had a few banks charge a "maintenance fee" that took all the interest plus more for going below a few gazzillion $$$$$$ minimum balance. You can actually SAVE money in some cases by exitting.
Regards, (He Who) Rolls with punches
-- (He who)Rolls with Punches (JoeZi@aol.com), December 13, 1999.