Bank Bailout

Martin Armstrong-

The number one question pouring in is about the banks and their profit margin. Yes, the bottom

line remains that the cost of money declines sharply for depositors while the cost of borrowing

rises. Where the value of cash for three years is 0.7% to a depositor, for a fully collateralized

borrower, the cost is about 4%. This is a profit margin for the banks of 571%. In other words, when the discount rate was 17% in 1981, this would have been the equivalent of a prime rate at 9707%. The profit margin at banks has

NEVER been so high. The Fed has increased the profit margins of banks but they in

turn are not accommodating the economy. They require more stringent collateral today than at any

time in the past and want

ZERO risk failing to stimulate anything. Have a brokerage account? Ask the

broker how much he will lend you against fully collateralized shares. You will quickly see that the profit

margins are

EXTRAORDINARYILY high for no risk at all! This is becoming a giant shell game whereby

everyone

THINKS the objective is to “stimulate” the economy, but in reality, it is bailing out the banks

once again covertly by allowing their profit margins to increase dramatically. Therefore, lower interest

rates only widen the spreads increasing profits to the banks while the economy fails to expand

significantly. It has not led to a borrowing boom in the slightest – essential for inflation.