Low interest rates can be very helpful when you are in the market for a home or an auto loan. An overwhelming number of houses on the market combined with a lack of home buyers along with low interest rates are making this a home buyer’s market. Low interest rates are sweeping the market and some home buyers are taking advantage of these low interest rates to refinance their mortgages. Low interest rates are introducing many new home buyers into the housing market, homes at the lower end of the price scale have been selling extremely well, according some Real Estate Agents. While low rates are great news for those looking to refinance or buy, they are a challenge to those institutions who depend on interest income to make a living.

News

Even better news is the that the interest charged on some Adjustable Rate Mortgages “ARM’s” is at a level that has not been seen in forty years. With the news that interest rates on a 30 year fixed loan have dropped below 5 percent

Economy

While the US economy is definitely having some serious difficulties, there are other forces in play which do suggest that this could end up as a serious recession but not a crisis according to some analysts. While the US Fed has cut rates dramatically, the full impact of the lowered rates on the economy is not yet seen. Since it appears that the economy is indeed now in a recession and that the FED will cut interest rates as low as they possibly can before the end of the year, some investors are worried that the demand for mortgages will decrease by early next year. Low interest rates might be less of a stimulus and maybe more of a symptom of a poor economy, and for reasons mentioned above, analysts say there most likely will not be a change in rates for at least the first half of the year.

Investment

Research shows that close to 90 percent of consumers retirement income comes from investment earnings. The investment giant Bear Stearns posted its first ever quarterly loss of $854 million. In a statement made by the Fed; said that since its last meeting late in October, “labor market conditions have deteriorated, and all the available data indicates that consumer spending, business investments and industrial production have declined.”

Markets

Global borrowing’s in the international markets are up 22 percent and at a daily rate of more than 5 billion dollars. Ever stronger trade and financial links are promoting even further international division of labor and expanding markets are holding out the promise of any gains in productivity and standards of living globally. Here lies the main responsibility of all governments, to provide a solid and predictable framework where markets can flourish.

Many borrowers fueled by Fed’s plan recently to buy up to 600 billion dollars in mortgage backed securities issued by Fannie Mae and Freddie Mac, and record low interest rates, are coming out to refinance their mortgage. Government housing officials hope the low rates will also motivate home buyers to jump at the currently low rates and purchase right now instead of waiting for the market to completely bottom out.

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An interesting video on money and how it has a negative effect on us and the planet.

Two bankers from RBS have resigned after RBS have been forced to decrease the amount given in bonuses. Steve Ashley, head of RBS’s trading division and Chris Fleming, sales, quit the bank on Friday.

This is going to hit RBS hard as their trading business is one of their top earning businesses. Mr Kingman, the outgoing chief executive of UKFI, said “We cannot afford to be in a position where the banks lose so many people that we start to lose serious value.”

Although Gordon Brown stated that he will help the banks with ‘every last penny of taxpayer support .’ he also said. “I’m sure you share my anger with some of the banks, it is only fair that those who have contributed to the recession and have now benefited from taxpayers’ support give something to society in return.”

I believe a lot of the public are more inclined to the second statement. As the Times reported in December 2009 ‘MORE than 1,000 investment bankers have quit Royal Bank of Scotland to join rival firms for guaranteed cash bonuses and big salary increases, according to banking sources. ‘

This looks like a trend and as more top execs look for other opportunities and higher bonuses RBS is going to suffer. Also with more budget tightening on its way, which bank will be the next to see their top execs leave?

Source Telegraph & TimesOnline

The governor of the Bank of England, Mervyn King, has predicted that inflation will rise above 3% in the next few weeks. Although this is a major worry he has also predicted that this will be short lived. This increase in inflation is due to higher VAT and the rises in petrol prices.

If his predictions are true and inflation does rise above 3% he will be expected to write a letter explaining this to the chancellor. “The UK economy has continued to bump along the bottom,” Mr King said.

He also stated that the UK will not see economic growth like they had before the economic crisis for “a considerable period”. Even with £200bn pumped into the economy by buying assets with newly created money the economy is still suffering. This raises questions on the effectiveness of quantitative easing (QE). Mr King has said that this QE has ‘helped economic recovery’ but how long will the UK have to wait to see the benefits of this?

D.Brown, chief European economist at Bear Stearns International said “The message the bank would like to get across to the market is that there is only room for moderate easing ahead, but the fundamentals say otherwise.”

This indicates that the UK has a bit more falling to do before the economy will rise again the question on most peoples minds is how far will the UK fall before it gets back up?

Source BBC & New York Times

Activities of US banks are to be restricted according to Barack Obama’s new proposal. This comes a week after the largest firms have been hit with a responsibility fee to help recover bail out losses.

The first restriction is that US banks will have to limit activities and cannot enter any market they choose. Banks that have access to emergency funds from the central bank must not invest in private equity or hedge funds. They would also not be allowed to take part in proprietary trading for themselves this will only be allowed for their clients.

The second part focuses on their size. This would involve an increase in pressure on the cap for national market share. Banks already have a 10% cap. This would also include liabilities with the aim being to limit concentration.

Some US banks will be untouched by this as they only have a small amount of market share in one of the areas and can easily pick their market, for others it will not be that easy. Investment banks that have diversified during the crisis would be faced with a choice of which area to stay trading in.

The plan does not seem to help in the way it is hoped, these banks will still be huge. The proposal is not aimed to decrease the banks size as officials have said this proposal is to limit growth not decrease the banks size.

The plan still needs to make it through Congress until it will affect US banks.

Do you think the banks deserve these restrictions? Do you think they will help?