Economic News/Discussion

[Keven]

God damn. Despite my reservations that Ron Paul is unelectable as President, when he's right, he knows how to tingle my brain.

[SteveW]

God damn. Despite my reservations that Ron Paul is unelectable as President, when he's right, he knows how to tingle my brain.

You got it - the dude is smart.

[BlackDragon24]

I'm need to have Aerosim come back and explain it all to us:

Big banks at center of interest rate probe

NEW YORK (CNNMoney) -- It affects everything from mortgages to credit cards to student loans, and now some of the world's biggest banks are at the center of a criminal investigation into whether they manipulated it for their own benefit.

The London Interbank Offered Rate, or Libor, is a measure of the cost of borrowing between banks that serves as a benchmark for over $350 trillion worth of financial products worldwide.

That's a large number, me thinks.

[Keven]

I'm need to have Aerosim come back and explain it all to us:

Big banks at center of interest rate probe



That's a large number, me thinks.

It's not too complicated. Under the reserve banking laws, banks are required to have a percentage of their deposits actually on hand at the end of every business day. 9% in the United States, as I recall. (Yes, your bank only has 9% of your checking account actually in the vault, but we can debate reserve banking somewhere else).

When they have less than they are required by law, they have to borrow the money from another bank or a state central bank (federal reserve in the US). When they borrow from another bank, the interest rates on the interbank loans are the LIBOR rate that the article mentions. I believe that most American banks use the prime rate (which is set by the US Federal Reserve) for interbank lending, while European banks use the libor average which is set by the British banks.

But, even in America, some loans like mortgages are set an interest rate of LIBOR + some percentage. Like if the current LIBOR average is 5%, then the going rate for a mortgage might be LIBOR + 5%, so 10% interest. Just making numbers, obviously.

If banks are colluding to keep the LIBOR average high so they can charge more interest on their loans, then that would certainly be another blow to the public's trust on the banking system, like the article says.

[myv65]

^^ In a nutshell, you either have a fixed rate or a variable rate. If it's variable, it's probably tied to the "prime rate" in the US. That would be pretty much all variable interest mortgages and credit cards. To the individual borrower, a tenth of a percent here or there makes no difference, but when that tenth of a percent affects trillions, the impact is hundreds of millions to billions.

[BlackDragon24]

It's not too complicated. Under the reserve banking laws, banks are required to have a percentage of their deposits actually on hand at the end of every business day. 9% in the United States, as I recall. (Yes, your bank only has 9% of your checking account actually in the vault, but we can debate reserve banking somewhere else).

When they have less than they are required by law, they have to borrow the money from another bank or a state central bank (federal reserve in the US). When they borrow from another bank, the interest rates on the interbank loans are the LIBOR rate that the article mentions. I believe that most American banks use the prime rate (which is set by the US Federal Reserve) for interbank lending, while European banks use the libor average which is set by the British banks.

But, even in America, some loans like mortgages are set an interest rate of LIBOR + some percentage. Like if the current LIBOR average is 5%, then the going rate for a mortgage might be LIBOR + 5%, so 10% interest. Just making numbers, obviously.

If banks are colluding to keep the LIBOR average high so they can charge more interest on their loans, then that would certainly be another blow to the public's trust on the banking system, like the article says.

^^ In a nutshell, you either have a fixed rate or a variable rate. If it's variable, it's probably tied to the "prime rate" in the US. That would be pretty much all variable interest mortgages and credit cards. To the individual borrower, a tenth of a percent here or there makes no difference, but when that tenth of a percent affects trillions, the impact is hundreds of millions to billions.

Thanks guys

[Keven]

^^ In a nutshell, you either have a fixed rate or a variable rate. If it's variable, it's probably tied to the "prime rate" in the US. That would be pretty much all variable interest mortgages and credit cards. To the individual borrower, a tenth of a percent here or there makes no difference, but when that tenth of a percent affects trillions, the impact is hundreds of millions to billions.

Yes, you're right the prime rate is used in veritable rate loans but I think the prime rate is incorporated into fixed rate mortgages too at the time when the interest rate is determined.

But the US prime rate isn't the LIBOR rate. The US prime rate is determined by the federal reserve, the LIBOR rate is determined by the London banks. Some US loans do use the LIBOR rate though so there would be cause for concern if the banks were manipulating the LIBOR average.

Edit: Yes, re-reading what I wrote, myv65's clarification is important. The LIBOR and prime rates do affect the average consumer on the street (and other businesses - everybody borrows money), not just interbank lending, which wasn't immediately clear in my first reply to BD.

[madhatter256]

I just wish there was more coverage on the LIBOR and prime rates. I don't even know what affects them. All everybody hears is this interbank lending rate, which while it is important... not everyone gets a use out of it and is not affected by it that much.

[Keven]

I just wish there was more coverage on the LIBOR and prime rates. I don't even know what affects them. All everybody hears is this interbank lending rate, which while it is important... not everyone gets a use out of it and is not affected by it that much.

Well, the prime rate is just the fed fund rate + 3%.

[myv65]

I think the prime rate is incorporated into fixed rate mortgages too at the time when the interest rate is determined.

I don't doubt it, but the obvious distinguishing factor is once you sign on the dotted line, your interest rate remains constant until you pay off the loan, whether in the conventional sense, via refinancing, default, etc. Along with all the other crapola, I remain convinced that a good portion of our population who bought houses with little to no money down and opted for variable rate, interest only loans have no friggin' clue what all that jazz means. . . To quote the Ron White tour, you can't fix stupid.

As for determining fixed rates, I'm pretty sure whatever doesn't go into school lunches or hot dogs goes into determining fixed mortgage rates.

[kbohip]

I'm need to have Aerosim come back and explain it all to us:

I knew Aerosim would disappear as soon as he became a mod here. It seems like that happens more often than not on Pcper.

[jimzinsocal]

Why oil is priced the way it is now. But much for first thing in the morning but I guess I get what the guy is saying

http://www.zerohedge.com/news/guest-...-new-price-oil

[jimzinsocal]

How much is Apple worth? Yup...that big (and I hope everyone bought years ago when Uncle Bob was mentioning it at 200 or so)

http://www.zerohedge.com/news/its-of...-retail-sector

A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.

[Nate]

How much is Apple worth? Yup...that big (and I hope everyone bought years ago when Uncle Bob was mentioning it at 200 or so)

http://www.zerohedge.com/news/its-of...-retail-sector

A company whose value is dependent on the continued success of two key products, now has a larger market capitalization (at $542 billion), than the entire US retail sector (as defined by the S&P 500). Little to add here.

Bigger they are, the harder they fall.

[jimzinsocal]

Weekly unemployment claims (new). Unadjusted figures:

UNADJUSTED DATA

The advance number of actual initial claims under state programs, unadjusted, totaled 337,713 in the week ending March 10, a decrease of 30,719 from the previous week. There were 371,721 initial claims in the comparable week in 2011.

The advance unadjusted insured unemployment rate was 3.0 percent during the week ending March 3, a decrease of 0.2 percentage point from the prior week's revised rate of 3.2 percent. The advance unadjusted number for persons claiming UI benefits in state programs totaled 3,841,622, a decrease of 147,268 from the preceding week. A year earlier, the rate was 3.4 percent and the volume was 4,296,805.
The total number of people claiming benefits in all programs for the week ending February 25 was 7,424,040, an increase of 36,392 from the previous week.

I think its fairly safe to say its getting better out there. We keep this up and oil prices dont kill us maybe it will stick this year. The caution of course is this looks similar to last year then bang...it slowed again. Lets also hope employers arent as paranoid of Obamacare costs.

And sheesh..Apple stock. Off topic I know but its an amazing thing to witness.

http://money.cnn.com/quote/quote.htm...L&iid=HP_Last5

Analysts say 710 is about right as mid price future with highs near 960 or so. I smell a split before it gets there.