Bank Rate News February 26, 2010

As the week comes to an end there is a deluge of bank rate news to report on.  Mid term and long term Treasury rates moved sharply lower during the week.  The 10 year Treasury bond ended last week at 3.78% and closed yesterday at 3.64%.  The one year Treasury rate moved from 0.39% to 0.32% in the same time.  Rather significant downward actions.

Federal Reserve Chairman Ben Bernanke testified at the House and Senate this week for the semiannual monetary report to the Congress.  There was little new news.  The Fed expects inflation to remain in check and expects the fed funds rate to remain at the target range of 0-.25% that has been at since December, 2008 for an extended period of time.

The Fed Chairman commented that there has been a return to normality in the credit market operations but stated that small business financing is weak, bank lending continues to contract due to weak demand and tighter lending standards.

The Fed also issued warnings that private sector growth is waning and that the recent GDP growth has had a great deal to due with inventory changes and government activities.  The economic outlook was presented with an upbeat tone but the cautions were significant.

ALLY Bank / GMAC is in the news again.  This is the only bank that the federal government has a majority ownership in and yet somehow seems to fly under the radar with regards to all the scrutiny other banks have seen.  GMAC and ALLY Bank have received three rounds of government funding without much questioning or objection.  Now, the questions arise as to whether GMAC should have been cut loose and resolved its lending problems in bankruptcy.  GMAC was heavily involved in auto finance, which may have had merit but was also extremely active in mortgage lending during a time when many lenders were already running for the exits.  GMAC wasn’t the only mortgage lender oblivious to the imploding real estate industry but they certainly appeared to be one of the last few to read the glaring signs that the end was near.  At least, if you open an ALLY Bank account you get a pony – or not, or maybe a plastic pony – I don’t know, but they certainly saturate the business channel with their advertisements for ponies or bank CDs. 

It’s about time some attention was drawn to the amount government funds sunk into that operation and more scrutiny should be given to their past and current operations.  All the attention on Bank America which appears somewhat suspect or politically driven, Bank of America operations appear fairly sound while GMAC and Citibank would make our list of “what were they doing during the credit crisis”.  Who is Vikram Pandit?

Last attention for the day is the health care summit.  This has nothing to do directly with bank rates and bank rate news, however the Fed Chairman emphasized the need for private sector job growth and unemployment is certainly one of the biggest concerns facing most Americans and…..the big subject in Washington is health care.  Hmmm…it’s the economy, stupid. 

Save the health care battle for another day.  Whether you are in favor of it or not, now is not the time.  The average working family is more concerned about paying everyday bills and income not health reform.  The more well off folk are more concerned about the impending deficit disaster and high taxes.  Dare we say that it gives the impression that Nero is fiddling while Rome burns.

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