A Finextra member 09 November, 2008, 05:47 0 likes

Aussie Home Loans have since reduced their rate to 6.99%.

The rate thing is a good way to put money into mortxgagees pockets, but only if the rates on the existing loans is reduced.

This is harder in the US where there are a lot of fixed rate loans. Obviously the banks aren't going to voluntarily reduce the rate on a contract they already have, and you can hardly expecty them to. However it's the people who are in homes, paying mortgages, whom you want to get spending, at least a little.

The problem with the bail-out is that unless the bank itself spends the money in the mall and the corner store we're all in the same sinking boat, and we know that isn't going to happen.

If some banks are paying 6% on deposit accounts then the lending rate isn't going to stay down for long is it? Either that or the rates paid on deposits will fall, the banks can't pay that much more than the Fed rate. Given the funny business we've seen recently, why wouldn't a bank get some money form the Fed and deposit into another bank paying 6%? Haven't there already been some borrowing it to put in back on deposit in the Fed etc?

No matter what the rates are can't really extend credit willy nilly because everyone has been naughty and borrowed too much. That normally means higher rates.

We put capital into banks so they are solvent and improve their lending ability. We lower the rates but banks don't lend it  anyone.

We have a lack of lending going on so we make money even cheaper by lowering rates further.

We can't really lend any more to consumers, because they are already carrying too much debt. The economy is by now so bad that they don't want to borrow, or spend.

The mines and factories are closing because no-one is buying.

The banks are losing because the borrowers aren't able to repay their loans, first the factories, then the workers.

The homeowners are being put out of work and won't be able to repay their mortgages.

Where does the problem lay?

Who has done the least wrong?

The person who has been paying their mortgage, and may now lose their job along with their retirement nest-egg, and then their home?

If we are going to give money to anyone then shouldn't it be them?

Reduce the rate they are paying on their fixed mortgage and give them more disposable income to spend in the mall.

If you cannot reduce the rate, ie the bank won't, then the government can give tax breaks to homeowners directly.

It would seem to adress the problems, without creating more, except that of government revenue through taxation would suffer. Taxing the rich won't work, many of them aren't quite as rich, all of a sudden.

It seems to me that a balance somewhere between the rates, the tax breaks and the bail-outs that the problem can be fixed, not cured, just fixed up a little bit better.

It seems that everything is askew.

I don't expect the politicians to be able to follow what is going on either.

It is clear that we need to get money into the malls without extending more credit to consumers. While a simplistic view is impossible, where does the kick-start come from?

If anyone can think of a better way than lowering the rate they pay on their fixed mortgage, or giving them money through tax breaks then here's your chance.