The less money the banks lend out, the less money they make. And they’re not just getting a risk-free 5% right now from the Fed, as high yield savings accounts are now paying ~ 3.5% to 4%. So a nice chunk of that is being passed along to the customer. Plus they’re taking a hit on assets they bought yielding less. Compare that to before when they were getting what, 1% from the Fed and savings accounts were yielding like 0.1%, and I’m not so sure the numbers work out the way you think. Certainly not as dramatically.
Even the banks at no risk of going under and likely to gain in market share are down a bit right now in the market, because this rate environment is going to impact their short term earnings negatively.
Also, this:
You’ve going from saying rate hikes would wreck the banks to rate hikes are handouts to the banks and they love them.
By the way, most of the upside the banks see from higher rates is in the form of better yield on short term treasuries, but it’s offset by the hit they’re taking on treasuries bought when the rate was lower. And that’s not a direct handout from the Fed, they’re buying bonds from Treasury.
With an orderly increase in rates, yes the banks will make more money on Treasury bonds over time. They will make more money in every way you can imagine.
But in this case the Fed’s rates have not been orderly, they have been so chaotic and haphazard that the Fed itself is losing a hundred billion a year due to being sideways on interest rate risk:
Is it bad, actually, for your central bank to raise rates so much faster and higher than anticipated that it inflicts a hundred billion dollars of losses on itself a year?
No time to stop and self-reflect, just keep on driving to the edge of the cliff and hope you can slam the brakes on in time!
And in 2021 the Fed gave Treasury over $100 bil from those same assets. My source is your article. So if the Fed makes Treasury $100 bil during QE and then loses it back on the rate hikes this time, remind me again why we should care?
Banks don’t make money on treasuries when rates rise, in fact almost all their assets lose value as rates increase (see: SVB). They do make more money on floating rate loans because those increases are immediately passed along to borrowers while the rate paid on deposits is slower to rise. If rates rise too high, however, credit losses will eradicate the benefit of the higher rates.
Look, banks suck for all kinds of well documented reasons. Spinning rate hikes as a conspiracy is wrong and dangerous.
So people can get cheaper home and auto loans, lower credit car bills, etc AND the govt can have a cool hundred billion to spend or they can have the exact opposite.
Takes a real genius to figure out which is better. Oh, right, forgot Putin invaded Ukraine so no choice but to shoot ourselves in the foot.
Higher rates on ongoing new bond purchases generally dominate decrease in existing bond values over time.
Yes, it will take longer for the later to dominate after Panicky Powell smashed the button way harder and faster than expected and you don’t get to benefit if you get blown up.
I’m not engaging in conspiracy theories, simply countering the false premise that raising rates is a good way to stick it to the rich. It’s not.
Even blaming the inflation on the Fed is just wrong. There were all sorts of inflationary effects from the pandemic such as student loan freezes, stimulus payments, advanced child tax credit, PPP, enhanced unemployment, upper middle class people basically keeping their jobs but staying inside and not spending money for 2 years, asset values rising spurring early retirement rather than a return to the workforce for many boomers. Then there was impact on global supply chains and international trade.
Was the Fed was supposed to raise rates to counteract the fiscal stimulus passed by the legislature during one of the most uncertain times, when the unemployment numbers were through the roof?
I’m just going to come out and ask… how much money do you stand to lose if interest rates keep hiking Pwn? Just from this thread it seems like a lot.
And it’s funny that I’m posting this because I’m in the exact same boat. I’m living through a very poorly timed freight recession that is costing me a meaningful amount of money.
One of the things looming on the horizon because of the rate hikes is that owners of commercial real estate and rental properties are fucked when they have to refinance their adjustable rate mortgages. This is especially true where these owners and banks were being incredibly irresponsible letting these properties get leveraged and cross collateralized to crazy levels. Anecdotally, I am aware of stories of landlords buying new properties, getting inflated proposals on both the new purchase and old properties to the point that they leave the closing with a new property and a big check. That money inevitably gets blown on a new truck and expensive vacations.
So the other side of the anecdotal stories is that I’m aware of a rental property that is already charging top of market rental rates. They are so leveraged, that if forced to refi at current rates, they would need to up rents by 50% just to cover the increase in their monthly payment.
I am sure @riverman is probably aware of some similar potential horror stories. I swear if we bail out the fucking landlords, I’m done.
I wouldn’t be shocked at all if there’s enough contagion there that people start talking about how we have to bail out the big corporate landlords or else.
The landlord I had in Philly owned 7-9 apartment buildings. They had over $1B in loans against those buildings to build new ones. They had to jack rent up even in the face of high vacancy rates to preserve the valuations to keep leveraging those buildings. How many companies are doing this in every major city? And it’s large lenders on Wall Street, including REITs primarily I think, who are lending out. So if they go belly up, who were they borrowing from? Were there default swaps? How wound up is this shit?
I don’t know the answers but I wouldn’t be surprised if we bail someone out in that chain. Probably further up the food chain than the landlords, though.
This is America now. We’re a consumer driven and financial services economy, and the financial services side is basically a huge casino operating with shit tons of leverage, and most individuals are incentivized by the structure to make risky bets. But it’s so woven into our economy that it’s too big to fail, so we all have to bail them out every 10-15 years when their latest greatest financial product blows up in all our faces.
But in between, the market only goes up, and who can put a price on that?
Something I’ve discussed before. Create a law where any appraisal done to finance a property also has to be sent to the local assessor’s office so that the property tax assessment value is updated to match the value of the appraisal. Basically fixes the current environment so that you can’t get the benefits of inflated appraisals without being forced to pay more in property taxes to your local government.
So far it’s mostly CMBS defaults. The banks have way more flexibility dealing with problem loans because they’re not securitized. A bank would much rather give a borrower time to fix a problem than take the keys and auction the building.
When a borrower defaults the equity in the project is wiped out. To the extent landlords are defaulting it usually represents a significant loss. There are exceptions.
