[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
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I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]
yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.
of course the shock when short rates rise?[/quote]
Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.
So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.
