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Whiner to Fed: You Can’t Fool Us

Posted December 17, 2008

In a Hail Mary pass that gives new meaning to desperation, the Federal Reserve has cut its benchmark interest rate to as low as zero — virtually giving money away in the hope that this will jump start the economy.

The stock market went positively giddy with relief, with the Dow Jones Industrial Average closing up by over 350 points after the Fed promised to keep its fund rate at “exceptionally low levels … for some time.” But you know that.

Will it work? While we’d like to believe that Fed Chairman Ben Bernanke is Superman, Santa Claus and the Car Czar all wrapped up into one brilliant Economic Savior, we have our doubts. If Bernanke had only asked The Whiner for some advice, here’s what we would have told him:

You can’t convince us to borrow any more money. Most of us realize that we should have borrowed less money. We’d like to get rid of our credit cards and all those nasty home equity lines of credit. Nothing short of hypnosis is going to convince us to borrow our way back into a black hole, just so that we can pull the economy back from the brink.

You certainly can’t convince us to spend any more money. Whether we borrow it or pull it out of an investment account (are there any of those left anymore?), we’d have to be nuts to spend money on anything that isn’t downright essential. After all, many of us are out of work or only marginally employed at the moment and we’ve seen estimates (so have you, Bernanke — admit it) that predict that as many as 3 million more people will lose their jobs between now and the spring of 2010. With many states already running out of unemployment funds, we need all the savings we can get.

If you think we’re stubborn, what about all those banks and other businesses? Even the ones that have been bailed out like crazy are refusing to spend money on anything. They’re firing any employee who stands still long enough to get handed a pink slip. (You get them to spend money for awhile, and then we’ll see if we reconsider.) It’s a pretty safe bet that they’ll take any of this free money you give them and hide it under their corporate mattresses.

You’ve pretty much already tried this before. Okay, not literally. The rate used to be 1 percent, now it’s zero to 0.25 percent. But let’s be real about this: You’ve cut the benchmark really, really low before and the economy just kept tanking. That’s because there are a lot of problems going on. And if this doesn’t turn out to be a miracle cure, people are probably really going to start panicking. Know why? We’ve already figured out that you’ve played your last rate-cutting card.

You haven’t earned our confidence. Sorry, Ben. When the meltdown started, we wanted to believe in you, especially when we learned that you’ve been studying the Great Depression for your whole academic life. That seemed hopeful. You were ready to intervene. We wanted somebody to intervene. You intervened again. We wanted somebody to intervene again. But enough, already.

You might tell us that “The Fed will employ all available tools to promote the resumption of sustainable economic growth.” We’ve got just one question for you, though: What if there aren’t any “available tools” that can rescue an economy that is collapsing this massively on a local, national, and global scale?

The Whiner wants to know: What do you think about the Fed cut? What would you tell Bernanke if you had the chance?

Reader Comments

  1. Heywood

    Not borrow more? But many of us holding fixed mortgages n the high 5’s and 6’s are looking at interest rates and thinking it’s time to refinance the principal. Surely, Bernanke’s efforts will help bring those rates down. What is the current rule of thumb for a drop in percentage rates where it makes sense to refinance? We’re doing fine, but if we can free up a few hundred a month by refinancing a fixed mortgage at a lower rate, that seems a smart thing to do. Or am I missing something in your rant about not borrowing?

  2. The Whiner

    Heywood, good point. But … here are The Whiner’s “but’s”. First of all, we really do think that borrowing MORE money in this environment would be dicey, maybe even dangerous. Conditions are too unpredictable and risky. So if you’re thinking about refinancing, we personally believe it would be better to keep to a limit of borrowing no more than the size of your current mortgage (and, better still, even less).
    Then, of course, the old refinancing rules of thumb still apply — you need to be able to envision that you’re going to be staying in your home long enough for the month-to-month savings to outweigh whatever you’ll need to pay in closing costs. Also, keep in mind: Just because the Fed is doing this and rates are dropping, there’s no guarantee that banks will be willing to actually do the deals. It will be harder for families to qualify, because the values of their homes have fallen and so have their investment portfolios. Recent history suggests that banks aren’t parting with their funds very easily anymore. So take a hard look at your own situation before spending money on application fees that might be wasted. On the other hand, if this can work for you, good luck.

  3. miamimomofthree

    that’s if you can find a bank that will approve your refinance. refi rates are higher than new mortgage rates, so good luck if you try to do this. unfortunately, banks are getting MUCH stricter in lending money for homes (at least in Miami they are!!!)…

  4. Florence

    I think it is a great idea to refinance to a lower fixed rate mortgage either 15 or 30 year. And I think that many people will chose to do this. However, I don’t think it will come anywhere close to stopping this recession. Many, many people simply could not afford to buy a house in the first place and refinancing is not their solution; they have a basic income to expense ratio problem. Furthermore, as long as people feel that their jobs are tenuous and that a layoff could be in their near future, they simply will not spend. It is my opinion that we have been on a national spending spree for way too long anyway; we’re trashing both our environment and our future economy by the constant borrowing and spending. Frankly, if getting the economy going again depends on me going to a mall, we are in deep doo.

  5. trish

    The reduction of the rate by the Fed has little if anything to do with mortage loans or refinances. Take it from a veteran real estate professional. Don’t re-fi just because the Fed dropped the prime lending rate – it doesn’t translate into lower mortgage rates.

  6. Hope

    I’m not sure what other tools the Fed has left, but I’m not optimistic. And I’m with Florence…if this recovery depends on me, we’re in the soup. As much as I love to shop, and as hard as it is to resist a real bargain on something I would love to own, I am forcing myself to ask if I NEED it or just WANT it. And it turns out that aside from food and heat, I don’t need much.

    Re: refinancing. We have a 15 year fixed at 5% that we got in ‘04, so adding years doesn’t appeal to me unless the rates go through the floor, which I don’t expect the banks to do…they are in Hoarding Mode from what I can see.

  7. David

    The “go shopping” consumer economy championed by our government for so long was always a fools paradise. No economy in the history of the world has prospered long without encouraging savings over immediate consumption. When you have a pool of savings factories can be built to manufacture products that can be sold on the world market. You also have capital that you can lend out to less well managed nations, such as the Chinese now do to America.

    Since the lowering of the Fed funds rate to pretty much zero further discourages savings Bernanke and his partners in crime are only making matters worse. The “we think, they sweat” US economy is currently flawed to the core and interest rates can stay at artificially low levels for decades without lasting positive effect.

    The Japanese model is as far as you have to look to see the likely result of a zero interest rate policy. The Japanese have been in a slow growth recessionary economy since 1990. The Nikkei is down about 80% from it’s high of 18 years ago. That is the model that Bernanke and company are following rather then by letting capitalism work by letting weak poorly managed businesses fail, to have better managed companies replace them.

    We can endure a severe level of pain for a year or two or endure high levels of pain for the next 20 years. The Fed rate cut is going for the 20 years.

  8. Ed

    Hi
    Brand new to Whiner. Interesting.

    The root of the twisted problem, I think, is paper money. Humans are not wise enough to plan an economy. Giving “the keys to the car to a drunken teenager” in the form of a printing press and the welfare-warfare government has resulted in this disaster we are facing. All the Fed’s men and women can not put it back together again.

    I think that government bureaucrats and politicians are truly parasites and more. They are the problem, not the solution, in my opinion.

    The increase of the debt by 8 trillion dollars in the last few months will bring us down greatly. Disaster can only be averted I am told on the TV by a former Fed bankster, if the Fed with its wise hands on the controls, recognizes when to start “sopping up the excess money in time to prevent hyper-inflation”! It was an interview on Bloomberg TV yesterday. I do not recall the women’s name.

    I do not trust them to be wise enough. They are after all, like you and me, simply human.

    Thanks for an interesting site and letting me vent. I am bookmarking.
    Peace
    Ed

  9. Tony Litwinko

    Cut the interest rate by law on all loans in effect to 4%.
    Distribute, in 100 Billion chunks, the remaining bailout money to every citizen in the United States either as unemployment checks and/or in the form of US Treasury currency warrants to be spent only at grocery stores, farmers’ markets, local restaurants, second-hand clothing stores, and other non-chain stores. That will give a kick to the economy, freeing up money for paying other bills. Finally, provide single payer health care for all residents of the United States. No recovery can start at the top. The rich will only hoard. The poor, the working class and the middle class will feel free to spend, thereby creating demand. We’ll deal with the artificial social welfare of the war on drugs problem and the military-industrial-congressional complex next fiscal year.

  10. Joy

    Why are the banks hoarding all the money we the taxpayers gave them? The newspaper says our state university medical school has canceled construction of a new building, even though the plans are drafted and the contractors are ready to go. They can’t get a loan!

    Who has better credit than that? That’s a couple of hundred construction jobs lost, and God knows, those folks need the work these days. Next year, with the building complete, a couple of hundred health care and officeworker jobs would be available. Things aren’t too bad around here yet; the unemployment rate is always better here than most places. But I can see the local economy grinding to a halt–stores empty the week before Christmas when they’re typically jammed, pitiful help-wanted ads, a barrage of “let’s not exchange presents this year,” nobody buying a house despite sinking prices.

    So what are the banks doing with all that cash? Handing out bonuses? Investing it with Mr. Madoff? They sure aren’t raising interest rates for savers.

    First thing, President Obama ought to take the money back from the banks and get it working for us: a medical building here and some high-speed trains, some green energy systems, a ground source heat pump for me, some sensible retooling in Detroit–I can think of a lot of good uses for all that cash in the bank vaults. Or wherever it is.