July 09, 2012

The mother of all (official) interest rates manipulation.

Sir, capital requirements for banks are larger when these lend to something perceived as risky and lower when to something perceived as not risky. It is an utterly absurd proposition, because what is perceived as risky has never caused a major bank crisis. But, much worse, it also signifies that those perceived as risky must pay higher interest rates and those perceived as not risky lower interest rates, than would have been the case absent these regulations. And this amounts to an extraordinarily large official interest rate manipulation… and its effect is way more than some few basis points… and the widening of the spread between risky and not risky according to my calculations is way over hundred basis points. 

So let’s see what all those perceived as risky, usually correlated with the have-nots, who already pay higher interest rates, would have to say about regulations that made them pay one percent more in additional interest on all their bank loans, while those perceived as not-risky, usually correlated with the haves, who already pay lower rates, had to pay one percent less. 

I have now at least registered a general complaint at the Consumer Financial Protection Bureau CFPB, established in the Dodd-Frank Act, indicating that this odious discrimination against the “risky” does not seem to be allowed under the Equal Credit Opportunity Act (Regulation B).