The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: XoFruitCake who wrote (141792)	8/19/2008 11:44:03 AM
From: ChanceIs	Read Replies (3) of 306849

>>>Raising rate will reduce substantially reduce banks earning and reduce the value of their asset.. <<< Banks borrow low and lend high. Simple. Certainly raising short term rates will cut into that business. Sometimes (most of the time?) banks borrow short and low, and lend long and high. This can lead to big problems when your short term creditors don't want to re-ante. Last I heard, Putin didn't want to buy any more Freddies and Fannies after they expired. That guy has completely lost his sense of humor. What happens if Bernanke doesn't raise short term rates?? Maybe the foreigners dump all of their long term debt holdings, pushing up all US LT rates. Banks LT portfolio drops in value, their cap ratios are hosed, and they need to sell more assets (that would mean further diluting their current loyal but foolish shareholders or selling more assets at fire sale prices). So Bernanke has to balance maintaining banks' earning power with low rates, or risk their balance sheets with the continued low rates. Where does the balance lie??? I don't know. I doubt that anybody does.

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