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Thursday, October 25, 2007 12:30:16 PM
I like the heroin type analogy and the analogy that our bankers are like drug dealers. But 2% cut in the next year seems absurd.
http://articles.moneycentral.msn.com/Investing/SuperModels/WhyWeNeedARecessionSoon.aspx
"Just as heroin dealers are in business to sell drugs, banks are in business to make loans. Their financial engineers will do everything in their power to force debt down consumers' throats -- and then find ways to keep them on the hook for it as long as possible. Although they talk a big story about encouraging responsibility in borrowing, they actually want consumers to max out their credit cards and to take large home-equity lines of credit, small-business loans and car loans, with the goal of having customers pay interest as long as humanly possible.
Now you would think that ultimately all this money has to be paid back, and you would be correct. With consumer debt-to-savings ratios stretched to historic levels, that time should be now. But that is where the Jedi tricks come in. Because the administration in Washington knows that if all those loans are called in and consumers can't make good on them, there will be hell to pay. And a nasty recession just won't do in an election year.
Election tactics
So the government is in the process of twisting the arms of Federal Reserve Board members to lower interest rates by as much as 2 percentage points over the next year, including potentially a whopping half-point cut next week. That will allow banks to go back to one of their favorite recession-delaying ploys: encouraging debt-strapped consumers to refinance their loans at lower rates."
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