U.S. Banks: Damn It Feels Good to Be a Gangster
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Oh, I popped it in my head. I couldn’t help thinking about the honestly, it’s a rap song from the 1990s that was in the movie Office Space. And the title of the song is Damn, It Feels Good to Be a Gangster. And in the film, it’s like the guys are all upset with the fax machine and load letter, and it watches them doing a beat down with baseball bats of a fax machine. It was a funny scene. But yeah, damn, it feels good to be a gangster. And we’re talking about banks.
Oh yeah, you couldn’t make this stuff up. You really couldn’t. So you remember the emergency lending program that was set up by the Federal Reserve because of the banking crisis, the big banking crisis of 2023, because of all the morons at Silicon Valley Bank and First Republic and some of the other ones out there. So they created this emergency.
lending facility out there. Again, what it was, what this lending facility was, was the banks, the banks would allow you to borrow money at a rate that was tied to future interest rate expectations.
Again, not what reality is, what the future holds, future interest rate expectations. So now that the interest rate expectations have gone down, banks are able to go out and borrow money, borrow money at a rate lower than what the Fed is paying these banks
Deposit money at the Fed. I’m gonna try to, again, try to make better sense out of this. So right now, right now, the Fed is offering loans to banks at 5% through this program. Cash in! Just go, go take it. While at the same time, at the same time, paying 5.4%
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interest on the money that the banks are depositing at the Fed. So this is what’s called arbitrage. So the banks have a wonderful risk-free way of making money. Let’s just take like a big bank, billion dollars, billion dollars. The bank goes out and borrows a billion dollars from the Fed.
then goes out and deposits a billion dollars at the Fed.
Risk-free transaction. The bank’s making $4 million on that. Risk-free! No risk! No risk involved in this transaction. Now, do you get deals like this from your bank? Nah, I didn’t think so. Again, damn it feels good to be a gangster. Damn it feels good to be a bank in America to take advantage of this type of nonsense. And guess what? Yeah, we’re paying. Watchdog on Wall Street.com.
