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Consider that the average yield on a one-year CD is 2.39%, the same as it was in mid-August, according to a weekly survey by Bankrate.com, even though the prime rate - the rate at which banks lend to their most creditworthy customers - has fallen from 5% to 4%. That means a bank that used to borrow at about 2.5% and lend at 5% now borrows at 2.5% and lends at 4% - an entire percentage point has been stripped from the bank's ability to make money. More than half of all banks saw their net interest margin - a measure...
...even banks on more solid financial footing and those that sell themselves on qualities other than high rates are finding they have to keep up. "People who bank with us aren't going to bank with us because we're the highest rate on the street, but if we're too much under the market, at some point they'll leave," says Steve Andrews, president and CEO of the Bank of Alameda. The San Francisco Bay Area bank has been forced to keep rates artificially high, Andrews says, as one flailing competitor after another - IndyMac, Washington Mutual, Downey Savings & Loan...
...story, "Students Defend Fed Challenge Title," misstated one of the people on Harvard's Fed Challenge Team. Anna Y. Zhang '10 was on the team, not Scott R. Vautour ’10. In addition, the story omitted the word "funds" from the "Fed funds rate...
...more of a "monster under our bed," says Michael Pettis, a finance professor at Beijing University, something that people spend too much time worrying about. Economists like Pettis believe - and the data to date suggest - that both consumption and private investment in the U.S. are plunging at a faster rate than government spending is rising. And given that consumers have shut their wallets, the U.S. savings rate is almost certainly headed up as this recession deepens. The result, as former Treasury official Brad Sester points out, is that the overall U.S. demand for capital is diminishing - despite the government...
...more pressing topic of discussion at the meeting this week was the possibility of even more government stimulus coming in China - on top of the 4 trillion RMB ($588 billion) package China announced to great fanfare a month ago. Two weeks later, Beijing upped the ante with an interest-rate cut and tax rebates, and now there are unconfirmed reports that an additional spending plan is being prepared as China's economic data continue to weaken. That would not be surprising. The best way for China to help the world economy at this point is to help itself...