Truth Before Dishonor

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How Are The Banks Getting Wealthier?

Posted by John Hitchcock on 2011/10/08


Jazz Shaw wrote an article about the increasing Federal spending (despite the Left’s whining claims of “draconian” cuts), which caused me to write my own article on the subject. In doing the research for my article, I found some very interesting data. But it didn’t dawn on me what I found until a couple hours later, when I was playing with my grandson. Then, it was an “Aha!” moment.

According to the Federal Government, the Consumer Price Index rose 3.8 percent for the twelve months ending in August. You can get a 30-year fixed rate mortgage for 3.5 percent, with a 3.772 percent APY. Even if inflation stays at 3.8 percent and doesn’t increase (and I guarantee it will increase by quite a bit in that 30-year window), the bank is losing buying power by writing that mortgage. And that’s before taxes and paying employees. Add in the tax burden and paying employees, and the bank is losing even more. And the bank has to pay interest on the money it borrows that it lends to other people, so the bank is losing yet more.

If the bank made a 100,000 loan with a 3.772 APY, that means, basically, that the bank would gain 3,772 dollars in a year on its 100,000 investment. But a purchase that cost 100,000 would have increased in cost to 103,800 dollars. Meaning the bank’s buying power, with its investment, has actually shrunk.

And the US has either the highest or second highest corporate tax rate in the world, depending on whether Japan went through with its planned corporate tax cuts or not. So that 3,772 dollar profit, which doesn’t even keep up with inflation, gets taxed heavily.

So, how are the banks getting wealthier? Definitely not by writing 30-year mortgages with 3.5 percent interest rates, that’s for certain.

One Response to “How Are The Banks Getting Wealthier?”

  1. […] by writing 30-year mortgages with 3.5 percent interest rates, that’s for certain. ________ Cross-Post Filed under Conservatism, Culture and Society, Demagoguery, Democratic Party, Economics, […]

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