Over the past several days, we’ve witnessed the near collapse and quick rescue of Bear Stearns, one the nation’s oldest financial institutions. J.P. Morgan agreed to buy Bear for a per-share price that won’t buy you a cup of coffee at Starbucks. Meanwhile, the taxpayer Fed is kicking in $30 billion to help the deal along.
Oh, and did you hear last week’s news that we’ve already slid into a recession?
Things aren’t looking good. As such, the Fed is expected to cut rates again tomorrow. But is that the best way to handle what’s going on? Did the Fed go beyond its call of duty with the Bear bailout? Paul LaMonica of CNNMoney, along with some of his readers, raise those interesting questions in an article posted earlier today. You can read it here.
Have your own thoughts about the way the Fed has handled the credit crisis thus far? Post ‘em below.
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There goes another rate cut I won’t get for a few months.
Just recently, I learned that Wednesday’s one-quarter percentage point reduction in the Federal Funds Target Rate doesn’t affect the variable interest rate I pay on my private student loan until January. How can that be, given that online savings account rates are sure to fall within days?
It took a while to figure out the answer.
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The granddaddy of all banks — the Federal Reserve — just cut interest rates by a half point. That means several of the rates in our lives will also fall, some for the better (home-equity lines of credit) and others for worse (certificates of deposit).
First, a quick lesson: The Fed controls short-term interest rates. The prime rate – or the benchmark rate banks use to price many consumer loans – tracks short-term rates. Shortly after the Fed makes a move, the consumer banks tweak their prime rates accordingly. The Fed sliced rates to 4.75% from 5.25% (it was the Fed’s first move since it stopped a string of rate increases that lasted through June, 2006). That means the prime rate — which generally runs about 3 percentage points higher — should drop to 7.75% from 8.25%.
Here’s what it means for us: (more…)
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