Tuesday, June 17, 2008

Smart lady, stupid banks

In a coffee shop a lady asked to borrow my copy of the International Herald Tribune. A few minutes later she handed it back to me.

"That one article really makes me mad" she confessed. "The one about the banks."

I found out her name was Sally and she was from Seattle. Sally explained her frustration to me.

"Three years ago I gave clear instructions to my broker: do not invest in any of these institutions doing sub-prime loans.* It doesn't make any sense. How can you loan money out below the interest rate and call that a real business?"

"But your broker bought the stocks anyway," I interjected. She was pacing back and forth across the coffee shop.

"No. My problem is that the banks bought the stocks of those businesses making sub-prime loans."

"And you own bank stocks" I said.

She nodded. Although US banking rules had prohibited US banks from loaning sub-prime, nothing had stopped the banks from investing in companies that made sub-prime loans.

*I previously blogged about the sub-prime crisis here.

1 comment:

  1. AnonymousJuly 22, 2008

    Sub-prime mortgage lending doesn't mean "below the interest rates." It is the practice of providing mortgages (usually at HIGHER rates than the prevailing ones) to customers who really aren't creditworthy for that size or type of loan.


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