While the big banks and Wall Street were bailed out by Federal Reserve policy, savers, consumers and small businesses suffered.
The Federal Open Market Committee raised the federal funds rate by 0.25% on December 16, ending seven years of zero percent cost of money for the U.S. banking system. Monetary policy has helped the big banks, but not savers, consumers and small businesses on Main Street, USA.
While the Federal Reserve printed tons of money through quantitative easing programs, nothing was done to help Main Street.
Savers who do not invest in the stock market, have been forced to live without enough interest income to maintain their normal pace of consumer spending. Now with the funds rate 0.25% higher nothing has changed, most banks have not raised their rates on money market funds and CDs. It appears that banks just don't want deposits from savers.
On the other side of the coin, consumers who rely on reasonable rates on credit cards can't get a break as rates rose by 0.25% overnight. How many of us get several solicitations a week from major banking institutions with those teaser-rate deals?
Capital One (NYSE:COF) offers a teaser rate of 0% for 12 to 18 months, then the rate pops to 24.99%.
Several retail stores are using Synchrony Financial (NYSE:SYF) to entice buyers to buy high-priced goods at 0% for 24 months, then bam, the rate rises to 29.99%.
If you have an existing credit card at Bank of America (NYSE:BAC) they will constantly send you solicitations to transfer balances from other bank credit cards. The typical deal is for an intro rate of 0% for 18 billing cycles then the rate jumps to 17.99% after that. With this deal they will charge you 3% to 4% up front.
Then there's the solicitations, "you're pre-approved" receive up to $35,000 to $50,000 or more. Lock in a fixed APR as low as 5.99%. The result for someone earning $20,000 a year will an approval for $4,000 with an APR of 34.74% - ouch! Even if you earn more than $100,000 and have an excellent credit score, you may get a 11.99% deal. I wonder if anyone can get that low rate for the maximum offer of 84 months?
The bank regulators need to end this madness, otherwise the economy will be hit by a mess similar to subprime mortgages, when consumers start to mess making monthly payments.
In this economy savers don't earn income and consumers can't borrow a fair credit card rate. It's not any easier for small businesses.
Small businesses depend upon lines of credit to manage revenue and expense mismatches and to expand their businesses. It seems like banks do not want to lend to small businesses either, who are the lifeblood of local economies
For example, if your company had a small business line of credit with Wachovia the interest rate at the beginning of the Great Credit Crunch was likely set at 5.25%. Once the Wells Fargo (NYSE:WFC) signs were aglow on your branch your interest rate began to rise so the big bank can benefit from the bailout at your expense. Before the FOMC raised rates the rate on this line of credit was raised to 9.25% in a series of wider spread moves by Wells Fargo. Today it's now 9.50%, just when small businesses were optimistic about expansion.
With regard to general bank services, it appears that your personal banker has become a zombie having to deal with management directives on how to provide services to savers, consumers and small businesses. Many businessmen have to jump through hoops even to get simple changes made to their business accounts. For example, if you want to change the name of the person managing a line of credit, they have to reapply, and may not be approved.
In this environment its next to impossible for small business to provide the jolt the economy needs to seal a recovery. Savers will still struggle as consumers. And consumers will become saddled with credit card debt they can't repay. All of this caused by the banking regulators who do not realize where the economic recovery has to come from.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.