One and three are true and inherent in my explanation

Posted on: December 13, 2022 at 16:45:05 CT

Cost of borrowing money is the Fed Funds rate which banks use to get money to lend. The risk is the borrower's credit rating. Return is irrelevant as banks don't hold many mortgages on their books. They sell them, removing risk and capping their return. Banks are in the business of lending and they aren't risk-takers. They don't care about alternative investments. That's not their business.

To your overall point, yes, the Fed is calling the tune and everybody else dances to it. That's more true in highly regulated financial segments. On the other hand, credit card rates are not highly regulated and don't really conform to what the Fed decides. Most states have maximum usury rates and that's it.

Commercial lending, especially the private kind, is much more murky. Hedge funds, pensions and other entities are heavily involved and don't have the responsibility to disclose and manage lending and borrowing risks and report them on a regular basis. A hedge fund that gets over-extended doesn't have regulators that have the ability to downgrade them even if they become insolvent, like with the Gamestop con. In fact, documentable SEC violations were intrinsically involved and nobody came after the fund for what should be looked at as a series of criminal acts.

Edited by JimD at 16:55:43 on 12/13/22