The Fed Took $3k from You and Gave It to Jamie Dimon | Hacker News Reader

The Fed Took $3k from You and Gave It to Jamie Dimon

thebignewsletter.com

This seems to be thoroughly conflating two things:

> We’ll start with this story on Fed Chair Jay Powell’s choice to transfer $1.1 trillion to large financial institutions over the past two and a half years when he helped raise interest rates, which is about $3000 from every single American.

> How did this transfer happen? “Lenders got higher yields for their deposits at the Fed but kept rates lower for many savers,” wrote the FT, with subsidies higher for big banks than small ones.

The issues are:

1. The Fed sets an interest rate target. This has everything to do with controlling macroeconomic parameters and, unless there is some pretty serious corruption involved, should not give much if any consideration to the banks’ profitability.

2. Banks get away with paying approximately zero interest to most customers, and, critically, this rate does not scale properly with the rates set by the Fed.

As a result of #2, bank profits have a bizarre dependence on interest rates beyond all the quite reasonable ways that their profits should depend on rates. Arguably #2 should be fixed, but #2 being true does not mean that the Fed should keep interest rates low just to keep bank profits low.

(Note that bank profits are a very complicated function of rates due to large bank exposures to fixed income.)

No one is forcing people to use a bank, it’s just the “easy default”. Related: quoting from “Ditch Banks — Go With Money Market Funds and Treasuries”⁽¹⁾

”Many people don’t realize that there’s a fundamental difference between the roles banks and brokers play. The fundamental difference is that banks and credit unions offer a two-party private contract while a broker serves as an intermediary between you and the public market. … When you have a two-party private contract, your interest is in direct conflict with the other party in the contract. … A broker acts as an intermediary. They get you the market rate and take a cut. A broker doesn’t set the rate. The market does. The broker only sets its cut.”

⁽¹⁾ https://thefinancebuff.com/goodbye-banks-credit-unions.html

The premise at face value is correct. But let's consider what is left unsaid.

First, if the govt didn't increase rates, we would have stubbornly high inflation. So instead of giving money to 1 specific person (Dimon/bankers) we would be giving it to many faceless recipients (Halliburton, Blackwater, MVM [1], Hilton? ) . I'm not sure what is better, but in the former case, at least we don't end up with inflation.

[1] https://en.wikipedia.org/wiki/MVM,_Inc.

Second, the govt is able to give this money away because govt is the sole price-setter the cost of money, via fed. This, despite decades of evidence that price setting -in any industry- doesn't work. Yet, the US public continues to vote for status quo without any challenge to Fed policy. Ignorance is bliss, yet the majority of US voters insist to give money to Dimon. So, should one be outraged at handouts for dimon & pals, even if the evidence makes it clear that this was willingly accepted by the majority of the US public ?

Don't blame me, I voted for Kodos!

I'm not really sure that public acceptance can really be ascertained for most policies, especially nuanced ones which don't make their way to the top of any party's platform in the form of an election promise or a referendum, but especially when the policy wasn't made by a directly elected body.

The fact that the fed continues to pay interest on reserves is a huge and unprecedented scam that probably will only be generally recognized years from now.

Is every regulation, like Basel III, really as simple as, favor big banks or small banks, as the article suggests?

Yes

Pretty misleading post from a clickbait title. The job of the fed isn't equality, it's to stop inflation and keep the economy stable. They did that reasonably well with the cards they were dealt. The elected government *should* tax these people/corporations and help even out the situation where the rich get richer and the poor get poorer. There are many policies to do that and most countries have them.

But then roughly the same "anti-fed" crowd claims that this is regulation and shouldn't exist.

Yes indeed. It's also clickbait because just because banks benefitted from a particular interest rate regime doesn't mean the average person would have been better off had that not been the case. It's much much much more complex than the author of TFA (or lots of popular finance stuff out there) would have you believe.

If the money really was "taken", I'd like to know the actual distribution of harmed parties, because it wasn't just a blanket taking of $3k from each person clearly. Was it the poorest Americans? The almost but not quite rich?

The low interest payed by banks hurt those that have cash to save and need to put it into some sort of savings account (short to medium term interest bearing account). If you have cash sitting in a bank account now it would pay to look at rates. There are some ok deals out there but you do not get the higher rates by accident.

The job of the Fed is also to regulate banks. If the big banks are charging disproportionately more in interest, it's the Fed's job to regulate it, which they failed to do as per their bank regulation mandate.

Interesting post. Never thought of this.

Dimon et al. should have been serving time since 2008.

The federal government is incredibly inefficient, about 50x too large, most of the money is just shuffled into pockets of senators or their high value buddies. Despite incredibly decisive evidence of this, there is a massive backing to increase taxes. I truly don’t understand the disconnect here. If the federal government was on charity navigator, it would have negative stars for deliverability.

Can't really expand the programs I want without money

Fighting corruption would be cool but I don't have a lever for that

I'm more perplexed as to who is still voting for Republicans

It’s amazing that it’s always the people you dislike are the problem.

I think you have it backwards. I dislike the people who are the problem.

Yeah but it won't work, so... Stop being daft and start killing government instead of growing it?

It's not a one way road you know, we can fix it.

I don't think anyone is for raising taxes per se, just who gets taxed. If you're persistent about taxing the powerful at least efficiency becomes a priority of the powerful.

I'm all for smart legislation that makes things more efficient, but where are all the proposals with efficiency gains and not blanket cuts?

Speaking of inefficiency and waste, I was recently looking at a list of recent federal hires for a fresh team, 60% (6) of which were managers, only 1 was a scientist, and 0 were engineers. It is bureaucracy through and through, all at the taxpayer's dime, with goals that have zilch to do with serving the people. If the Republicans weren't so anti-liberty, anti-democracy, and anti-climate, I'd consider voting for them, but they are.

> The federal government is incredibly inefficient, about 50x too large,

Compared to what, though? While I agree many improvements are possible, whenever I see this kind of claim it seems seems based on a vague theorized Golden-Age/Location/Situation.

I mean, have you seen what it's like in a modern country which have public-sector employment rates only 1/50th of the US? Trick question: Nobody knows, they don't exist.

I feel this strongly implies that there is something rather "inefficient" about such systems, since something that cannot form or survive doesn't accomplish much. (At least with the social and technological building blocks available to humanity today.)

The closer to zero, the less like a nation you are. Can you have say 10m people, an elected government that cant do much and then corporations do the rest?

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