ping
The current “credit crunch” was CREATED by the government. In a REAL free market, banks lend money at a certain rate until the amount of money they have to lend starts to shrink. At that point, they raise the interest rates on loans AND deposits to slow borrowing and attract more money. When the amount of deposits increases, they then lower rates again to attract more borrowers.
BUT the Federal Reserve has kept loan rates so low that the banks eventually ran out of money to loan. And instead of raising the interest rates to let it balance out, the Federal Reserve KEPT rates low until the banks almost literally had nothing to loan. Then the government stepped in and “loaned” them money (at rates much higher than you or I could get) yet is still demanding that the banks loan out the money at LESS than the interest the banks are paying on the government loan!
“It’s an institution created by government itself.”
Ummm, booms and busts have been happening longer than the government has been around. Ever since humans started using pretty colored shells for money. Federal policies may be distorting the phenomenon, but its caused by the same facet of human psychology that causes all fads.
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