Banks May Not Be Lending, But They Are Buying Treasurys

[sabra]

Source: CNBC

Though banks continue to be hesitant to lend to consumers, they have stepped into the market for Treasurys that help finance the government's burgeoning debt.

With credit conditions still tight and Congress likely to clamp down on risk in the financial industry, banks are turning toward the safety of government debt, helping keep interest rates low but still not providing credit to consumers.

...

Surprisingly strong Treasury auctions in March had help from banks, which normally stay away from such events.

Banks snapped up $5.7 billion of the total $34 billion auctioned in 10-year notes and 30-year bonds, providing demand for auctions that many analysts thought would flop. The auctions occurred as inflation fears began to grow and amid signs that investor appetite for the massive supply of government debt was beginning to wane.

...

The suggestion is that banks are using Treasurys as a way to get some return on their money that they might otherwise reap from making loans.

Read more: http://www.cnbc.com/id/36711527

[closeupready]

1. Sure, the margins are low, but they borrow at cost from the Treasury, and buy Treasurys

with the proceeds, making money at no risk to themselves. 'Nice work, if you can get it,' eh?

[Kolesar]

3. A guest on Bill Moyers Journal described *just that*

They are the oligarchs, answerable to nobody.

[hughee99]

5. And the Treasury lends out money that gets immediately returned

I have $100 in my pocket, but you are broke. I'll lend it to you, interest free. Then you can give it back to me and in X years, I'll give you $3 bucks, too.

At the end of the day's transactions, I have the same $100 in my pocket plus an obligation to pay you $3 in X years. You are still broke, but will make a guaranteed $3 sometime in the future, and somehow, I benefit from this?

[closeupready]

6. I am arguing that the banks benefit from this arrangement.

So are you. Right?

The government lends banks free money, then the banks buy interest-bearing Treasuries with that free money. How do the banks lose?

[hughee99]

7. Exactly...

The banks benefit with free money and a guaranteed return. The Treasury gives up 3-4%, and under this situation, they're not even getting "investment" money for it, they're just getting their own money back.

[SDuderstadt]

8. I think you've got the Treasury Department mixed up with the Federal Reserve...

and I don't think you understand that the Federal Reserve does not make long-term loans to its member banks. I believe your claim is flawed.

[DJ13]

2. Borrow @ 0%, get 3-4% interest from gov bonds

There ought to be a law.......

[Trillo]

4. The circular flow of money!

Banks are too big to fail, so the little guy bails them out at the demand of the big public guy. Banks buy up Big public guy's securities instead of circulating money to little guys. Thus, banks remain, Too Big To Fail, because Big public guy is now Big Private Guy.

If it was a computer, it would undoubtedly say, "self-referencing error".