Rick Lowe
Dr. John Rodgers used that phrase recently when he announced a scheme to help save homes from foreclosure. Go here… and here…
For sometime he has been attempting to show that banks here in The Bahamas are unfair with their lending practices, by focusing on their apparently large spread between the Prime Lending Rate and borrowing and savings rates.
Here's the approximate numbers.
- Bahamas Prime Lending Rate: 4.75%
- Certificate of Deposit Rates: 1% to 3.75% depending on the amount
- Loan Rates (Consumer or Mortgage): 6% to 14% (vary depending on risk involved, security, down payments etc)
Looking at the raw numbers, a bank could be potentially making a gross spread of 9.25%. Surely this is legalised theft? But not so fast. What qualifies any of us to decide what a fair spread should be? And by extentson what profit banks should make or what size "haircut" they need.
Establishing his argument against banks in this way, Dr. Rodgers sets up an "informal fallacy based on misrepresentation of" the banks true position.
Surely if banks are ripping us off there is a great opportunity for monied people, Dr. Rodgers included, to get into the lending business? That way, he can lend at 2% as he suggests.
Whether that would allow him to set up the infrastructure necessary to get into the lending business, and the other requirements and regulations remains to be seen, but we should be careful using these straw men to make a case against banks.
I obviously disagree that banks need to be forced to reduce the principle of distressed mortgages by 50%. What is left out of that suggestion is what damage that does to people with savings in those same banks.
Banks do lend their depositors money, don't they? What effect would this "haircut" have on savers?
