Hello,
While I usually reserve this blog for information about how to quit smoking my mind has been on the economy of the United States and I felt I had share my thoughts.
A world of perfect finance should be available to everyone. A perfect reform of the present Financial System used in the United States of America could be something like this.
1. All mortgages would be capped at a 5% interest rate per year for the life of the loan.
2. All residential mortgages would contain a renegotiation clause.
3. The only time that a residence would be refinanced would be in the event of a sale of the property or to take equity out the property in the form of cash.
The present regulation D imposed by the Federal Reserve would be repealed. A fair market interest rate would be paid on all savings accounts, CDs, and money market funds.
As an incentive to have one’s mortgage with a lender that lender would offer an account to the borrower that would pay interest on all savings accounts, CDs, and money market funds that would be up to one half of the rate of interest of the amount of the mortgage loan interest rate.. For example, if a mortgage rate is 4% compound interest per year then a savings account with that same institution will be earning 2% simple interest per year. That would be much more fair and equal agreement then the present 30 year loan without a renegotiation clause and paying no interest on a savings account. Remember, the mortgage interest rate is compounded while the savings account(s) are only paying simple interest per year. Simple interest is only paid on the principal, not principal and interest. $500 deposited in the bank on January 1, 2012 at 2% simple interest per year would be $10 interest paid on January 1, 2013.
This would be a win-win situation for the bank as the lender and the customer as a borrower. The bank is making money on the mortgage and the customer is leaving his savings account in that same bank and earning a fair interest rate on his savings. How much more fair can it be to have a loyal banker and a loyal customer working together.
There are some that would argue that it is not a fair enough mark up between the savings account interest and the mortgage interest rate. To those people I would say how much more fair can you get than a 100% difference in the two plans? The bank is making 100% more on the mortgage then they are paying on the savings account. Plus they have the savings account money to use for their compensating balance.
The argument that savings accounts, CDs, money market accounts are considered “demand accounts”, and can therefore drain an institution’s funds if everyone decided to withdraw them at once is no longer valid since most banks have the option of borrowing from the Federal Reserve or the United States Treasury. The main reason that Regulation D is still in effect is that it forces savers to use other more risky means of saving money such as mutual funds, IRAs and stock purchases.
Ask anyone that has money invested in those “savings” instruments how they have faired in the last five years?
Who else thinks that the time has come for a Reform of our financial system and laws?
Evident Art is a leading London based multi disiplinary agency established in 2006, now with a branch in Brighton. With a global client base, we pride ourselves on offering excellent results in a wide range of areas including: professional website design, ecommerce websites, graphic design, logo design, video animation, bespoke CMS, online marketing, printed marketing material such as leaflets, posters and flyers and 2d / 3d design.