The Wages Of One Percent

clipped from www.tcsdaily.com many people forgot that in order to consume and invest, one needs to save. This elementary truth was lost as millions of people responded to perverse government-generated incentives by living beyond their means. What we are seeing today is nothing less than the inevitable price of behaving irresponsibly. As is often the case with a financial crisis, the original sin behind the current turmoil has to do with government policy. Since 2001, the Federal Reserve has kept interest rates absurdly low in order to prevent a recession. Between 2003 and 2004 the rate at which the Fed allowed banks to lend to each other overnight was 1 percent! This convinced people that there was abundant money for anyone who wanted it. Easy money begets extravagance on the part of those who lend and on the part of those who borrow. So financial institutions came up with irresistible offers, including mortgages that required no down payment and adjustable-rate loans that charged low interest in the early years.