“There are over 300 bank robberies in Boston every year. And a one-square-mile neighborhood in Boston, called Charlestown, has produced more bank and armored car robbers than anywhere in the U.S.”
That line is from the recent movie “The Town” with Ben Affleck. He played the character of a bank robber who wanted to quit but had to pull off one last job for the bosses before he could leave. The movie got us thinking about other famous bank robbers: Jesse James, Willie Sutton, and Ben Bernanke. That’s right, the Bernank. The Fed has been literally stealing money from the savers of this country for the past two years with their zero interest rate policy and now quantitative easing strategy. But unlike a traditional bank robbery where the bank is the victim, this time the banks have been the recipient of the stolen money. Sure, an argument could be made that in 2009, the economy was teetering and zero interest rates helped save the economy. But now that many economic numbers and retail sales figures have improved dramatically, the justification for zero interest rates is not there anymore.
Up until recently, the banks have been enjoying a free ride at the savers expense. The yield curve is at its steepest slope since 1977. The spread between the US 2 year and 30 year is 400 bps while the 2-10 spread is 275 bps. The plan was for that big fat spread to add up to big fat bank revenues (witness Citigroup 4Q net interest revenue of over $12 billion). But just like most bank robberies, the plan usually goes wrong and the robbers are caught by the cops. This time the cops are the bond market. Prices on treasuries dropped 13% in the 4Q of 2010. This has wrecked havoc on the banks free money plan and we are now seeing this in the investment portfolio losses of the banks (witness State Street earnings report this morning where their revenue dropped 12% due to “investment portfolio repositioning”).
The Fed has outright stated that they want the stock market to go higher to help bring confidence back to the economy. They are trying to force John Q. Public to take his money out of his 0% yielding savings account and pump it into riskier assets like stocks. It appears for the past 5 months that their plan was going according to script. But unlike the movie “The Town” which had a very good ending (we won’t spoil it for you here), we are not quite sure that the Bernank will enjoy his movie’s ending and neither will we.