Interest Rates — Robin Hood and the Fed In Action

Interest rates are of interest to eminent domain lawyers because the constitution requires that when payment of  just compensation for the taking of property is delayed, interest “at a proper rate” has to be paid as well, to provide compensation for the delay in payment (and in theory to discourage condemnors from delaying payment). Why “in theory”? Because out here in la-la land our law is shamelessly biased against property owners and in favor of condemnors. Whereas in all other cases the interest rate is 10%, in eminent domain it runs around 1 to 2%. And that isn’t all. In those situations where a deposit turns out to be higher than the ultimate award, and the owner has to pay some of it back to the condemnor, then the interest rate is 10%. Our courts see nothing wrong with that, and never mind the constitutional mandate about denying people equal protection of the laws.  No, we are not making this up.  See Inglewood Redevelopment Agency v.  Aklilu, 153 Cal.App.4th 1095, 1120-1121 (2007).

And speaking of interest rates, in the cacophony of politicized voices that dominate today’s press, there are a few voices of reason, and one of them is Gretchen Morgenson, a business reporter at the New York Times. She first caught our eye back in 2004, when she accurately predicted the coming “Housing Bust” — see Gretchen Morgenson, Housing Bust: It Won’t Be Pretty, N.Y.Times, Jul. 25, 2004, at Sec. 3, p. 1. Since then she has continued to be an astute critic of the foibles and misdeeds of the financial system.

Ms. Morgenson does it again in her column in today’s N.Y. Times (click here), on prevailing interest rates and the Fed’s effort to keep them down for the banks at the expense of ordinary people. The Fed lets banks have money at almost 0% supposedly to encourage them to make loans and thus stimulate the economy, but they don’t make loans necessary to a healthy business climate. Instead they prefer to take 0% money from the Fed and invest it in government bonds that pay 3 to 4%, thus collecting risk-free interest on Uncle Sam’s money. This acts out the old joke that a bank is an institution that will lend money to anyone who can prove to it that he doesn’t need it. The Fed thus wages economic war on the middle class, and shamelessly victimizes savers of limited means who for lack of realistic alternatives are forced to resort to savings accounts and CDs for their modest savings, where they receive peanuts by way of interest. Around here, those financial institutions that advertise for deposits, offer less than one percent. Which means that if you take inflation and taxes into account, you suffer a net loss when you put your money in a bank.

What Ms. Morgenson brings to our attention is that the Fed isn’t playing straight with the American people. Its spokeswoman (who has refused an invitation to an interview) justifies this outrageous situation by citing obsolete statistics from before the recession in an effort to justify what is going on. We are not into conspiracy theories — we prefer the bon mot of former California Court of Appeal Justice Don Gates who is said to have observed that he is wary of accusations of bad faith when the conduct in question is explainable by simple stupidity. Except that here stupidity does not explain things. The Fed folks certainly aren’t stupid. So why do they say stupid things like that and expect them to be believed? Our hunch is that whatever their true motivation, they think that we, the public, are so stupid that we can be fed whatever convenient nonsense pops into their minds by way of justification of the unjustifiable. “The Fed has been following this plan for more than three years now,” concludes Ms. Morgenson. “Yes, we are seeing some improvements here and there. But the transfer of wealth from savers’ pockets has been immense. And with the price of gasoline and other goods going up, the vise is tightening.”

In the meantime, the Fed is for all practical purposes facilitating the theft of your money for the benefit of banks, and is acting out the role of a reverse Robin Hood (Hood Robin?) who takes from the middle class and gives to the very rich.