The Federal Funds rate is the overnight rate banks pay. The purpose is so banks maintain liquidity in order to meet the demands of customers given fractional reserves.
What is real, outside of government bailouts for banks, in this current environment, is kinda what Buffet did when he invested $5 billion in Goldman Sachs. He is getting a 10% dividend, plus any upside in the stock price after $115. His investment puts him ahead of common shareholders. If Goldman could have gotten 0%, they certainly would not have done the Buffet deal.
Quote:
Sept. 24 (Bloomberg) -- Goldman Sachs Group Inc. won the backing of Warren Buffett, the world's preeminent stock-picker, as the Wall Street firm seeks to raise cash from investors whose faith in the investment-banking business model has been shaken.
The bank soared 11 percent to $138.17 in German trading today. For Goldman, the endorsement came at a price. Berkshire Hathaway Inc., led by the 78-year-old billionaire, is buying $5 billion of perpetual preferred stock with a 10 percent dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years. The common stock closed yesterday at $125.05, providing Buffett with an instant paper profit of $437 million.
|
Bloomberg.com: Worldwide
Here is what the government is paying:
True it is low and less than last year, but above 0%. People are seeking the safety of investing in the US. It is ironic that the world has so much confidence in the fundamental strength of the US economy and our ability to return principle accepting almost no risk premium - but our President has almost no confidence in the fundamental strength of the economy feeling only his actions can avoid a disaster of the scope we have never seen before....give me a break Mr. President.
Just like Buffet stepped in with Goldman, others would have stepped in with other financial institutions if the deals made sense.