Rochdale Securities banking analyst Dick Bove says the combination of the Federal Reserve’s refusal to raise interest rates until at least 2014 and President Barack Obama’s mortgage-refinancing plan will cripple the banking system.
“If you want the banks to lend money, you have to allow them to make money,” Bove told CNBC. “And the government doesn’t want them to do that.”
“What this government is doing is its attempting to restrict or cripple the banking system so it cannot perform the way it wants in terms of assisting the economy, adding that keeping rates near zero percent,” Bove says, and that “does not help the banks in any way, shape or form.”
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“Interest rates are so low at the present time that any reduction in interest rates reduces the yield on assets without affecting the cost of liability,” says Bove, thus squeezing the margins of the banks.
Bove said that Obama’s comment that the U.S. “has passed laws that make another financial crisis impossible” as “the most absurd statement made in the State of the Union message.”
“For a government to stand up and say look, we can outlaw all of the rules related to economics, we can outlaw all of the rules related to finance by passing a few laws simply doesn’t make sense,” Bove says.
Other experts have also doubted recent Fed moves and strategies.
Gerald O'Driscoll, a former vice president and economic adviser at the Dallas Federal Reserve, said he was shocked by the implied pessimism of the forecast in the recent Fed statement.
He warned the Daily Ticker that this could suggest that the Fed may know something about the economy that U.S. markets and investors don't. He also said the Fed is running out of tools.
Meanwhile, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. will suffer “financial repression” if the Fed implements additional quantitative easing.
A third, fourth and fifth round of easing “lie ahead,” Gross wrote in a Twitter post. The Fed will probably hold its benchmark interest rate at near zero percent for at least the next three years, the post said, Bloomberg reported.
Fed Chairman Ben Bernanke has said the Fed is considering additional bond purchases to boost growth after extending its pledge to keep interest rates low through at least late 2014.
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