In the past, I’ve blogged about the argument that it seems as if Janet Yellen, the new Federal Reserve Board chair, seems to be part of an organization that’s applying the gas pedal and pushing on the brakes at the same time, without being especially conscious of that activity.
If you push the interest rates that big banks and big, publicly traded companies pay close to zero, but you make it next to impossible for someone like me — a gainfully employed, solvent, bill-paying person who has eaten meals with insurance rating analysts, without even stealing any silverware — to buy a house, the effective interest rate for a huge percentage of consumers is infinite.
We can use whatever credit facilities left over from when times were good, and those credit cards or home equity lines of credit may carry decent rates, but, for new credit, we have to locate loan sharks.
This has a direct effect on disability insurers and other players in the insurance industry, because they’re getting punished by this problems on both ends.
They suffer low returns on their investments, because the rates on the credit deals that do exist are so low, and they have a hard time selling products to people like me, partly because people like me have a hard time buying homes, starting businesses or doing anything else that requires credit. And, also, they lose the opportunity to earn somewhat higher rates of return by buying securities backed by mortgages issued to ordinary bill-paying people who somehow fail to make Equifax tingle.
Group disability insurers and their brokers suffer because ordinary Main Street businesses can’t get the credit they need to overcome fluctuations in cash flow. How can they agree to sponsor new employer-paid benefit plans when they’re not always sure about their ability to make payroll, even when know they have plenty of good accounts receivable?
At various congressional hearings that were streamed on the Web, Yellen didn’t seem to be all that attuned to the needs of consumers shut out of the credit markets.
But, last week, when news organizations covered the release of Fed policy-making committee notes from 2008, they reported that Yellen was paying attention to credit market access back then. She noticed, for example, when employees at her bank, the Federal Reserve Bank of San Francisco, had their home equity lines of credit slashed.
Maybe there’s some way to send her the message that there has to be a middle ground between lending to ne’er-do-wells and shutting have-done-fines out of the credit markets.