Lending Club Blog

Low Interest Rates: Great for Banks, Bad for Investors… (VIDEO)

…says the WSJ.com in this recent video. Well, we couldn’t have said it better.

What American savers should understand is that by putting your money in the bank, you are essentially lending your money to the banking institution. In turn, that institution pools all of our collective money and lends it out in a variety of financing products: from mortgages at 4.5-8% interest rates, to lines of credits, to credit card at higher rates of up to 30%. The difference between what the bank pays the account holders and how much they receive in interest from their borrowing customers is their gross revenue.

Low interest rates are an “attack to the savers who are providing the capital to the benefit of the people who are borrowing the capital, that includes bankers, mortgage borrowers, companies, and the like…” explains Mark Whitehouse, WSJ News Editor.

No wonder Lending Club has been growing at a 5-15% pace every month for more than a year, recently passing more than a quarter billion dollars in loans.

Enjoy the short but poignant explanation of how the traditional bank lending system has become inefficient, unnecessarily complex, and bad for investors:

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@RobGarciaSJ

Friday, April 8th, 2011 at 11:16 am

Comments (7)

  1. Great video Rob. Gets to the heart of the problem with the big
    banks in simple to understand terms. Should be required viewing for
    all Americans.

    April 8th, 2011 at 1:10 pm

  2. Perry:

    Really good for understanding how banks work! I like how you
    explain it, I never thought of it as actually lending my money to
    the bank so they can lend it to others with a additional charge.

    April 11th, 2011 at 4:06 am

  3. Interesting video about banks modus operandi and importance of
    responsible investment choices. WOW.

    April 13th, 2011 at 4:46 am

  4. Straight to the heart of the topic. Great post. And yeah, he’s
    right. There’s no prospect of the system changing anytime soon
    though.

    April 14th, 2011 at 1:13 pm

  5. Winning:

    What a great video, needs to go viral for sure…

    April 22nd, 2011 at 2:32 am

  6. Jason:

    I disagree. That guy did a terrible job with his anecdote. He got
    lost in the weeds. I’m a saver. I loan $1,000 to the bank at 3%.
    The bank lends $2,000 at 6%. Now the bank is in trouble. It’s
    over-leveraged and savers are demanding their money in a run on the
    bank. The Federal Reserve and Treasury print money and hand it to
    the bank. The bank is relieved and flush with cash. In fact they
    have too much money. Now they’re lending at 3% and borrowing at 1%.
    As the saver, I’m the loser.

    May 4th, 2011 at 12:16 pm

  7. Jeremy:

    I think the video is great…. Jason-It sounds like you are an
    advanced “saver” For me, the video contained some info that I have
    not heard before but needed to know….

    May 5th, 2011 at 1:18 pm

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