- Low interest rates generate lower interest income for individuals and for investors and for pension plans, including public employee pension plans. The lack of interest income in pension plans with fixed benefits creates large liabilities for corporations and notably, for California taxpayers who will have to make up the deficit in public employee plans.
- Low interest rates help to keep the U.S. National debt payments down to affordable levels.
- The Federal Government, through the Federal Reserve, is giving qualified banks the ability to borrow money at 0% interest and loan it out at higher rates.
- The Federal Government is now making payments to the national debt by printing currency. Inflating the dollar.
- The Federal Government through its banking regulatory agencies required banks to grant mortgages to unqualified borrowers under the banner of making housing more affordable and home ownership more universal. Banks, realizing this was a very risky propisition and that the liklihood of incurring losses was great, created securities based on these mortgages and sold them to investors. When the crazy adjustable mortgages based on no-docs loans came up for adjustment, it became clear that these securities were of little worth. But no one really knew the extend of them; the number issued. Uncertainty with the extent of the problem coupled with the certainty that many were bad caused the financial melt-down that began the current "Great recession". Then, with the typical slow response of mortgage holders to forclose and take their losses a prolonged period of housing oversupply began. This has further driven down the "appraised" values of homes. All this has caused one-third to one-half of homeowners to have no equity in their homes. This has lowered the net worth of most Americans substantially. It has further reduced the amount of disposable income and caused reductions in consumption and production and corresponding reductions in employment which have further caused a continuing downward spiral in employment and production.
- The Federal Government lifted several controls on the stock market just before the crisis began in 2007. this includes the lifting of the Short Selling "Uptick" rule that required sellers of stocks bought on margin to wait for an upward movement in sale price before they could sell their holding. This meant that once headed down a stock's value could be destroyed by speculators, selling and buying all the way down.
- The Federal Government removed the separation between investment banks and retail banks just prior to the collapse too. Do you suppose that this had anything to do with the need to securitize those bad mortgages?