Bond guru says Fed's low-interest rate policies are making lending for banks less attractive.
Bill Gross
FORTUNE -- The main point of the Federal Reserve's efforts to drive down interest rates is to boost borrowing. So if Fed Chairman Ben Bernanke's plan ends up doing just the opposite - causes banks to close up shop instead of handing out more cash - that would be a major problem.
But that's what bond-guru Bill Gross worries could be the end result of the Fed's controversial quantitative easing bond buying programs, which Bernanke looks more and more to likely to launch a new round of this fall. In his monthly letter to investors, Gross, who is the co-founder of asset management firm Pimco and the manager of the largest mutual fund in the world, says the Fed's policies have made borrowing so cheap it may not make sense for banks to lending anymore.
MORE: Why Bernanke has become irrelevant
Take Bank of America (BAC). Currently, the bank is paying bond investors 3.99% when it borrows money for 10-years. Yet, the average rate for a 30-year fixed mortgage was recently 3.53%. Which means borrowing to make home loans, which is in theory what a bank does, no longer makes sense for Bank of America, unless it wants to
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Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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