Last week`s big financial news arrived at our house not by newspaper, but in a letter from Citicorp Federal Savings Bank.
”Dear Savings Customer,” it began.
If your bank has sent you one of these, you know the rest. If not, allow me to quote:
”As a result of the recent action taken by the Federal Reserve, virtually all banks have decreased the interest rates paid on deposit accounts.
”Effective Aug. 20, Citibank is changing the interest rate it pays on day-to-day capitalized savings accounts to 2.68 percent annually, compounded daily for an effective annual yield of 2.75 percent . . .
”Sincerely, William T. Atwell, president.
”Please note: future notifications of interest rate changes via mail will be discontinued.”
So there it was. The McCarron family had been drafted into Alan Greenspan`s war on economic stagnation. No need to plant a Victory Garden or put the mini-van up on blocks. We`ll do our bit by accepting Eisenhower-era interest rates on the family fortune, such as it is. Put a star in the window. We`re minding the home front.
But how about Citibank? Or for that matter, the rest of America`s commercial banks? What are they doing out there on the economy`s front lines to advance the cause of recovery?
Naturally, we assumed that the banks also were marching to the beat of Gen. Greenspan`s drum. We assumed they were spreading the benefits of lower interest rates to the rest of the economy, making bargain-rate loans to businesses so they could expand and put people back to work.
We assumed too much.
Turns out the banks-or a lot of them, anyway-are using the lower cost of money to beef up their bottom lines. They`re taking our short-term deposits and buying mid- and long-term government bonds. Why pay loan officers to evaluate somebody`s business plan, their reasoning goes, when you can make almost as much-at far less risk-by riding the 3 percent spread between deposits and Treasury bonds?
The extent of this practice was outlined in last Monday`s issue of American Banker, a daily trade publication out of New York.
Itsat the value of bank loans to business has fallen below $599 billion, while holdings of U.S. government securities have soared above $607 billion. In the last two years, experts say, more than $70 billion in bank assets have been shifted from commercial loans to high-grade paper.
”Banks are helping the government fund the national deficit,” the article went on, ”but they are doing little to fuel the engines of economic growth, critics charge.”
One of those critics, a South Side jewelry store owner named Alvin Bell Jr., got so frustrated over his inability to get an expansion loan that he recently took out a big ad in the Wall Street Journal. It featured a portrait of his family above the headline ”What`s wrong with us?”
But Bell shouldn`t take it so personally. Bankers have their reasons for investing our deposits in Treasury bonds rather than jewelry stores.
They say demand for commercial loans, Bell`s problem notwithstanding, isn`t what it used to be. And they claim federal inspectors, anxious to avoid a replay of the savings-and-loan fiasco, are swarming over their ledgers, second-guessing every loan decision. The government also has put the squeeze on by raising deposit insurance premiums and loss reserve requirements.
Even so, our family is thinking about switching our savings to an investment that pays better than 2.75 percent. We probably won`t find one with a much higher yield, but it won`t be hard to find one that puts the money to better use.
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To succeed at any line of work, a young person typically needs a mentor-someone who knows the ropes and is never too busy to share expertise with a rookie.
Nearly twenty years ago, I met mine. It was 1973 and I was a summer intern fresh from journalism school with no experience, but an itch to write about the city. An editor turned me over to Paul Gapp, then the Tribune`s urban affairs editor and later its Pulitzer Prize-winning architecture critic. After introductions, Paul dispatched me to the Museum of Science and Industry to cover the opening of an exhibit on Frederick Law Olmsted. He was the landscape architect who designed New York`s Central Park, west suburban Riverside and parts of Chicago`s lakefront park system.
I learned a lot from that first assignment. Paul would teach me a lot more in the years that followed. Paul died last week of a lung disease at age 64. His passing makes me want to help an intern.