Tito's Blog

If You Could Borrow At 0% You Would Be A Billionaire

Wonder how exactly investment banks posted record profits? The Fed is lending them money at 0% which they are investing back in government bonds at 2-3% risk-free. Lever it up 10:1 and you get your profits.

Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy short-term bonds that pay 2 or 3 percent annual interest. Now they’re making 2 percent on whatever they borrowed. They can use leverage to increase this number, by pledging some of the bonds that they’ve already bought as collateral on additional bonds.