Cheap Money Has Its Costs

IBM

The Armonk, NY, headquarters of IBM. Louis Lanzano/AP hide caption

itoggle caption Louis Lanzano/AP

Banks might be reluctant to lend money, but they are still making a packet from low interest rates.

That's because companies are rushing to borrow money at today's low rates, and banks can help them issue bonds. The banks structure them and round up investors who take on the debt, but don't lend out the money themselves.

Last week, IBM raised $1.5 billion in bonds, paying just 1 percent in interest. That's the lowest rate among 3,400 bonds tracked by Barclay's, Bloomberg Business Week reports.

The flurry of bond underwriting explains why bank profits are up since the start of the recession, the Wall Street Journal reports, even as lending is down.

Meanwhile, consumers are plowing money into savings, for interest rates at well below 1 percent.

The Federal Reserve meets tomorrow and will discuss what measures it should take to stimulate the economy.¬† Savers will be glad to hear that lowering short-term interest rates further is off the table— those rates are about as low as they can go. But the Fed may try to affect longer-term rates through buying up Treasury bonds and mortgage-backed securities.

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