Kensington Capital on Operation Twist – "Who wins when we twist again?"

The Federal Reserve Bank hopes that Operation Twist will push long-term interest rates lower. Lower borrowing rates could spur mortgage refinancing and business borrowing, giving consumers and businesses cash to spend and thereby boosting the economy.

Homeowners burdened by high mortgage payments but who remained current on payments will likely get the opportunity to refinance at lower interest rates, courtesy of the United States government. The reduced rates and payments would leave more cash for those consumers to spend on other things. Increased consumer spending could help the economy grow and hopefully translate into job growth as well.

Banks would likely be affected in two ways: High-interest rate mortgages that are at risk of default don’t become toxic loans if they are refinanced. However, banks make money primarily by borrowing at lower rates than their lending rates. Low-priced loans would cut into earnings. In short, the banks would sacrifice profit to stabilize their balance sheets.

Among those who stand to lose most from this action are the pension plans.If the Fed is successful and interest rates are driven down it will effect most private U.S. defined benefit plans, along with the more popular defined contribution plans, such as 401(K)’s, who oversee about $7 trillion. Because of the way the plans must value payouts they will need to make in the future to retirees in coming decades these plans are likely to be hurt by a decline in long-term yields.

Full Article @ Kensington Capital Blog

About Kensington Capital Corporation - Kensington endeavors to fill the void in the market place for investment banking and securities advisory services geared for small companies. This market niche encompasses public or privately held domestic and international aggressive growth businesses with annual revenues between $10,000,000 and $100,000,000.