(7d) Bank decides to introduce negative interest rate mortgage - Others will follow?

How do banks come up with it? Now Danish bank decided to pay negative interests on mortgages, meaning they agree to give you money to buy a house and you pay back less than what they gave you. Sounds logic for companies that must make profits? I don't think so.

Indeed, the article mentions that

"In reality, the Jyske mortgage borrower in Denmark is likely to end up paying back a little more than they borrowed, as there are still fees and charges to pay to compensate the bank for arranging the deal, even when the nominal rate is negative."

Thus, although they say you pay back less, costs to belong to the bank increase and likely for everyone. In addition, while today people can get a tax reductions when they buy a house/flat, as now banks pay some of the mortgage, this may be seen as an additional income and thus I question whether people will have to pay more taxes and this way reduce countries deficits?

Costs at banks

Banks claim they need to take such measures to reduce the need to pay central banks money to store the money of customers. Indeed, people save for a future large investment such as paying part of the cost to buy or restore a house as banks told us in the good old days we shouldn't borrow equal or more than the house price. People also save for after their retirement to continue living a good life or go in a retirement home while financial institutions prefer we invest in a retirement funds.

Today, banks claim people save too much and thus they try to stimulate them to invest in the economy by reducing returns on savings with very low and if possible even negative interests. But, banks don't want you to stimulate the local economy by spending money locally; instead we should buy shares via the financial sector so people pay costs that can go towards bonuses for bankers who convinced people to "invest in the economy". In reality, as interests rates are very low, I already pay more in costs to my bank to have an account than that I gain from my saving account. Yes, it's normal I pay a cost as banks look after my money and should provide good services although I know wealthy people pay less or they threaten to go to another bank. And now banks can claim higher costs to compensate for the extra cost as they decided to pay part of mortgages with the argument of reducing costs of storing money in central banks.

However, when too much money is stored, why do banks not pay higher interests to customers? Banks are now even claiming that the tax free sum on savings should disappear as it encourage people to save instead of invest. I disagree. Indeed, ordinary people have relatively small savings and thus don't need to pay taxes on interests below a certain threshold. In contrast, wealthy people who receive interests that exceed that threshold should pay some taxes on the interest above this threshold as indeed they have sufficient money to invest some in shares although I don't mean people on smaller incomes can't invest some money in shares. Thus, when interests are higher, people receive more interest that they may or may not spend on the local (restaurant, shops) and even international (holidays) markets as well as buy shares when they consider they can invest (risk) some money on stock markets.

But, the above doesn't make investment bankers much richer. No, for this they need people who invest on the stock markets. Thus, with growing costs for ordinary people and with almost no interests on saving accounts, this should convince people to invest in stock markets investment bankers control. And this at a time of growing uncertainty as stock markets start to become volatile as we've seen recently. This volatility is partly because of an ongoing trade war between the USA and China and uncertainty over Brexit but these can be used as an excuse to start to take profits by selling shares that grew over the past 10 years after many collapsed during the financial crisis. And thus, just when people may become convinced investments in shares is the only option to make money, shares may go down again so profits in the pockets of investment bankers and their friends. And this can also hurt people who invested money in their own stock markets registered company when hedge funds decide it's time to sell. Although, this doesn't need to be. Just as it's important people receive some interests on their savings that can be used in the economy, so after a financial crisis but also because economies can't continue to grow when customers have what they want, big earners can decide to earn less and this way employ more people. Indeed, someone who earns a million can half this and still earns a lot while 15 people can be employed at wages of 35000 that is about the average. Those 16 people can continue to buy unless society becomes too expensive while workload goes down and thus it is less likely people develop a burnout as that costs society millions.

Some people may think to keep money at home as many did in the past because they no longer trust financial institutes. Bad luck when payments with bank cards become the norm and cash will no longer be accepted at many places. Then a number of people will either have to give up their black money or explain why they bring money to the bank they didn't seem to have before. But, investment bankers and their friends will have legal although not necessarily ethical ways to invest money in tax heavens as media over the past few years demonstrated.

In the end, banks need to make profits, free gifts don't exist. People will repay, either on an individual level or as a society. Indeed, shareholders and bonuses need to be paid.

The financial sector in heavy waters

Question for central banks

If banks need to store money in central banks such as the European Central Bank (ECB) and this cost money, why did the ECB print money instead of using this money to invest in the economy as too much money in circulation may even devalues the euro (look to Africa where some countries print money to try to control inflation when everything becomes very expensive in comparison to the value of the money). Indeed, I questioned this already before. Proof for this is that prices of goods and services continue to rise and thus the economy seems to be good. Still, we know that before the 2009 crisis banks and mortgage companies provided money such as mortgages too easy and now they even start to pay lenders to take up mortgages to reduce the amount of money stored. The result is that those who sell property may consider to ask more on top of the current sales price and thus things may become even more expensive. I think this illustrates how bad the economy is.

Without these measures these economists think people will buy less while people with normal income and savings want to continue to enjoy life but do this on condition they have sufficient return on investments such as saving accounts. But those on high incomes via wages and bonuses will suffer when people don't buy shares of which many became too expensive and their prices may go down as than no bonuses will be paid although the return on cheaply bought but expensively sold shares may make up for this loss and thus justify bonuses.

Possible write-offs in the financial sector

First, financial institutions need to pay high bonuses to top employees to keep them and thus having less expensive employees may reduce costs. However, banks reduce the number of lower staff with the (correct) argument that they are no longer needed as people use self-banking.

Further, high dividends need to be paid to investors, and there is nothing against this as long as markets are correct and thus not after redundancy are announced because that means a company suffers and less dividends can be paid; however than investment institutions are even more likely to sell shares and worsening the situation.

In addition, as a consequence of the financial crisis, financial institutions are fined to pay high fees because many in financial sector misbehaved such as allowing high mortgages when interests are low but house prices extremely high so it seems people have to repay less but may not be able to do when their situation changes such as loss of job.

Also large numbers of people start to retire so where will this money be found except in bank accounts in tax heavens?

And now banks also have to pay central banks to store money while central banks continued to print more money that many people didn't spend and this needed to be stored.

Thus, it may not be so bad for some when shares may fall because than they can claim that for instance retirement funds (nearly) collapsed and thus money is gone do less needs to be repaid.

And, similar to paying higher interests on saving accounts, banks could also provide cheap money to countries who have debts and this as a thank you, a repayment that countries saved financial institutions during the financial crisis. And while it seems that cheap money to invest in the economy is fine, companies that invested in the past will still have to repay with interests, thus possible unfair competition although prices to rent or buy compensate as they became too high due to too low interests on mortgages. Thus, it seems measures taken may only worsen the problems.

Of course, they may proof me wrong, I would welcome it when normally returns in society.

A healthy economy

I think in a healthy economy it's normal people receive interests for the money they lent to banks via money in their saving accounts as banks can use this money (and thus earn money themselves) to invest in what should be the save part of the economy such as mortgages to individuals and mainly small and medium businesses.

All customers and without exceptions, thus including those with lots of money, pay a certain cost to banks for the use of their services, knowledge and equipment.

Individuals can decide to invest in more risky projects such as start ups and other companies or donate to charities. People should receive clear and correct information from banks and newspapers so they can understand the risks of investing in certain projects.

Finally, bankers have conflicts of interest and therefore should be forbidden to own shares while also bonuses should be limited and similar for everyone working at a certain place as the crisis proved that greed results in bad advice to customers and risk-taking to proof they are successful while it may ruin not only banks but the world economy if things go wrong. And yes, allow greed and how many people would refuse what employees claim they deserve? And don't fear, in future more people will use apps to invest so fewer bankers are needed while some people will do this job at normal wages (although according the level small differences in wages can exist as in every job due to having more responsibility but then this should be taken when things go wrong) because some people love this job although it may no longer be a honourable job but one which will be under severe surveillance by society to prevent failure.

Brexit within this story

Brexit is also part of this for certain at the top and thus not the poor. EU haters don't mind a Europe for the economy with low to no costs for companies and access to all markets. But they didn't expect the EU would become also about workers and environmental protection rights. They pretend to stand up against an undemocratic Europe but oppose direct elections of a president as it should remain undemocratic so they can control it. And thus they hate the EU parliament as this is direct democracy of what they say are "people without experience and knowledge about the real economy" and thus they think they should run the economy. As shown when choosing a successor for EU Commission President Juncker, the Heads of State decided to chose someone else than the candidates before the EU elections. Still, it is still possible that Mrs von der Leyen, at that level and with a strong EU parliament, will be independent from individual countries and their economies and serve the general interest of the EU. Indeed, for many in big companies, the EU is too democratic and a social EU needs to be silenced in favour of big businesses.

Greece showed the strength of the EU although individual countries still had too much power and had to defend their own interests while a larger involvement of the EU parliament may have resulted in a better deal; still, Greece survived a massive attack from the financial sector that lowered its ratings while many who claim they are in favour of the EU would have abandoned it, claiming it weakens Europe that should be a Europe of the wealthy. Why do we need a Europe of only wealthy countries? That doesn't mean giving money to poorer countries withoutsomething in return; I think the EU should support projects between different countries so they can develop; projects to stimulate interactions between universities is an example how this can be done. In addition, many other countries survived the banking crisis that happened 10 years ago because the EU stood firmly behind them and companies couldn't afford the collapse of each country as that would destroy their markets. Therefore, systems that are developed to weaken the EU by releasing money that moves to markets outside the eurozone (such as fiscal paradises but also investments in flats and houses outside the eurozone) may next time be successful, certainly when more people no longer believe in the EU and its single currency. I still think the euro is something positive but only when markets obey to the same general laws.

If anyone thinks I give wrong information or can explain why negative interest may be good, I'm more than happy to correct.