Silent Casualty of the Financial Crisis

Investors, pension funds and over extended home owners have frequently been discussed as victims of the housing bubble meltdown and ensuing financial crisis but there is another group of casualties that is almost never mentioned. This other group is the savers who by and large played by the rules and invested their money safely and conservatively in CD's and deposit accounts. Following the financial turmoil, the Federal Reserve aggressively reduced interest rates in an effort to recapitalize the banks and to stimulate the economy to offset the economic slowdown that was an additional consequence of the financial turmoil. The lower Fed rate widened the rate spread (difference between what the banks pay for deposits versus the rate that they can lend at) enabling banks to make billions in additional profits. According to the IRS, in 2006 (most recent year for which data is available) individuals reported $222.26b in interest income on their tax returns and paid about $33.57 billion in tax on this income. Interest rates available on 1 year CD's have declined about 70% in the last year. A very general calculation would indicate that savers have lost about $155 billion per year in interest income and the Federal Government has lost about $23 billion per year in tax revenues due to these lower interest rates required to save the banks.