Is the Interest Rate Model Fundamentally Flawed in Favour of the Banks?

Sunday, May 10, 2009

I have a few questions I hope to be answered from my readers who like to think out of the box too.
Doing my micro survey among my friends and aquaintances from all walks of life I see that there is only one industry sector left that still enjoys a 5-day-workweek: the banks. All other business sectors have morphed into an era where work around the clock has become the norm by now and most do not even get paid an extra for slaving away Saturdays and Sundays.
Bankers are the only exception to this rule. They leave their desks early on the casual Friday afternoon, looking forward to 2 full days they can spend with their kids, vroom their Ferraris and burn the charcoal in the BBQ.
As I am certainly not envious - having long changed to a life without an alarm clock - I only wonder why this privileged industry charges the rest of the world as if they were following the same distressing schedule of all other mere mortals.
Remembering the days when I got trained to do interest rate calculations on my long gone HP 12C business calculator (is it still produced?) I see the numbers 30/360 and 365/365 (or actual/actual) - standing for the interest base - in front of me. The first one is used in the formula to calculate interest on deposits and the second one is applied on your loans, giving the bank already an almost unnoticed advantage in the long run. I had to get a diploma to find out about this scam.
Calculate the following highly hypothetical example yourself: Take a theoretical 1000 money units deposit at 4% and an equivalent loan at the same rate and tell me in comments how long it takes until your deposit has gone to zero while the loan is still not paid off.
Any financial whiz kids out there who can do this math in comments (I only write but do not calculate on Sundays)? In order to see it from the comfy banks' perspective it would be welcomed if you start out with 1,000,000,000 money units.
While this could be easily regulated by law I see a much worse flaw that should be corrected in a fair world.
Why the hell are we being charged interest on weekends and holidays when there is no possibility to execute transactions with the monies in our accounts, regardless whether it is a deposit or a loan? Leaving away the peanuts of credit card payments and ATM withdrawals banks do not offer any service for 2 days per week, but nevertheless they still charge consumers and businesses as if they could put their money to work on weekends.
What's your take on this? I hope for a lively discussion.

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