Chapter 3: Legitimate Loan Sharking

"Uncle Goodman, contact Port Newton and Monza now. We need to borrow money! And we need to borrow more! For five years, I'll offer 13% interest, each bank can lend us $250,000! Also, we can make a call to the Federal Reserve."

I'm in!

Carter has never been one to follow the rules, not in the past, and certainly not now. Or rather, if such an opportunity is presented and he doesn't dare to take a gamble, then what's the point of running a bank? It's always been in the financial market that the bold survive and the timid perish. Though before one bold individual perishes, countless others may fall prey to deceit. But Carter believes he'll be the one to survive, based on his foresight.

When he navigates through this difficult period, into the 1980s and 1990s, there will be companies like Google, Microsoft, Apple, and Amazon. A few investments in those, and he'll be financially free for life!

"No, not just the Federal Reserve! Let's also issue an announcement through the Georgia Banking Association to raise funds! I have only two requirements: first, the loan term must be five years or more; second, the interest rate should not exceed 15%. As long as it's not above 15%, you can agree to it. And the higher the amount, the better!"

The more he thinks about it, the more excited Carter becomes. He decides to increase the stakes. The tens of thousands of dollars from Port Newton and Monza are already not enough to satisfy Carter's appetite.

With those tens of thousands, he could only ensure that his Blake Bank survives the current crisis. And maybe make a small profit upon repayment. But is a small profit enough?

"Are you sure it's a 15% interest rate?! Carter, are you serious?"

Unlike Carter's excitement, Goodman looks bewildered, even reaching to rub his ears, wondering if there's something wrong with them. Such an indecorous act was rare for this self-proclaimed elite.

"Of course, I'm dead serious! Fifteen percent. As long as it's not over fifteen percent, you can agree. Also, for every additional $10,000 above $250,000, you'll get a $100 bonus, and for every point the interest rate decreases, I'll give you $10,000!"

"No, no, no, this isn't about bonuses or commissions. Carter, have you lost your mind?! Borrowing at this rate, what will we have to repay in five years? We're just a very small town, not Atlanta, and certainly not New York! You can't expect farmers growing peanuts and tobacco to take out massive loans!"

Goodman is so alarmed that he's waving his hands frantically, gracefulness thrown out the window.

Bypassing the spacious desk, Goodman walks over to Carter. It seems like he wants to grab Carter by the collar and question him.

"Stay calm! Uncle Goodman, think broader. What are we? We're a bank. We have money, which is our greatest asset. There's no need to worry about not making money."

Carter understands Goodman's fear, which ultimately stems from their meager resources. Also, the banking sector is very traditional at this time. Besides the monthly fees from depositors, lending is the primary way banks make money. And there aren't many potential borrowers near Blake Bank. Therefore, it's unlikely they'll make money from loans.

Forget about investment returns; Blake Bank doesn't have the capability to get involved in investment banking activities at this point. And foreign exchange, settlement services, forget about it. They're just clients of intermediary banks like Blake Bank.

So, Carter's first thought for making money is also loans. Exploiting the information asymmetry to borrow a large sum at low interest rates. When the Federal Reserve raises the federal funds rate later, reducing the money supply in circulation, then it will be purely a seller's market for him.

With only their bank having money, anyone wanting a loan would have to come to them! Even at a 20% interest rate, they'd have to accept it! Or they could even lend at rates higher than those stipulated by the Federal Reserve. After all, the federal funds rate set by the Federal Reserve usually only affects the financial industry.

In simple terms, the federal funds rate is the interest banks pay when borrowing money from the Federal Reserve. Ordinary individuals usually don't have the qualifications to borrow from the Federal Reserve. So, what would the interest rates be for loans given by banks?

Carter doesn't know this, but he can make a bold guess. If banks have to pay over 20% interest on money they've borrowed, then what about the loans they give out?

Charging less than 30% interest is courteous, isn't it?!

Don't forget, the benchmark for determining usury in China was an annual interest rate of 36%. If the interest rate exceeded 36%, the government guaranteed you didn't have to repay! But there's also another crucial threshold, a 24% annual interest rate.

Once it exceeds 24%, it's already considered very high! When Carter was pursuing the law school girl, he happened to read "Provisions on Several Issues concerning the Application of Laws in the Trial of Civil Lending Cases." He found something interesting.

In Article 26 of the regulations, it clearly states that if the loan's annual interest rate doesn't exceed 24%, the court should support the lender in demanding interest and principal repayment from the borrower. If it exceeds 36%, the court will support the borrower in demanding repayment of the portion of the interest exceeding 36%, and it specifically states that the portion exceeding 36% is deemed invalid!

So, usury actually has two thresholds. The first is 24%, which serves as a warning line. If it's above 24%, it's already usurious, but not particularly egregious, so negotiations on repayment terms can still be made. The second is 36%, which is the high-pressure line. Once crossed, there's no room for negotiation. So, looking back at the interest rates in the US a few years later, almost every loan during that period was practically usurious!

Moreover, it's legal usury! After all, if the Federal Reserve leads the way in raising interest rates, why can't others follow suit below?

You see, the Federal Reserve isn't without limitations. Especially for important indicators affecting the national economy like the federal funds rate, according to regulations, the federal funds rate is only allowed to fluctuate between 8% and 14%.

In the future, when the Federal Reserve raises it to over 20%, can other banks not raise their interest rates as well? This is America! Even the almighty IRS can't resist the power of capital. If only the Federal Reserve is allowed to raise rates, but others aren't allowed to increase interest rates

Then the president is definitely tired of living and wants to go to the other guy's house.

Lending money to fellow banks at a slightly higher rate and lending to individuals, small businesses, and enterprises at a higher rate!

No matter how you think about it, Carter feels like he can't lose. But he can't explain this kind of foresight about the future. After all, these pieces of information are from the economic history classes he attended in the past life. As for other aspects during this period, Carter really doesn't understand.

Trying to come up with a seemingly reasonable reasoning excuse seems weak. But fortunately, Blake Bank is just a small rural bank, with limited exposure.

"I'm the boss now! I've made the decision. Go ahead and do it. No matter the final outcome, I'll take full responsibility!"