The Federal Reserve has been keeping short-term rates artificially low. Banks and hedge funds can borrow from the Fed at 25 basis points and use this money to buy treasuries yielding 3.5% to 4%. This is called a carry trade.

Banks and hedge funds can leverage their assets by 10 to 30 times. Remember that banks consider loans to be assets and deposits are liabilities. This means that if a bank or hedge fund has a loan for $1 million (let’s pick a round number for this example) they can go to the Federal Reserve and borrow up to $30 million (30 times) against that loan. They can then buy treasuries and earn an easy 3.5%, or $1,050,000. At 10 times leverage, they can borrow $10 million and earn $350,000.

The pre-Revolutionary United States enjoyed a prosperous and growing economy. Benjamin Franklin captured the economic essence of his time with succinct and memorable lines: “a penny saved is a penny earned,” and “he who goes a-borrowing goes a-sorrowing.” Franklin provided more in-depth analysis in his autobiography: “In the Colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one." – Benjamin Franklin.

The over/unders are 6. The odds are determined purely at random; oddsmakers have given up trying to base the odds on what is appropriate, reasonable, righteous, logical, or …dare we say, normal. There was some speculation that Puerto Rican banks might be closed down today but that didn’t happen (see explanation below). The unders win.

Let’s take a look at the economic scenario heading into Friday Night Frights.

Usury became a problem in ancient Greece shortly after the introduction of coins. Before the widespread use of coins a farmer would borrow various commodities to plant his crops and he would repay the loan with the harvest. When coins were introduced the farmer had to borrow money to buy supplies; the commodities were in high demand and priced high at planting season; at harvest time the commodities were plentiful and priced low. The farmers could not pay back the loans; they lost their farms and land ownership became concentrated in the hands of the elite, or oligarchs. The farmers were subjected to slavery.