We like to think that when we deposit a dollar at the bank, it goes into a big vault and we can pull out that same dollar at any time. But that¿s not how the U.S. banking system works. Banks take that money and invest it to make money themselves, so cash gets spread around. This, naturally, leads to a big risk: What happens if those investments go sour? Well, you¿d be out of luck. You can¿t get your dollar back.

The Federal Reserve doesn¿t like that scenario, so it prohibits banks from putting all the cash it has on deposit on the line. In fact, the Fed forces banks to keep a portion of their assets at the Federal Reserve itself, to make sure that some of your assets won¿t get squandered if the bank¿s bets go south. These are called ¿reserves,¿ (hence, Federal Reserve. Got it? Good), and usually amount to 10% of the total cash kept in checking accounts.

These reserves are never exactly 10%, and banks like to keep a little extra in reserve ¿ not, as you might think, to make you more comfortable that they¿re in good financial shape, but rather so they can take that excess and lend it to other banks and make money off it. (They¿re banks, they can¿t help themselves.) The rate at which they make these loans is called the Federal Funds rate, which is set by the Federal Reserve¿s Federal Open Market Committee.

When you hear people chattering about how the Fed cut or hiked interest rates, this is what they¿re talking about: the interest rate banks can charge for lending money from their reserves. This begs the question: If these are essentially loans between banks, why is the Fed Funds rate so important for the rest of the economy?

Well, simply put, because loans make the financial world go round. Bank A lends Bank B $10,000 at a Fed Funds rate of 5%. Bank B then lends out $10,000 to a small business at 7%. The small business then takes that money and expands the business and hires new workers. Now someone is employed, Bank B has made interest off the loan, and Bank A is the richer for making it all happen. It¿s perhaps overly simplistic, but you get the idea. When you want the economy to thrive, you make lending cheaper.

Of course, sometimes you don¿t want the economy to thrive. In fact, you might want it to cool down, mostly to avoid money flooding the system and causing inflation. In that case, the Fed raises interest rates, making it difficult to lend or borrow.

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Friday, July 11, 2008

Computers That Bling and Break the Bank

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Donna Fuscaldo

FOXBusiness

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Ever wonder what a celebrity’s laptop or cell phone looks like? Well, if you’re thinking a run-of-the-mill Dell (DELL) laptop or even a pricey Apple (AAPL) iPhone, think again. From diamonds to gold-plated to custom paint jobs, the sky is the limit if you have the cash.

If you’ve got a couple grand burning a hole in your pocket we’ve got some over-the-top gadgets to spend it on. Check back every day as we bring you some of the most extravagant gadgets on the market.

Computers That Bling

Sure, getting the best components in your computer and laptop could cost you thousands of dollars, but that’s not all money can buy. Ever since Apple’s iPod came on the scene consumer electronics have become a fashion staple. And what makes more of a fashion statement than a laptop covered in diamonds?

Ego Lifestyles, a Dutch company that makes high-end consumer electronics, wowed gadget lovers a couple of years ago with the launch of its diamond-encrusted Tulip Ego laptop that reportedly sold for $350,000. The company sells a slew of extremely high-end laptops that can be customized to meet any customer’s whim. The diamond editions have 18 carat white gold ornaments set with 6.9 carat diamonds, while its custom designed laptop skins come in Italian leather, shark, Eel and Ray. The skins can include artwork designed by Ego’s in-house designer or a design set by hand with hundreds of Swarovski crystals.

But not everyone wants their laptop covered in diamonds. In that case it may be time to turn to Falcon Northwest, the Medford, Ore., computer maker that counts celebrities and two royal families as customers. Falcon Northwest has an artist on staff that will give your laptop or desktop a custom paint job--think car quality but on a PC. While the average build-to-order Falcon Northwest computer or laptop costs around $5,000, the company has designed a lot of $15,000 plus jobs. And one Falcon Northwest custom computer was done in color shifting paint that cost $1,200 per pint.

While style does matter, at the end of the day for many it’s all about performance. And that’s where Alienware of Miami comes in. Alienware, a unit of Dell, makes high-end computers targeted toward gamers and other power users that require state-of-the-art graphics and processing power. While Alienware is also focused on the look of the PC, the company has built its name on the technology inside the PCs. Take the Area-51 ALX desktop computer, which starts at $4599 but can be configured to cost in excess of $10,000, depending on customization. Alienware has its own in-house research and development staff, which developed a liquid cooling system that enables Alienware to take the microprocessor clock speed to a higher level. Alienware was the first to include an Nvidia (NVDA) and ATI graphic processor on one mother board.

Voodoo, the gaming PC competitor to Alienware owned by Hewlett-Packard (HPQ) is also all about quality but won’t think twice about doing some personalization. The company once made a gold-plated PC and flight simulator for a customer in the Middle East. The PC alone cost $50,000. Rahul Sood, CTO of H-P’s Voodoo unit said a lot of the pricey personalization requests having been coming from the Middle East in places like Dubai.

Cell- Phones That Glitter & Shine

Now that your PC is covered you’ll need a cell phone with the same stature. Not a problem since making super pricey handsets seems to be all the rage.

If you have the big bucks -- the really big bucks -- you can get a cell phone covered in diamonds. Take Swiss luxury cell phone maker GoldVish, which sells the “le million” PIECE Unique handset that has a price tag of more than $1 million. The phone is made of white gold and is covered in 120 carats of diamonds. Oh yeah, it make phones calls too.

It even made it into the Guinness Book of World Records as the most expensive and exclusive handset back in 2006. GoldVish also makes other cell phones that come with at least 150 grams of solid 18K golden casing.

But GoldVish hasn’t cornered the market for ultra-pricey cell phones. Australian designer Peter Aloisson sells his $1.3 million Ancort Diamond Crypto Smartphone. The phone, made out of solid platinum, has an 18 carat rose gold logo and navigation key. The lines on each side of the phone boasts 25.5 carat princess cut diamonds with a total weight of around 25 carats.

For those with more modest budgets there is the Nokia 8800 Arte Pink phone for EUR 85,000 of $135,00 which has more than 680 pink and white brilliant cut diamonds or the EUR 120,000 or $190,735 diamond encrusted iPhone.