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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Tuesday, July 15, 2008

Diageo Applauds New Law in California That Increases Penalties on Alcohol-Related Reckless Drivers

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SACRAMENTO, Calif., July 15, 2008 /PRNewswire via COMTEX/ ----Diageo, the world's leading spirits, wine and beer company applauds California's Legislature and Governor Schwarzenegger for adopting Assembly Bill No. 2802, increasing the penalties for motorists convicted of alcohol-related reckless driving. Originally introduced by Assembly Member Guy Houston (R-San Ramon) in February 2008, among its many provisions, the new law requires that any person convicted of alcohol-related reckless driving participate in court ordered counseling and education programs for at least nine months if they have been convicted of a similar offense within the past ten years.

"Diageo applauds California for taking this important step in promoting responsible drinking practices and enforcing harsher penalties on those who drive while intoxicated," said Amy Elliott, Senior Director, State Government Relations, Diageo North America. "Diageo has zero tolerance for drunk driving, and we believe legislation that mandates education is critical to combating alcohol misuse," said Elliott.

AB 2802, which amends Section 11836 of the Health and Safety Code and Section 23103.5 of the Vehicle Code, will also require the Department of Motor Vehicles to include in the annual report to California's Legislature an evaluation of the effectiveness of the program.

Diageo supports treatment and aftercare for repeat offenders through The Century Council, a not-for-profit educational organization funded by some of the nation's leading distillers dedicated to fighting drunk driving and underage drinking.

About Diageo

Diageo (Dee-AH-Gee-O) is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wines, and beer categories. These brands include Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo, Tanqueray, Captain Morgan, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines.

Diageo is a global company, trading in more than 180 countries around the world. The company is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information about Diageo, its people, brands, and performance, visit us at http://www.diageo.com.

Celebrating life, every day, everywhere, responsibly.

SOURCE Diageo

http://www.diageo.com

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