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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.
Home / Personal Finance / Lifestyle & Money / Consumer & Debt
Tuesday, September 06, 2005
Toyota Dominates Quality Rankings
Smart Money
The Japanese giant was the clear winner in the latest J.D. Power survey. Here are the full results.
If you want to know what it's like to own a vehicle, ask someone with one parked in his driveway.
That's just what J.D. Power and Associates did. On Tuesday, the Westlake Village, Calif., company released its annual Initial Quality Study, in which it surveyed more than 62,000 vehicle owners to see which cars and trucks had the fewest problems during the first 90 days of ownership.
The results? If you're looking for a problem-free ride, you can't go wrong with a Toyota (TM). The Japanese auto maker earned top honors in 10 of the 18 model segments. Its Lexus SC 430 came in as the highest-ranking model overall for the second year in a row, with just 54 problems per 100 vehicles. Other Toyotas earning segment awards include the Toyota Prius (compact car), Scion tC (sporty car) and Toyota RAV4 (entry SUV).
American auto makers also made a strong showing. General Motors (GM) came in second with five top medal awards, including those for the Chevrolet Malibu/Mailbu Maxx (entry midsize car), Buick Century (premium midsize car) and Chevrolet Suburban (full-sized SUV). Ford (F) captured two model awards for the Ford Explorer Sport Trac (midsize pickup) and the popular Ford F-150 LD (full-size pickup).
The survey also showed a number of vehicles that made big improvements in quality. GM's Hummer, for example, reduced its number of problems per 100 vehicles by some 36%. Since its debut in the 2003 survey, Hummer has reduced its owner reported complaints by 115 problems per 100 vehicles, from 225 problems per 100 vehicles to 110 problems per 100 vehicles.
"Hummer
looked and saw where the problems were and they fixed them," says John Tews, a spokesman for J.D. Power and Associates.
| Top Three Models Per Segment | |
| Cars | Trucks |
| Compact Car 1. Toyota Prius 2. Kia Spectra 3. (Tie) Honda Civic and Toyota Corolla Entry Midsize Car 1. Chevrolet Malibu/Malibu Maxx 2. Hyundai Sonata 3. Volkswagen Jetta Premium Midsize Car 1. Buick Century 2. Chevrolet Impala 2. Pontiac Grand Prix Full Size Car 1. Buick LeSabre 2. Mercury Grand Marquis 3. Ford Five Hundred Entry Luxury Car 1. Lexus IS 300/IS 300 SportCross 2. Jaguar X-Type 3. Cadillac CTS Mid Luxury Car 1. Lexus GS 300/GS 430 2. BMW 5 Series Sedan 3. Cadillac DeVille Premium Luxury Car 1. Lexus SC 430 2. Lexus LS 430 3. Mercedes-Benz SL-Class Sporty Car 1. Scion tC 2. Acura RSX 3. Ford Mustang Premium Sports Car 1. Nissan 350Z 2. Honda S2000 3. Porsche 911 | Midsize Pickup 1. Ford Explorer Sport Trac 2. Ford Ranger 3. Subaru Raja Light-Duty Full-Size Pickup 1. Ford F-150 LD 2. Cadillac Escalade EXT 3. Toyota Tundra Heavy-Duty Full-Size Pickup 1. GMC Sierra HD 2. Chevrolet Silverado HD 3. Dodge Ram Pickup HD Entry SUV 1. Toyota RAV4 2. Mitsubishi Outlander 3. Hyundai Tucson Midsize SUV 1. Toyota 4Runner 2. Mitsubishi Endeavor 3. (Tie) Honda Pilot and Nissan Murano Full-Size SUV 1. Chevrolet Suburban 2. Chevrolet Tahoe 3. Toyota Sequoia Entry Luxury SUV 1. Lexus RX 330 2. BMW X3 3. Infiniti FX-Series Premium Luxury SUV 1. Lexus GX 470 2. Lexus LX 470 3. Lincoln Navigator Midsize Van 1. Toyota Sienna 2. Chrysler Town & Country 3. Dodge Caravan/Grand Caravan |
| Source: J.D. Power and Associates |
Nissan (NSANY)
also made some marked improvements. Its Nissan Quest was the second-most-improved model, recording an impressive 104-per-100-vehicles
improvement, from 243 problems per 100 vehicles to 139 problems per 100 vehicles. Other models showing notably high quality
include Kia Spectra (64-per-100-vehicles improvement), the Hummer H2 (63-per-100-vehicles improvement) and the Scion xA (62-per-100-vehicles
improvement).
Compared with 2004, manufacturers demonstrated improvement in half of the 135 problem symptoms included in the study. Among the nine problem categories surveyed, ride/handling/braking and exterior problems continue to cause the greatest challenge to manufacturers, according to the study. Transmissions cause the fewest.
Overall, the automotive industry improved slightly only over last year, says J.D. Power and Associates' Tews. After showing an 11% quality improvement from 2003 to 2004, the industry average for 2005 has improved only one per 100 vehicles for an industry average of 118 per 100 vehicles.
Not planning on shopping for a new car until the 2006 models come in? This survey could still come in handy. Quality tends to remain consistent among vehicles from one model year to the next, unless there is a major redesign or overhaul, says Tews.
| Problems per 100 Vehicles by Brand |
| Source: J.D. Power and Associates' "2005 Nameplate Initial Quality Survey" |
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