top of page
  • Writer's pictureJeff Matthews

Ben Bernanke and “The Costanza Effect”

“This is found money. I want to parlay it. I wanna make a big score!”

—George Costanza, of Seinfeld, on interest income

We were having a back-and-forth via Twitter this morning with a friend of this blog, a very smart reporter who had taken issue with our non-economist-trained view that Ben Bernanke was not saving the U.S. economy by suppressing interest rates at near-zero levels: he was, rather, pushing the U.S. into a depression by killing the interest-rate spread on which the very banks that circulate the life-blood of the system live.

Interest rates, we argued, were not, as Bernanke has believed, too high for the good of the country, they were too low.

Logically, our friend responded that if credit were really as underpriced as we claimed, “Savers would surely use underpriced credit to snap up inflating assets and goods. They’re not.”

And he is right.

However, the reason savers are not jumping out of no-longer-interest-earnings savings accounts and into risky asset pools is not that rates have been too high. We think it is a function of the fact that, at a certain point, low interest rates become counter-productive: they make savers more cautious, not less. Interest rates are, we think, too low.

After all, if you’re not earning anything on the money you have in the bank, your instinct is not to take it down to the track and go bet the whole bundle on Greased Lightening, as Tony Curtis’ character did in “Some Like It Hot.”

No, you’re going to sit tight.

Now, this behavior probably has some fancy economist-type label, but we will hereby declare it to be a reverse-manifestation of “The Costanza Effect,” after George Costanza of Seinfeld fame.

In one episode, George, upon receiving notice of an old passbook savings account with accumulated interest, chooses not to keep the money in the bank, but to gamble it away.

George: “The State Controller’s Office tracks me down. The interest has accumulated to 1,900 dollars. 1,900 dollars! They’re sending me a check!”…

Jerry: “Why don’t you put it in the bank?”

George: “The bank? This is found money. I want to parlay it. I wanna make a big score.”

Jerry: “Oh, you mean you wanna lose it…”

We think “The Costanza Effect” illustrates that people are more willing to risk found money than earned money, and thereby explains precisely the Bernanke dilemma, whereby interest rates have dropped to zero and yet savers have reacted with exactly opposite the intended result.

Far from, as our friend wrote, “use underpriced credit to snap up inflating assets and goods”; they have chosen to sit on what they have.

Kramer for Fed Chairman, anyone?

Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing, 2011) Available now at

© 2011 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

NOTE ON COMMENTS: We abide by one rule on the comment pages here, and that is NO “Yahoo Message Board-Type Language.” So whatever you write and whether or not you agree or disagree with something, spell it correctly and keep it clean, and no personal stuff. And if you think we won’t enforce that, well, we have over 300 comments that never appeared because they were sloppy, obscene, or personal. —The Management

6 views0 comments

Recent Posts

See All

Beware Elites Interpreting History

It has the slam-bang certitude of an indignant Tweet: “In an excerpt from his new book, Lincoln and the Fight for Peace, CNN’s senior political analyst and anchor [John Avlon] shows how racist elites

Donald Immelt?

“It became clear right away that my main role would be Person to Blame,” Mr. Immelt writes in his new book “Hot Seat: What I Learned Leading a Great American Company,” which will be published Feb. 23.



Stay up to date with an insider's look into The World of Wall Street.

Great! You're all signed up.

bottom of page