The big news last week on the rate front was the general lack of inflation in the economy. The Labor Department's CPI numbers rose .4% in August versus July but from a year earlier decreased 1.5%. At this rate, the Fed is under no pressure to raise rates. Speaking at a seminar in Helsinki today, Nobel award winning economist Paul Krugman said that the US has $1.1 trillion in idle capacity. It's hard to see large price increases in the short-term in the face of such a capacity glut. At the same time Krugman did say that "The consequences of that [a downturn that drags on] are that you start to have problems with financing the debt and you start to have social and political problems."

So could we be faced with rising interest rates even as inflation remains low?

As the charts show, there is no significant change to report with savings rates and CD rates. The average savings rate and 1-year CD rate according to the BestCashCow rate tables stayed the same from the prior week. The average 3-year CD rate dropped by 2 basis points to 2.66% while the average 5-year CD rate rose 4 basis points to 3.37%.

Like the economy, rates seem to have pretty much hit bottom. The question now is when they will go back up. It may be some time.

There's no significant change to report in the spread between savings rates and 36-month CDs. The spread ticked down a bit but nothing that isn't within the normal range of the past few months. Notice that the spread between savings and 3-year CDs that we saw widen in the Spring is still there, a hopeful sign that the economy is poised for expansion. One wonders who will blink first: will longer term CD yields come down in the absence of any sign of inflation, or will short term savings and CD accounts rise as the economy strengthens?

Based on this data, it would seem that any rate increases won't come until sometime in 2010. Nevertheless I would stay short-term and wait. An improving economy and a glut of Treasury debt will eventually put some pressure on rates.

The spread between the average BestCashCow savings rates and 36-month CD rates remains steady as the economy stabilizes and investors, banks, and consumers wait to get the next read on where the economy is going.

Judge Jed Rakoff, a Federal District Judge in lower Manhattan today rejected the $33 million settlement between Bank of America and the SEC over $4 billion in bonuses paid to Merrill employees days before the Bank of America/Merrill merger closed.

In rejecting the settlment, Judge Rakoff stated that it "does not comport with the most elementary notions of justice and morality." In perhaps the most coherent summary of the chananigans that seem to happen on Wall Street, the judge stated:

"In other word, the parties were proposing that the management of Bank of America - having already hidden from the Bank's shareholders that as much as $5.8 billion of their money would be given as bonuses to the executives of Merrill Lynch who had run that company nearly into bankruptcy - would now settle the consequences of their lying by paying the S.E.C. $33 million more of their shareholders' money.

I recommend that anyone who owns shares in a public company read the document. Unlike many legal decisions, this one is crystal clear and easy to digest. It shows just how murky corporate governance has become.

Here's another gem from Judge Rakoff's decision:

"Overall, indeed. the parties' submissions, when carefully read, leave the distinct impression that the proposed Consent Judgement was a contrivance designed to provide the S.E.C. with the facade of enforcement and the management of the Bank with a quick resolution of an embarassing inquiry - all at the expense of the sole alleged victims, the shareholders."

The decision then asks why the S.E.C. didn't persue penalities agains the actual actors in the potential crime - Bank management or the lawyers who helped put together the proxy.

It also ruled that the fine "if looked at from the standpoint of the violation, is also inadequate, in that $33 million is a trivial penalty for a false statement that materially impacted a multi-billion-dollar-merger."

I applaud Judge Rakoff. If Bank of America management are guilty, then they should be personally penalized. If the facts exonerate them, then that's okay also. But to have the kind of decision proposed by the S.E.C. not only buries the truth, but it hurts shareholders, and encourages management to plunder shareholder wealth.

While Congress and the Executive Branch largely give Wall Street a pass, judges have been taking a much harder stand and not simply rubber-stamping decisions that benefit the potential perpetrators.

Still, it's clear any investor who relies on the S.E.C. to enforce fairness in the financial markets is deluding him or herself.

The full settlement can be read here:

Judge's Rejection of S.E.C.-Bank of America Settlement