Remember that “zero” is an identity element.
Mathematical terms are not typically thought of in philosophical terms, but (oops!) despite efforts by Positivists to eliminate metaphysics from determining what objective reality is, there needs to be a comparison. An identity element then exists to effectively describe the inexistence.
When the risk-free rate gets close to zero, we realize that the rate of return is really not risk free. It’s a free market, after all, existing at the fundament of all the devices created to reduce risk that cannot actually be reduced. The risk of loss is fully assumed in priority and the liability is really not limited.
(For example. I went to deposit funds in a savings account. When I complained about the nearly zero rate of return, the banker told me, “But it is risk free!”
The banker suddenly became aware of trying to push a bogus economic argument on someone who has a Master’s degree in political economy.
“No it’s not!” I declared. “With all the fees and stuff, I’m effectively paying you to hold my money. So, instead of me making a deposit, you’re making a withdrawal!”
Huh. How did that happen?)
Funds deposited in Fed-member banks are FDIC insured. (Insured by the Treasury, which is a commonly owned source of funds, but privately enterprised–and thus not commonly divisible–by the Fed). Premiums paid to insurance companies are not FDIC insured (but “reinsured” in OTC derivatives markets), and this presents a really BIG TBTF problem because the risk-free rate on the dollar is near zero.
Insurance is victim of its own devices, which Glass-Steagall served to prevent, utilizing proper regulatory authority, effectively operating for their own good, yielding to a naturally occurring pattern of resistance that, like Kant said, expresses the natural identity of a moral existence.
Naturally, as the riskless rate gets near zero we measure the value of its inexistence, much like the way Newton described motion as the measurable value of inertia–an actual value that does not really exist until it measurably doesn’t, which then has an unreasonable metaphysical effect, like the approximate value of an irrational number, effectively utilized on demand.