Stop Hoarding and Start Lending

With a rate cut to be announced today at 2:15 pm EST essentially a forgone conclusion, the only question remaining is how deep will Bernanke go? Already sitting at 1.5%, the Fed is rapidly running out of room for future actions and some are betting for a full one percent reduction to “shock” the entire system into action. This could be an “all or nothing” play.

The White House also fired a shot across the bow yesterday with White House press secretary Dana Perino telling the banks in no uncertain terms to stop hoarding the money provided through the taxpayer-funded rescue plan and to start lending. I’m paraphrasing a bit here, but I believe I have accurately captured the essence of Perino’s message.

The actual quote is more along the lines of “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money.”

OK, Perino may have been a tad more diplomatic in her press release, but there is no question that she is, ah, vigorously, making her point. She does note that the banking system is federally-regulated adding, “They (the feds) will be watching very closely, and they’re working with the banks.”

Gee, that almost sounds like a threat now that I look at it again.

While it remains unclear as to exactly what regulators could do to ensure banks ratchet up the lending, it is safe to say that Bush and Paulson did not cajole and beg Congress to approve the rescue plan just so banks could stuff the mattress with a little extra “rainy day” money. Nor did they intend to make it easier for the stronger banks to do a little bargain hunting with the country’s credit card while taking out some of the competition at the same time.