Lend Already

So the Treasury Department provided capital to top US banks with the understanding that they would unfreeze the credit markets by resuming lending. Only they haven't resumed lending. They have been hoarding the money in the hopes of buying up smaller banks and making nice little conglomerates for themselves. This is despite the fact that, um, PRETTY MUCH ALL A BANK IS SUPPOSED TO DO is lend money. But not these guys. They want the cash without the risk.

When the current President recognizes this, you know the greed has reached beyond the point of return.

An impatient White House prodded banks and other financial companies Tuesday to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans. Wall Street soared nearly 900 points on bargain-hunting and hopes of a hefty interest rate cut by the Federal Reserve [...]

Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.

"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," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided it was time to use its bully pulpit.

"They (regulators) will be watching very closely, and they're working with the banks," Perino said.

Of course, they could use more than the bully pulpit. They could have gotten voting shares on the bank boards in the first place and mandated lending. And today, they could say that the FDIC will take over any bank that refuses to lend. There are options beyond asking really sternly.

From the liberal side, Rep. Jerrold Nadler is asking Treasury to do the same thing:

I am concerned about the implementation of the Emergency Economic Stabilization Act of 2008; specifically, your refusal thus far to require banks to actually lend the money that has been given to them by the federal government.

Although I am gratified that the Treasury Department is using the authority in the Act to funnel capital into the banking system, in return for partial ownership, it is mystifying that the Department is apparently doing nothing to ensure that the banks begin to ease the credit crisis by actually lending out the money.

Unfortunately, despite the Treasury's pleas, it appears that, in fact, the banks are hoarding the cash and not releasing the funds into the economy through new loans. There are even reports that they may use the money for bank mergers and acquisitions rather than for loans.

The British government has mandated lending by banks it is capitalizing. The United States should do the same. In order to get this economy moving again, it is essential that you mandate lending requirements in return for the capital the government is providing to the banks. Banks must now begin to make loans to cover the payrolls of businesses large and small, to allow stores to purchase inventory for the upcoming season, and to help Americans buy the cars and homes that fuel our economy.

Without the banking system lending money to Americans to make this economy grow, we will most certainly fall into a deep depression. We can no longer wait and hope for the banks to do the right thing; we must mandate that they lend the money now.

Please let me know what steps the Treasury is now taking to ensure that the banks actually lend the money they are being given by the government.

This needs to happen today and public pressure isn't going to do it. There need to be policy consequences.