Banks Beg Bernanke for Billions
The Wall Street Journal reported Thursday that commercial banks have increased their begging at the Federal Reserve Bank’s “Discount Window”:
“Average daily borrowings were $10.73 billion, the highest since after the Sept. 11, 2001, terrorist attacks.”
Why did this happen? Because the banks that blew all their depositor’s cash in real-estate speculation can’t get loans from other, more sensible banks to refill their vaults. Actually, they probably could get inter-bank loans, but they would have to pay the Libor rate that bankers use amongst themselves.
Since the Libor rate is now 3.07%, which is 36.4% higher than what the Fed is charging, you now have a stampede to the Fed.
The Fed did not want this. Their plan was to lower interest rates and let the strong banks lend to the stupid banks. But the strong banks aren’t playing ball; they would rather stuff their cash into a mattress than loan it out to fools.
As “Higher Interest Rate Euphoria” breaks out in the financial world, let’s not get confused about what is really happening here. By hinting at a possible end to rate cuts, the Fed is trying to make a virtue of necessity. The market has over-ruled the Fed’s rate cuts, and now the Fed is pretending that that was their idea all along. Any way you slice it, credit is contracting and the economy will continue to suffer for it.
