White House To Banks: Start Lending Now

Bush Administration Urges Banks To Start Using The Billions In Federal Aid To Make More Loans

(CBS/AP)  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.

The stock market's amazing climb, with its second-largest point gain ever, was a welcome burst of good news for a nation suffering big job losses and seemingly tumbling into a painful recession.

The markets shrugged off more bad housing numbers which revealed the average price of a home has fallen nearly 18 percent over the past year, reports CBS News business correspondent Anthony Mason.

Consumer pessimism reached record levels in October amid rising unemployment and shrinking retirement and investment accounts. The Conference Board, a private research group, said consumer confidence fell to its lowest point since it began tracking consumer sentiment in 1967.

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.

Meanwhile, Treasury Department officials met with banking industry representatives to resolve a glitch in the rescue program that has temporarily prevented some 6,000 of the nation's 8,500 banks from applying for government support.

Treasury is buying preferred shares in banks as a way of injecting cash into the institutions. But about 6,000 of the nation's banks don't have publicly traded shares of stock and therefore are not set up in a way to meet Treasury's current qualifications.

Treasury officials at the meeting assured banking industry representatives that they are working to rework the application forms so that both banks with publicly traded stock and privately held institutions can qualify for the program. They said if the Nov. 14 deadline for applying for government support needs to be extended it will be.

Washington has pumped money and confidence-building measures into the system over recent weeks to get lending, the lifeblood of the credit-dependent American economy, flowing freely again and to combat the worst financial crisis since the 1930s. So far, though, it has not worked. While the crucial and much-watched short-term lending rate called the London Interbank Offered Rate, or Libor, has come down, it remains at elevated levels.

On Wednesday, the Federal Reserve is expected to announce a cut in its fed funds rate - and Wall Street is looking for a drop in the key interest rate by half a point to 1 percent.

At the center of the administration's efforts to thaw credit is the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month. Under that law's authority, the administration is doling out $250 billion to banks in return for partial ownership.

The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks, which account for 50 percent of all U.S. deposits. Anthony Ryan, Treasury's acting undersecretary for domestic finance, said the first payments went out Tuesday. An additional $125 billion will start flowing to other banks within days, he said.

"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."

Rep. Henry Waxman, D-Calif., chairman of the House Oversight Committee, asked the banks getting the $125 billion to detail what they are paying their executives and employees, including bonuses.

"I question the appropriateness of depleting the capital that taxpayers just injected into the bank through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Waxman said.

The infusion of federal money is to rebuild banks' battered capital reserves so the institutions would feel comfortable resuming more normal lending practices. But that confidence was undercut somewhat when reports surfaced that bankers might use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock on Friday and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion.

There is little federal officials can do about it. There is no language in the bailout bill that specifically obligates banks receiving money to increase their loans. Officials had argued that attaching strings to the capital-infusion program would discourage financial institutions from participating.

"The way that banks make money is by lending money," Perino said. "And so they have every incentive to move forward and start using this money."

Other credit-loosening efforts have included:

A Federal Reserve program, begun Monday, to purchase the short-term debt of businesses, known as commercial paper.

Temporary guarantees by the Federal Deposit Insurance Corp. of new issues of bank debt - fully protecting the money, for a fee, even if the institution fails.

Emergency loans from the Fed for financial institutions and even other types of companies. The Fed has been repeatedly tapping this Depression-era authority to be a lender of last resort.

New temporary federal guarantees to assets held in money market mutual funds as of Sept. 19 but not since then.

A temporary increase in the cap on deposit insurance from $100,000 to $250,000 on interest-bearing accounts, and unlimited deposit insurance for non-interest bearing accounts, which small businesses often use to cover payrolls and other expenses and which frequently exceed $250,000.

The Fed's half-point reduction in its target interest rate on Oct. 8, done in conjunction with rate cuts by other central banks around the world.

Meanwhile, layoffs continue. Whirlpool Corp. said Tuesday it will cut 5,000 jobs. That's on top of other recent layoffs of thousands of workers by Xerox Corp., drugmaker Merck & Co. Inc. and financial services firm National City Corp.

[krisd999-2009]

Does Bush want the banks to make more bad loans against depreciating collateral to insolvent borrowers? Even scammers can''t make money in this downward market. Good luck!

Manufacturing businesses produce goods and services (in the US) that consumers need. Businesses employ (US) citizens and pay wages and salaries to the latter. Employees become consumers and buy those (US) goods and the cycle goes on. Between the businesses and consumers, the banks are currently acting as sponges absorbing and holding all the money that the Federal government is injecting into the system. With low interest rates and Federal Aid, it costs the banks very little to hang on to the money for a long time.

[credibility2]

The money was given to banks with the intent that they would use it to lend. If they''re not going to use it, then they shouldn''t be allowed to have access to it. Hoarding isn''t going to help the economy.

[msay3]

GOLDMAN SMACKS....LOL Was that intentional?

[msay3]

Posted by menmotoscutr at 11:57 AM : Oct 29, 2008
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Loved your post !

Boy am I glad we didn''t get a socialist system on October 14, 2008. If we had, the President of the US could tell the banks when to lend. But if we just don''t elect Obama, all that terrible socialistic, communistic, spread the wealth stuff will just not happen, not under a McCain/Palin sequel to Bush II. No sirree, plumb bob not, you betcha! Not by the hair of a rotorooted John Sydney McCain II or a perfectly plumbed Wasilly Sarah WinkyWinky, you betcha!

[lochlan-2009]

"Bush Administration Urges Banks To Start Using The Billions In Federal Aid To Make More Loans"

First of all this is just smoke up your tail pipe from the White House. Second, I would belive the banks are going to respond with, extend hand, now extend middle finger.

[whitemale08]

BANKS WON''T LEND MONEY BECAUSE THEY ARE BROKE!!!!

THAT''S WHAT A BAILOUT DOES YOU IDIOTS!!!!!!

THE ENTIRE FEDERAL RESERVE SYSTEM MUST GO INTO CONSERVETORSHIP NOW!!!!! AND PROTECT THE REGIONAL AND SMALL CHARTERED BANKS!!!!

LET THE INVESTMENT BANKS LIKE GOLDMAN SMACKS AND JP MORGAN GO UNDER WITH THEIR DERIVATIVES NOW!!!!!!

[jntlw-2009]

If banks do not want to comply and the WH does nothing, we can take things into our own hands, but it will get bloody! We, the taxpayer, will not be screwed by these thieves, mark my words. There are alot more of us than their are of them!

[jntlw-2009]

Perhaps a gun to their heads may prompt them to do as they are told with the money we gave them! We are glad to oblidge or we can just take it back. Disgusting self-serving piece of dung that they are.