Credit Markets: One Day Doesn't Make a Trend

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http://www.cnbc.com/id/27293172

The banks aren’t lending. And despite what you have heard, they probably won’t start just yet.

The stock market may be way up on expectations of a credit thaw on Wall Street — and there has already been a minor one — but don’t hold your breath on Main Street. The dirty little secret of the government’s $250 billion handout to nine banks to get them lending again is this: So far, they have stuffed it under their mattress like the rest of us.

Need a mortgage? An auto loan? If you are a business or consumer, it’s almost as hard to get a

loan this week as it was last.

Sure, there are some positive signs that the credit market is opening up a bit: Libor rates, the price at which banks lend to each other, have crept down in recent days, greasing the wheels of capitalism, or at least what’s left of it. Some banks, like JPMorgan Chase and Citigroup, actually made loans to banks in Europe on Friday. These are all important steps on the way to a recovery.

But make no mistake, the banks are doing the opposite of what Henry M. Paulson Jr., the Treasury secretary, sought when he virtually demanded that they accept the taxpayers’ money: They are hoarding it. It’s a bit like the government’s sending out tax rebate checks and the consumers’ not immediately running out and spending them.

“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital,” Mr. Paulson said in a statement Monday. “And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people.”

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Ding!