Pushing on a String?

WHAT THE FED GIVETH, the banks taketh away.

Just days after the U.S. central bank completed its unprecedented 125-basis point easing in its key policy rates, its quarterly survey of bank lending officers showed they had become much more stringent in their extension of credit.

That's key because people and businesses don't borrow from the Federal Reserve, so how much credit the central bank provides, and at what price, affects the private economy only indirectly. It takes a banker or other lender to make that loan to pay for a house or a piece of capital equipment. Indeed, the Fed acknowledged as much when it slashed rates last week, noting that financial conditions had tightenened.

Even as the Fed has made the raw material for those loans cheaper, bank lending officers indicate a far warier attitude toward making new loans, especially -- surprise! -- "nontraditional mortgages." Some 85% of loan officers responding to the quarterly survey they tightened lending standards for this category, which includes subprime.

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FMM Comment: My post yesterday, The Big Credit Squeeze, also refers