Administration urges banks to start making loans

The money the government has pumped into the system has not yet had an effect.

WASHINGTON (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.

Consumer pessimism reached record levels in October amid rising unemployment, plunging home prices 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. Though 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. Though 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.

Today, 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.

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.