Politically directed credit – again.

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You might think lawmakers would have had enough of politically directed credit after the $200 billion fiasco of Fannie Mae and Freddie Mac. But you'd be wrong.

On Wednesday, Senators Chuck Schumer (D., Fannie), Jack Reed (D., Freddie) and Robert Menendez (D., N.J.) called on the Treasury to set "lending goals" for banks receiving capital injections under Treasury Secretary Hank Paulson's rescue plan. The press release issued by Senator Schumer's office complained that banks receiving public capital "may not fulfill the main goal of the Treasury program, which was to increase lending activities in order to unfreeze the credit markets." Instead, these Senators said, the banks might choose to "hoard" the cash.

"Banks must understand that these funds aren't a gift," Senator Menendez warned, ominously. And here we thought that "not a gift" was covered in the part of the plan that requires the banks to pay interest on the capital to taxpayers on a preferred basis over private shareholders.

Note to Senator Schumer, et al.: Banks don't make money by "hoarding" it, or "stuffing it under mattresses," in the New York Democrat's words. They make money by lending. But lending has been constrained in part because losses on past lending and investment have left the banks short of capital. If a bank should decide that keeping that capital unfettered is better than going bankrupt, for example, that should not be taken as evidence of greed or a lack of public spiritedness. Nor would compelling banks to make loans ensure that "taxpayers are protected," as Senator Reed claimed. In fact, the opposite could be true, depending on the magnitude of potential losses from loans already on the books and the quality of the new loans.

The quality of Democrat Senators is directly proportional to the state of our educational system. Gosh, how stupid can Schumer get? Give him another year and he'll rise to the intellectual level of some of our most prolific leftie posters.

The Senate's Bankers - WSJ.com