Banks already “paying it forward”

It looks good on paper.

The Fed lowered rates 75 bips, and as you might guess the banking stocks rallied soon thereafter. It makes perfect sense – they’re getting cheaper money, which is supposed to help margins.

Hours later there’s another move afoot – “emergency” prime rate reductions. Both M & T and National City have cut their prime lending rate by the same 75 basis points (and they are making good use of the PR channels in the effort as well).

Will consumers just start borrowing again in droves? Likely not. But, as a gargantuan pile of mortages ready to reset this spring, banks might just stave off an ever-increasing wave of foreclosures. Of course, the circumstances may add more fuel to the fire: banks are charging greater-than-nominal fees to renegotiate loans, and many of them are tacking those fees onto loans; they’re doing a whole lot of “driveby” appraisals too, meaning they’re throwing darts when determining the value of their collateral. And don’t forget – they are coughing up the free money they just received from the Fed while they’re doing it.

It’s a precarious fix, but it may just work. At least for a quarter or two.

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