Your tax dollars at work

The Wall Street Journal reports this morning that

The four biggest U.S. banks said they borrowed a total $2 billion from the Federal Reserve, falling in with the central bank's efforts to stanch turmoil in financial markets by encouraging borrowing from the Fed.

Citigroup, Bank of America, J.P. Morgan Chase, and Wachovia each borrowed half a billion from the Fed's primary credit facility (aka discount window). By contrast, in the week ending August 15 banks borrowed only $11 million. This is exactly what the Fed intended when it reduced the primary credit rate last week and extended terms of loans to 30 days.

The article notes that

While bank executives widely praised the Fed's actions last week, some banks privately expressed reluctance to borrow from the discount window, pointing out they can borrow elsewhere at lower rates.

But of course, if banks could borrow cheaper outside the Fed, there wouldn't be a liquidity crisis and the Fed wouldn't have to push discount loans. Apparently liquidity is sufficiently tight that banks are now turning to the Fed to make loans to cash-strapped borrowers. All as it should be.