Catatonic with fear

A bit of an exaggeration perhaps, but this Bloomberg article has a good point:

“With the banks in a state of catatonic fear now, they’re just sitting on the [TARP] capital,” Blinder [Princeton economics professor] said in an interview. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”

There is an easy way of fixing it. Make the banks pledge new retail and corporate loans as collateral at the window. For a billion of fresh cash, you must post five billion of lending made in the last month, something like that.