"Bank Day," Anyone?

More news in today's paper about how banks are not doing their part to facilitate "economic recovery," purportedly because they are not lending enough money to small businesses, which employ 60% of U.S. workers and are thus the custodians of a goodly bit of money that should be changing hands out there but isn't.

What appears to be going on is something akin to, "I will change my diet for the better just as soon as I start losing weight!" —-where banks are the would-be dieters waiting for the economy to shed the pounds that find it languid and burdened. Obviously the change in diet is a prerequisite for losing the weight that is supposed to be the impetus for the change in diet that is supposed to bring about the loss of weight. This metaphor represents a broad phenomenon in terms of effects, but fortunately its small, ill-formed logic loop is both aptly representative and easy enough to describe.

So what if, as a kind of unconventional solution to banks' reluctance to lend to small businesses, the Federal Reserve declared "Bank Day," where banks would collectively agree (albeit at the compulsion of the Fed) to make loans to the highest-rated among their current pool of applicants, such that the weight would come off and the eating habits could begin to change? Rather than a single bank fearing for its assets because other banks refuse to expose theirs, this could be a collective act of fiscally sound asset exposure, as defined by lending criteria that would put the loan recipients in, say, the top 5% of banks' current applicants. In this way, money would begin to flow from banks to businesses, which would induce the flow of individuals' money into the marketplace.

To not address the money-movement issue at the collective level—-where it specifically reaches critical mass—-is to miss, again, the fact that bad things happen when everyone does what is O.K. only as long as not everyone is doing it. That was what happened with the real estate bubble itself, and it is happening again now, so that those who are tasked with facilitating movement in the marketplace actually inhibit movement there instead.

So...how 'bout the Fed declares "Bank Day"? Next Monday shows no other distinction on my calendar and seems like a fine place to start.