Anything but lending

Paulson et. al. want to stuff money into the banks so that they will lend it, keeping the supply of money and credit from contracting dramatically.  Unfortunately, the banks seem rather determined not to go along:

WASHINGTON -- The federal government's $250 billion plan to bolster U.S. financial institutions is aimed at persuading healthy banks to lend again, but it's likely to foster further consolidation in the industry, with some banks already saying they intend to use the funds to help make acquisitions.

Treasury Secretary Henry Paulson has repeatedly emphasized that the government's investment is to restore confidence in the banking sector, so banks will lend again and private investors will put up capital for banks.

"Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, that capital," Mr. Paulson said on Monday.

If the banks use the government funds to pay for acquisitions, it could prove controversial. Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions probably would provide less of a boost to the economy than would new bank lending.

BB&T Corp.'s chief executive, John Allison, said his Winston-Salem, N.C., bank will "probably participate" in the government capital infusions, in part to help fund acquisitions. "We think that there are going to be some acquisition opportunities, either now or in the near future, and this is a relatively inexpensive way to raise capital" for that, Mr. Allison said in a conference call discussing the bank's third-quarter results.

Mr. Allison didn't say whether government money would prompt BB&T to open its lending spigot. He said regulators were encouraging the bank to apply to the program.

Of course, this may just be happy talk to reassure investors that things aren't really so bad.  And the banking sector does need to consolidate and shrink; that's what happens in the wake of a financial crisis.  But I can't see any particular reason why the US taxpayer should pay to send BB&T on a buying binge.