Banks Engage in Economically Irrational Behavior in Order to Remove Irrational Prejudices Held by Irrational Bankers

I found this story buried deep, deep, inside the New York Times's business section to be Really Odd.

4 Major Banks Tap Fed for Financing: The country’s four biggest banks announced yesterday that they had each borrowed $500 million from the Federal Reserve, taking an unusual step to ease the credit squeeze that has been rattling the financial system for weeks.

The banks — Citigroup, Bank of America, JPMorgan and Wachovia — said that they had tapped the so-called discount window of the Federal Reserve Bank of New York, five days after the central bank lowered the rate and loosened its collateral standards in an effort to inject more money into the credit markets.

The coordinated moves were seen as largely symbolic, aimed at removing the stigma of borrowing from the discount window, which is regarded as a last resort for financial institutions. All four banks can borrow money more cheaply elsewhere, and all said they had “substantial liquidity.”

For starters, where is this cheaper money that's available on demand? I'm assuming it's the LIBOR rates, which are in fact showing a declining yield curve, running from from 5.5% for one month to 5.07% for one year.

More to the point, will anyone be impressed by this behavior?

I had the same cynical reaction as Charles R. Geisst, a financial historian at Manhattan College whom the Times quotes as saying, “The banks are circling the wagons. Somebody’s got a problem.”

Should that headline above have been, “Banks Engage in Economically Irrational Behavior in Order to Remove Rational Prejudices Held by Rational Bankers?”

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