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Every bad banker in America breathed a deep sigh of relief at 2:15 Wednesday afternoon. About that time, the

Federal Reserve

announced an

unexpectedly large cut in interest rates, which will allow bankers and bond investors to continue the most reckless lending binge this nation has ever seen.

As a result, the balance-sheet restructuring that U.S. corporations so badly need will be further postponed, as will the correction of wealth-destroying distortions that began to really disfigure the economy in the '90s. Regardless of the market's mild, late rally following Wednesday afternoon's back-and-forth, there's no escaping the fact that panicky monetary easing is ultimately bad for stocks and for the economy.

Fed Chairman Alan Greenspan has gotten many things wrong in his tenure as central banker, but he is clever enough to recognize one thing: A nation addicted to credit needs even more credit if it is to grow. And becaue he can influence the price of credit through interest rates, he also can heavily influence the amount of credit supplied.

If you have $50,000 on credit cards and

Capital One

has just sent you another SuperTitaniumShopTillYouDrop card, that, ultimately, is Greenspan's favor to you. And he wants such lending trends to continue, judging by the Fed's decision Wednesday to cut its so-called federal funds target rate to 1.25%, from 1.75%. So let's hear no more tosh about how Greenspan ain't to blame; lenders would not be racking up record rates of mortgage refinancings, for example, if Easy Al hadn't made money so cheap.

The Thrift Deficit

Sheer hubris itself gave rise to central banking. The job assumes an ability to set the right cost of money for an entire economy. That is harder than getting the heating set to everyone's satisfaction in a 500-person old folks' home. Yet blithe passages like the following are designed to give us the impression that setting one interest rate for all isn't that hard:

    Incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production and employment.

Is it possible that people might not be spending less because they want to, or because their empty piggy banks demand that they must? To the Fed, though, thrift is the real enemy -- despite the fact that all truly prosperous societies require thrift.

Japan has tried cutting rates again and again and flooding its economy with easy money, to no avail. That's partly because the country's ultralow interest rates mean large companies that are close to the banks can continue to borrow and stay alive, depriving other, healthier firms of capital and personnel. Are American bankers that different? It took mammoth fraud to persuade

WorldCom's

bankers to pull the plug.

Citigroup

and

J.P. Morgan

were lending to Enron right into its last months, apparently never taking a close look at the books even as the stock cratered.

Burning the Passbook

Yet at the same time, the market can be pushed only so far. The interest rate on a Baa-rated corporate bond is at the level it was a year ago, and commercial loans are still down from last year's levels. This is both good and bad. Good, because it shows some residual caution. Bad, because there are good companies out there that need financing and can't get it because the banks and bond investors are up to their gills in a toxic pool of merchant energy or telecom credits.

Of course, it could be nightmarish to let more companies liquidate. But it'll be more nightmarish still if we carry on lending more. The country bit the bullet in the early years of the '70s, '80s and '90s. In the '80s and '90s, the recoveries that followed the crunch periods took place precisely because there was a crunch period.

And then there are other consequences of cheaper and cheaper money. It drives money out of savings accounts and into still-overvalued stock markets, hurting consumption and capital formation down the road. Money market funds are feeling stress for the first time because rates are so low. And lower rates will have a negative effect on

Fannie Mae's

equity. This will increase concerns that Washington watchdogs will force the massive quasi-governmental mortgage lender to slow its growth, which could in turn put downward pressure on house prices. In a worst-case scenario, Fannie Mae may have to take desperate measures to bolster its net worth.

Also stunning in Wednesday's press release is the virtual admission that the Fed has become an arm of the State Department, helping the Bush administration keep the domestic economy going so voters stay keen on attempts to colonize Iraq. How else can one interpret the part of the Fed release that cites "heightened geopolitical risks" as a reason for this desperate rate cut?

It'd be nice to sign off with some line about how this is Greenspan's last roll of the dice. But Japan shows that this game can drag on and on. But in a couple of years at the most, Greenspan will have moved on -- and likely will be earning large sums advising the bad bankers cheering him on today.