Those

(4 of 4)

The House Banking Committee last week proposed a deal to Volcker. It suggested that if Congress trims the budget deficit, the chairman should speed up money growth. The drawback to such a policy change is that the Reserve Board might accidentally loosen too much, as it has several times in the past, and revive inflation expectations. That might result in higher, rather than lower, interest rates.

Credit Controls. Putting direct restrictions on the amount of credit that banks can extend and the types of loans they can make would be a last-resort solution. Most economists still oppose broad credit controls, but some moneymen favor at least a slight tightening of banking regulations. Henry Kaufman, an influential economist at the Salomon Bros, investment house, has called for a curtailment of some types of stand-by credit lines that banks offer large corporations.

Even bankers admit that loans for merger deals have gone out of control. Says an officer for one of New York's largest banks: "We're uncomfortable with merger and acquisition loans. One bank alone will not stop making them, and the law says we cannot conspire among ourselves to stop. But some kind of credit controls on these loans would be welcomed."

While the deepening recession and slower inflation should bring somewhat lower interest rates over the next few months, it is unlikely there will be a real break in the cost of loans. Irwin Kellner, chief economist at New York's Manufacturers Hanover Trust, predicts, for example, that the prime rate will dip to 14¾% by June, but then rebound to 16% in July. The days of a 5% prime or an 8% mortgage are probably gone for a long, long time.

— Charles Alexander. Reported by Michael P. Harris and Adam Zagorin/New York