It probably isn’t a big surprise that banks are cracking down on consumer loans, but the Federal Reserve’s latest survey of senior loan officers turns up an interesting twist: consumer demand for loans is also falling dramatically.

The headline-grabbing figures read like a classic credit contraction. Nearly 60 percent of banks said they had tightened lending standards on credit card loans in the past three months, and 70 percent had done so on mortgages to “prime” borrowers with good credit histories.

Half of domestic banks said they had become either somewhat or much less willing to make consumer installment loans, up from 35 percent in the previous survey, for the largest percentage in more than two decades.

Monday’s survey also showed consumers backing away from credit. About half of the banks surveyed reported weaker demand for prime mortgages, up from 30 percent in the July survey. One in four saw weakening demand for home equity lines of credit, more than double the percentage in the July survey. Those loans had been hugely popular during the housing boom from 2002 until 2006, and contributed to a consumer spending binge.

Half of the banks surveyed reported weaker demand for consumer loans of all types over the past three months, up from 30 percent in the previous survey.

So have rising borrowing costs cooled demand, or is this a symptom of cratering consumer confidence? Tell us what you think. Is now the time to borrow or burrow?

U.S. senators want bankers to eat their broccoli before gorging on taxpayer bread.

The Senate Banking Committee took a Treasury Department official to task for committing $250 billion of the $700 bailout money to buy stakes in banks without getting any guarantees that those firms wouldn’t pocket the cash or use it for acquisitions.

“I remain especially concerned that, in the Treasury’s zeal to make the capital injection program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” says New York Democratic Sen. Charles Schumer.

Schumer had welcomed the Treasury’s decision earlier this month to shift the focus from buying troubled assets to directly injecting capital in troubled firms, but like many of his colleagues thought there should have been more strings attached.

The senators were particularly distressed over news reports that several of the banks that took the government’s money said they were in no hurry to lend it out. If banks hoard the cash, that doesn’t provide an immediate lift to the economy.

Taking the beating on behalf of the Treasury was Neel Kashkari (above),  the wunderkind who was put in charge of the $700 billion bailout program.

“Secretary Kashkari,” said Sen. Richard Shelby, the Alabama Republican.  ”Why did Treasury not attach a requirement to increase lending as a price for receiving the government money?”

“We completely agree with the spirit of that and we want our banks to lend,” Kashkari said. ”But we also didn’t want to be in a position of micromanaging our banks.  We wanted to create a program where thousands of institutions across our country would volunteer to participate.  And if we came in with very specific guidance on you must do this, you must do that, we were afraid that we would discourage firms — discourage healthy institutions from participating.”

He did not specify which firms might still be considered “healthy” some 14 months into the credit crisis.

Kashkari also said it would be unwise to block banks from using taxpayers’ money to acquire weaker rivals.

“If we have a small bank, a failing bank, in a community, that bank is not in a position to write loans for its small businesses, its homeowners. If a larger bank, a stronger bank, is able to acquire that and capital is put into that combined entity, that community is now better served,” he said.

“So we have to be very careful about not discouraging prudent acquisitions because that can actually help us get through these troubled times that we’re in right now.”

Note to the M&A advisers: Eat your veggies. You’re going to need your strength.

What restrictions should the government put on banks who accept federal funds? Leave your answer in the comments section.

You know you’re living in unusual times when Karl Marx makes the headlines not once but twice in one day. Marx’s 1867 critical analysis of capitalism, “Das Kapital,” has risen from the publishing graveyard to become a best-seller in eastern Germany, Erik Kirschbaum reported on Reuters.com.

The second headline came from our columnist Bernd Debusman, who argued that Marx’s thinking on banks seems oddly contemporary these days. Debusman’s statement that “capitalism as we used to know it is on its deathbed” was disputed by many, including Diana Furchtgott-Roth, a senior fellow at the Hudson Institute.

In a commentary for Reuters.com, Furchtgott-Roth wrote that “the present crisis started not because capitalism was allowed to run its selfish course, but because the government interfered with the operation of private businesses and allowed excessive growth of money and credit.”

So is capitalism as we know it dead or merely resting? Is it the problem or the solution? And if there are hopes for a Capitalism 2.0, as Debusman says, how should it differ from the old model?

John Taylor, former Treasury Undersecretary of International Affairs in the Bush administration, says more countries need to be involved in decision making about the financial system, but “we already have the G20,” referring to the Group of Twenty leading economies.

Italian Finance Minister Giulio Tremonti says Italy will push for broadening membership in the Group of Seven when it takes over leading the rich nations’ club next year.

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Stocks are tumbling around the world and Mainstreet is feeling the crunch, but at the Institute of International Finance (IIF) luncheon it was hard to see the dark side past the luxurious chocolate mousse cake and keynote comedy.

Jacob Frenkel, the vice-chairman of American Internal Group (AIG) — yes, that insurer on the receiving end of an $85 billion government bailout a few weeks ago (and now an extra $37.8 billion loan ), gave a light-hearted address on the G7’s plan of action to combat the credit crisis.

Frenkel was quick to take issue with the lack of details in the G7 plan and urged the importance of concrete dates.

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Thank you for visiting. Admission is free, but your generous donation would greatly help with our capital improvement projects such as bank bailouts, depositor guarantees and mortgage overhauls. We normally like to keep this an intimate gathering of just the Group of Seven, but given our current predicament, the more the merrier.

Depositors gather outside a bank in 1933.

As global stock markets tanked once again, the pressure was mounting on the G7 to come up with a comprehensive plan to guide the economy past the credit crisis that threatens to trigger a global recession. The G7 meets on Friday, and the broader G20, which includes reserve-rich developing economies such as China and Russia, will convene on Saturday.

The buzz words are “coherent” and “coordinated” as world leaders acknowledge that they can no longer afford to focus on problems at home when everyone is feeling the pain.

Unemployed men at a Washington D.C. soup kitchen in 1936.

Judging from the reaction on Wall Street, investors don’t seem to have much faith that world leaders were up to the challenge . We’re opening up a giant suggestion box. Any ideas? Post them here.