The Federal Reserve had a busy weekend.
First, of course, the Fed arranged to assist J.P. Morgan Chase in acquiring
Bear Stearns by approving a $30 billion credit line to J.P. Morgan, secured
by the Bear Stearns portfolio, a move that, by early Monday the talking heads
were referring to as "nationalizing" the investment bank.
Then the Fed announced a new lending program aimed at the
20 large investment banks that serve as "primary dealers" and trade Treasury
securities directly with the Fed. The program would allow the government to
hold a wide variety of collateral including securities backed by mortgages which
are increasingly difficult to sell. This essentially opens the "discount window"
to investment bankers. This facility was previously available only to commercial
According to The New York Times, Fed officials said that the new program would
have no limit on the amount of money that can be borrowed.
In a third move aimed at helping banks and thrifts, the Fed lowered
the rate for borrowing from its so-called discount window by a quarter
of a percentage point, to 3.25 percent. Rumors are everywhere that the Fed will
lower the Federal Funds interest rate by a virtually unprecedented 1 percent
at its regular meeting this week. This would take the rate down to 2 percent.
In the climate of near panic that is prevailing in the markets right now week
this may become a self-fulfilling prophecy - the Fed may become afraid to do