The Fed is now backstopping this meltdown in a major way. With two actions taken late today, the Fed has officially turned the U.S. government into the counterparty to the U.S. financial system by letting securities dealers borrow directly at the discount window.
This is major stuff, folks, and the market will be torn about whether to view it as implying that we’re entering a Great Depression style breakdown of financial markets, or that the Fed is finally drawing a line and stopping the credit carnage right here.
For my part, I credit the Fed for moving, however belatedly, beyond cutting the discount rate. That said, however, it is hard not worry that it’s too late, and the damage has already been done, and more is underway with massive deleveraging and contraction of global credit markets.