Fed not acting all that reserved; more questions than answers.

 

Fed finances takeout of Bear Stearns by JP Morgan. Fed puts FRE and FNM into conservatorship. Fed flat out lets Lehman go belly-up -- JP Morgan loans them 87 billion and NY Fed repays it the next day.

Fed agrees to loan $85 billion dollars to AIG to give them time to dispose of their assets in an orderly fashion. The first asset they're disposing is management. The Fed now owns 80% of the company's equity.

Fed injects 70 billion dollars of liquidity into the system today – prior to AIG – but doesn't ease as had been widely expected.

It's a pretty stunning series of maneuvers from an institution that only a few short years ago was known for it's tight lips and long-term view. The Fed must see the credit crisis as a short-term phenomena as it's wiling to take on so much short-term risk.

If you had been following a company for 50 years and it made such a dramatic shift in business behavior, would you feel comfortable?

Two weeks ago, would the Fed have been able to tell you about their plans to buy AIG? Do they run scenario assessment like the Defense Department, figuring out where they might next be attacked, trying to figure out how to avoid killing the most people? Or is this all happening so quickly that they're just reacting?

What would the Fed's balance sheet look like?

Would you want to buy their bonds, knowing the underlying asset was rapidly shifting towards illiquid financial instruments?

These may be brilliant moves. History will know better than we do at this moment. I can't help but feel disconcerted. I'm glad AIG isn't going to fail – it obviously would have been catastrophic. I'm also very frightened that it came down to the Fed having to step in when it seemed to be clear yesterday they didn't want to do anymore bailouts.

The market is extremely jumpy and with good reason. Every day a new sky is falling. Today the Fed elected to catch AIG. So maybe we get a relief rally. Maybe we bounce.

Like Bruce Willis in Armageddon, Bernanke has saved the earth today. Come to think of it, he died doing that, didn't he. Ok, bad analogy. I hope.

We remain in uncharted territory. I would be surprised if that was the last sky to fall… wouldn't you?

I invite your comments and answers because I'm all out.