History suggests the Fed is especially vulnerable at times of economic turmoil. The Depression led to an overhaul that shifted power from its reserve banks to Washington, DC. The stagflation of the 1970s coincided with congressional efforts to take control of the Fed’s budget and the requirement that it seek both full employment and stable prices. The crisis that began a year ago may yet mark another turning-point in the relationship between America’s politicians and its central bank.

By far Mr Bernanke’s most innovative response to the credit crisis has been the expansion of the Fed’s tool kit from control of short-term interest rates to the deployment of its balance-sheet to restore liquidity to specific markets, such as that for inter-bank loans. A year ago 91% of the Fed’s assets were invested in government bonds. Now the share is 52%. Loans to banks and investment banks backed by a hotch-potch of collateral account for the difference (see chart 1).

Mr Bernanke often notes this simply returns the Fed to its roots as lender of last resort: it was created primarily to prevent financial panics. But now that its lending goes beyond the federal government, it faces fine judgments. To whom should it lend and on what terms? And how does it avoid becoming a crutch for markets that cannot stand up on their own?

http://www.maidenlanellc.com/
On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets.

What is new here? Talking heads of the MS Media got another day on the payroll, financials got a spike, some saps not wanting to miss the move up in financials will get crushed…BAU…the game continues.

River