Fed in back-door bank bailout today?

The Fed has kicked in $200 billion in what may be a back-door bailout to a financial industry ensnared in a credit crisis of its own making.

In a story posted just before noon (more here), the NY Times brings word that the Fed will allow these troubled financial institutions -- including the major investment banks (Bear Stearns? Morgan Stanley?) -- to borrow 'ultra-safe Treasury money by using some of their riskiest investments as collateral'. Bloomberg also put out an item -- see end of this post for link.

Instead of getting the money for the usual few hours (often referred to as 'overnight'), borrowers will get to keep the money for 28 days. The Times notes that the assets pledged -- which are linked to home loans -- must have a premium credit rating.

Wowee! A premium credit rating given by those same rating firms who are under fire both for their ratings practices with regard to the CDOs, CMOs and other financial confections, and in the marketplace for their OWN CREDIT RATINGS?

Why am I suspicious this is a back-door bailout? What happens on day 29 when the borrowers cannot make good?

Honor among thieves?

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• NY Times: "Fed to Lend $200 Billion More to Ease Market Strain"
• Bloomberg: "Fed to Lend $200B, Take on Mortgage Securities"
  

-- Dan Damon

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