The Fed steps up

“Wall Street wizards” have moved into the 21st century, inventing a “staggering array of derivatives” and other financial tools, says Michael Mandel in Now it looks like the Federal Reserve has finally joined them. For 25 years, the Fed had “one tool—the Fed funds rate—to run monetary policy.” Since December, it has added two more, including yesterday’s Term Securities Lending Facility (TSLF), which aims to clean up the mortgage-backed securities mess. We’re now “officially into uncharted territory,” and “forecasters are inevitably clueless” as to how effective the TSLF will be. But “what’s important is that the Fed” is “no longer stuck in the past.”

It’s good the Fed is being “more aggressive and more creative,” says Steven Pearlstein in The Washington Post, even though the $400 billion it has injected into the markets since Friday is clearly a “bailout for Wall Street.” That’s because it’s also “a bailout for all of us, meant to prevent a financial and economic meltdown” that drags everyone down. We’re in a “massive ’de-leveraging’ of the economy,” and the Fed is just trying to help the credit bubble deflate in an “orderly fashion.” Wall Street’s credit woes may seem “remote” to most Americans, but they’ve had a “profound effect on the real economy.” And despite the Fed’s “unprecedented” intervention, the “de-leveraging is nowhere near finished.”