Always on the Weekend. Why?

This just in from the national newspaper, USA Today

WASHINGTON — The Federal Reserve announced late Sunday several steps to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed.

The action came as U.S. and foreign commercial banks were hashing out a plan to inoculate the global financial system against the possible failure of Lehman Brothers.

From Monday’s Wall Street Journal

The fundamental decision facing government officials in March: They could let Bear fail and hope that the market reaction, while fierce, wouldn’t be disastrous. They chose a bailout that they felt would be far less costly than the fallout from a broader market meltdown. The Fed and Treasury took action because Bear’s condition was a surprise and its failure threatened to worsen already tense market conditions. The troubles in short-term funding markets were acute and surprising at the time. The financial system looked largely unprepared for a big failure in the derivates-trading system or concerns about contagion among firms. Moreover, J.P. Morgan was available as a willing suitor.

Six months later, conditions are far from settled. But Wall Street firms can’t claim to have been hit by a sudden, surprising collapse. The firms and their counterparties have had six months to prepare for deeper trouble. The Fed had expanded its discount window to allow borrowing by securities firms. And it better understands several key markets — tri-party repos and derivatives, for instance — after examining their vulnerabilities in recent months. This time, there were only reluctant suitors in Barclays Capital and Bank of America. So the central bank instead chose to extend its lending facilities on Sunday in hopes of cushioning broader markets from the fallout.

The bottom line from the Fed: While it will was willing to take a pragmatic and expansive approach to preserving market stability, there are limits to its willingness to bail out firms that the market needs to understand. Its strategy: Let Lehman go and make sure primary dealers have lots of liquidity. That kept with the central bank’s lender-of-last resort authority and became a step toward extricating itself from the bailout game.

At least it’s not another ‘bailout.’

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