Here are some thoughts on the Bear Stearns take-out and the Federal Reserve's latest actions.

• First and foremost, the Federal Reserve's actions show that it is willing to do whatever it takes to prevent a systemic collapse and maintain the stability of the US financial system. As such these actions are reassuring despite the initial sell-off on the equity markets,
  
• the Bear Stearns' take-out was not a bailout, and the equity holders in Bear Stearns have essentially been wiped out (they are offered $2 for a share that traded over $170 some 15 months ago). The Federal Reserve needed to act because Bear Stearns is a major counterparty to virtually every important financial institution in the world,
  
• the Fed's decision to provide a temporary 6 month lending facility to the investment banks reduces the possibility of a liquidity run on these banks due to a lack of confidence,
  
• credit markets have been affected by both solvability (asset impairment) and liquidity issues. The liquidity crisis has led to a sharp drop in the price of high quality issuers (through forced selling), even though these issuers' ability to repay their debt is not in question. The Federal Reserve's actions could spark a turnaround in the price of quality assets and should also help to prevent other investment banks being caught in a liquidity/confidence crisis situation similar to Bear Stearns,
  
• if necessary, the Federal Reserve could take additional steps to prevent other investment banks from defaulting. It could even theoretically take credit risk on its balance sheet by buying Mortgage Backed Secutities (MBS) directly (in the lending facilities that the Federal Reserve announced last week, the ownership risk in the posted collateral remains with the borrower, i.e. the banks). It could also change the rules on how assets can be kept on the books of banks.
  
• the Federal Reserve's actions will not stop the deleveraging cycle. Nor do they counter the increasing risks on the economic front, with the US consumer suffering from falling house and equity prices, high oil and food prices, the difficulty to get new loans and rising unemployment. In light of this, the Federal Reserve will continue to aggressively ease monetary policy and a reduction of 100 basis points (1%) in its target rate is expected today.