The problem with a credit crisis is limited lending, the quantity side of the equation not the price or rate. Credit is rationed without regard to price. Lowering the interest rate does not help in this type of environment; consequently, the Fed announcement that they will lend up to $200 billion and take collateral other than Treasury securities is the best possible action. This will provide stability to the mortgage market and infuse funds into markets that are in disarray. Securities lending which is secure for set periods may calm the markets and eliminate the risk of margin calls or pulling of overnight funds.
This is a smart move by Chairman Bernanke and an effective use of the Fed's role as lender of last resort.
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