Academic

Well, let's look at what else it did today:

• Increase the number of Term Availability Facilities ("By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk.");
• expand the size of foreign exchange swap lines ("The increase in the amount of foreign exchange swap authorization limits will enable many central banks to increase the amount of dollar funding that they can provide in their home markets.  This should help to improve the distribution of dollar liquidity around the globe.");
• support the acquisition of Wachovia's consumer banking services by Citi ("In support of this transition, the Federal Reserve Bank of Richmond stands ready to provide liquidity as needed.").

These efforts come with big dollar values attached ("the total size of outstanding swap lines is $620 billion") ... but liquidity alone will not, apparently, be enough.  The crisis is internationalizing, though, and it is worth noting the Fed has rallied the foreign central banks to pump money into the system - and perhaps they did so as a hedge against Congress deciding not to legislate.

It's worth looking at what the Fed is doing, not least because it would be nice to figure out whether the Fed's discount window powers would be sufficient to bail out the financiers without legislation.  Based on the way that window has been used so far, the answer to that question is yes (or at least the Fed thinks it is yes - I'm not so sure).  The problem, I assumed, was that the Fed didn't have enough money to do to everyone what it did to AIG and Bear.

Anyway, Felix Salmon is thinking along similar lines:

the obvious next step is for the government to do something on its own -- something which doesn't require legislative approval. My best guess is that Treasury and the Fed are now going to try to come up with some kind of debt-for-equity swap: a recapitalization proposal which can be implemented through the Fed's existing powers.