[Dogpile]

just to make most pertient point: what the fed is trying to prevent is a meltdown that is based only on panic and mis-trust. if there is a true meltdown because a bank has screwed up and is not hedged in the way it thought it was due to bad models -- then this could be very serious problem as it spirals to other banks that did business with the first bank. this was the problem with LTCM in 1998 -- a bad portfolio will blow-up and there is nothing the fed can do except give money away at that point in the amount of loss that the bad portfolio blew up by.

the problem could be much more significant today than 1998 given the massive increase in overall derivatives since then.