August 10, 2007 (LPAC)--After announcing in a statement this morning that it will provide "liquidity to facilitate the orderly functioning of the financial markets," the Federal Reserve pumped $19 billion into the banking system, which it supplemented later in the morning with another $16 billion. The supposed "easing" of the stock market decline resulting from this action, was only momentary. When the Fed made a third injection of $3 billion in the afternoon, stocks began to slide again. Today's $38 billion infusion came on top of the $24 billion injected into the system on Aug. 9.

The injection today was done through the purchase of mortgage-backed securities. In fact, Bloomberg News reported that the Fed accepted only mortgage-backed debt as collateral for the weekend's repurchase agreement, amidst speculation that there will be an emergency Fed meeting next week to cut rates.

The Fed's obliquely referenced the current market meltdown by noting that "depository institutions may experience unusual funding needs because of dislocations of credit and money markets." It said it was "providing liquidity to facilitate the orderly functioning of the financial markets." Reserves will be provided "as necessary," the Fed said, and "as always, the discount window is available as a source of funding."

Former Fed Chairman Alice Rivlin, now at the Brookings Institute, noted that the current situation is one of "great uncertainty," and that Central Banks are injecting liquidity internationally--to the tune of $323.3 billion in the past 48 hours--"in hopes that collectively they can stabilize things." Indicating, like many others, that she doesn't live in the real world, Rivlin also underscored that the Fed has an "almost unlimited ability to supply liquidity if they feel that is appropriate."