While Lars Toomre at Toomre Capital Markets LLC was preparing the following post about Lehman Brothers being concerned about its liquidity amidst the Bear Stearns liquidity fallout, the United States Federal Reserve has stepped forward to attempt to settle the Capital Markets ahead of Monday's possible St. Patrick's Day Massacre. Specifically, the Federal Reserve has done the following:

1. Immediately cut the primary lending rate from 3.50% to 3.25%, and
2. Authorized the New York Federal Reserve Bank to create a new lending program for primary dealers to provide funding for those involved in the securitization markets.

This second step clearly is intended to keep the likes of Morgan Stanley, Merrill Lynch, Goldman Sachs and Lehman Brothers liquid in the event that the critical repurchase market seizes up further (like it was starting to do on last Thursday and Friday). This second move likely will somewhat ease the pressure that the major investment banks were going to be feeling on Monday morning. The critical question is Will this be enough in a world where the markets truly go to an all sellers state???

The press release from the Federal Reserve reads as follows:

The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

Second, the Federal Reserve Board unanimously approved a request by the Federal Reserve Bank of New York to decrease the primary credit rate from 3-1/2 percent to 3 1/4 percent, effective immediately.

This step lowers the spread of the primary credit rate over the Federal Open Market Committee's target federal funds rate to 1/4 percentage point. The Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.