To put the Federal Reserve's efforts to address the credit mess in historical perspective, consider this: since 1990, the amount of money the Fed has lent to domestic banks each quarter has never topped $16 billion in any single quarter. Until now, that is. In the fourth quarter of last year, Fed lending soared to an annual rate of $194 billion.

The astonishing magnitude of this effort is evident in the chart below. Keep in mind that this does not include anything the Fed has done since January, or the loans it made to Bear Stearns last week in an effort to prevent that investment bank from collapsing. (Following that effort, on Sunday it was announced that the Fed has helped arrange a deal for J.P. Morgan to buy Bear Stearns for just $2 per share. Shares of the company traded for $30 last Friday and $170 a year ago.)

The Fed has assets of almost a trillion dollars, nearly all of it consisting of Treasury securities, currency, and gold. Bank loans have usually accounted for a tiny fraction, less than one percent. However, following the fourth-quarter surge, bank loans now account for five percent of the Fed’s assets, the highest level in the postwar era. Whether the Fed will ever be repaid, or whether it will eventually have to join many financial institutions in writing off some of these loans, remains to be seen.

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