When will they learn?

Implications: How afraid is the FED of where the economy is going that has caused them to promote such a drastic step as opening up funds to non depository banks? 1. The Fed lending at Par for devalued assets to Non Banks. 2. Will more money be made available when the markets continues down? 3. How will write offs upon liquidation of the underlying asset be addressed, during the 28 days or before it is repledged to the next 28 day period? 

Analysis: We have now seen the results of forgetting history, a huge bump in the stock market yesterday, as the Fed agreed to open treasuries to the Investment Banks. The really fun part is that they get to secure these 28 day loans with collateral that has diminished in value to the point that there is not a trading market, and they get to do it at PAR!
So the government is now a participant in the same lending that took place with the individual mortgages, making loans to someone who can not afford them (or find financing elsewhere) and for more than the underlying collateral is worth. I wonder if the FED will have the same shock that the secondary mortgage market had when they realized the collateral was bad?
When the next set of data comes out and states the economy is continuing to stagnate, drop or actually is in a recession, will the FED put more funds in play to prop up the market? If they decide to put more in, at what point will they stop? The old adage is a I lend you a little and you owe me. I lend you a lot and you own me. Do they become to indebted to allow to fail?
At what point will one of these borrowers actually write down the asset after liquidation? Will they write it down and pay back that portion during the 28 days or will they write it down after the 28 days before they re-pledge assets for another 28 day period?
I wonder how many multiples the Street can get on these funds in 28 days? Will profits that the street firms make on lending this additional liquidity be shared with the investors who bought the securities to begin with? Will they share the profits with the monolines who insure the asset?
Will the focus on fixing loans diminish? Now that the Investment Banks can roll with funds while the assets diminish, will they care about the resolution.
The real issue here is the underlying FED and Treasury position on where the economy is going. While the government has said it is bad but we will grow, other economists have been saying recession and stagnation. What this move tells me is pure fear of a recession if not worse. The real issue is the underlying equity lost already in the market ($1.4 to 1.9 Trillion) and the realization of that loss on collateral with liquidations and mark to market rules.  The piper will be paid at some point and there is only one way to minimize the impact and that is to handle each mortgage and either fix it if you can or foreclose it and liquidate and take your full losses. In the end the losses will be realized one way or the other the only real questions are how much and for how long!