If at first you don't succeed, try, try again.

On Tuesday, the Fed announced its latest effort to ease the credit crunch in the banking sector. It has created a Term Securities Lending Facility. Through the TSLF, the Fed will auction $200 Billion in U.S. Treasury securities to the commercial banks that deal with the Fed. These securities will be on a 28-day loan. The new and interesting dynamic is that the collateral for the loan can now include mortgage-backed securities.

On Friday, the Fed also increased its Term Auction Facility by $100 Billion. The drawback of the TAF is that the FOMC must conduct open market operations to offset the decrease in the federal funds rate from more reserves in the banking system. With the TSLF, the Fed is aiming to ease liquidity problems without pumping cash into the economy which fuels inflation.

This new facility will allow banks some liquidity with respect to mortgage backed securities since the market for these securities has precious few buyers lately. Although it increases liquidity, it does not alleviate the underlying adverse selection problem that has caused banks to pull back their lending. It most likely will not lead to looser lending practices. Therefore it's unlikely to help businesses struggling to find funds for investment.

At the same time, the Fed's announcement of this new tool a week before their next FOMC meeting would suggest a smaller cut in the federal funds target. This would ease inflationary pressures but would be unwelcome in the stock market.

At the very least, we can be optimistic that they're still trying.