"The only safe plan for the [Fed] is the brave plan"

The sudden announcement that the US will bail out Citi is unnerving, and the Monday morning comments are shaping up as "don't PANIC"!

But it makes sense. The rationale seems to be that if the economy regains it's footing, then the values of the underlying assets will be good and the Treasury will make some money. At the moment, private capital is so spooked that it is sitting on the sidelines, unwilling to respond for fear that the economy will not regain its footing.  So the government is in self-fulfilling-prophecy land. If it acts boldly on the assumption that the underlying economy is okay, then it will be. And if the government goes into a turtle-like hunkering down, then things will indeed go to hell.

As Bagehot said 150 years ago:

The only safe plan for the Bank is the brave plan, to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent. This policy may not save the Bank; but if it do not, nothing will save it.