Brad DeLong writes,

If the Federal Reserve thought that Wall Street would have a big impact on Main Street–a bigger impact than they thought it would have last week–they would have cut interest rates tonight rather than just agreed to accept equities as collateral.

Is he grasping reality, or grasping at straws? Brad is thinking about the Fed that’s in a macro textbook, where there is a neat relationship between r and Y. If the Fed wants to maintain Y (economic activity), all it has to do is lower r (the interest rate), by the appropriate amount.

I’m not thinking about the Fed today as if it were the textbook monetary authority. I’m thinking about it as the lender of last resort.

Felix Salmon also thinks that the media are creating a tempest in a teapot.

the headline “Futures plummet amid uncertainty about U.S. banks” — with the “plummet” in question comprising a drop of 38 points on the S&P 500. As the story won’t tell you, that’s a move of about 3%: big, but hardly unprecedented in recent months.

Others are not so sanguine. The Wall Street Journal reports,

“Another ‘shoe has dropped’ in the financial crisis, but unfortunately there appears to be a big closet full of shoes,” said strategists at Merrill Lynch. “Whereas many may argue that this weekend’s events are the events signaling a bottom to the global financial crisis, we continue to believe that the global financial sector will go through massive consolidation for quite some time,” they added.

Full disclosure: Merrill’s own shoe is on another foot this morning. In case you missed it, Bank of America bought them last night. So maybe these guys are overly apocalyptic.

Today, there will be two question marks–the credit markets and the stock market. I’m going to assume that the Fed manages to keep the credit markets going. Banks and investment banks will be able to trade with one another. Bonds will change hands at fair prices. That’s a big assumption, and not a sure thing, by any means.

For the stock market, I’d say if it only drops 3 or 4 percent and stays open all day, I would count that as a win. My worry would be that there are no buyers, and when that is the case, even if 99 percent of investors are standing pat, the other 1 percent give the impression of “panic selling.”

I’m sure I’ll be writing other posts later in the day, but I’ll be away from my computer a lot.