ebear - you are right about what they should do but that is not what they will do. The fed is now accepting some of the bonds as collateral. The next step will be for them to print money and buy the junk bonds outright. With the huge nay gigantic derivates positions and subsequent counter party risk they can not afford to let any of the big players go under and create a domino effect. In a fiat monetary system the fed can print as much money as they want and can use it to buy anything. Desperate times call for desperate measures. In my opinion inflation is ensured. We are about to witness the largest transfer of wealth in history.