Kohn's steady hand.

• Position: OFF THE NEWS

Federal Reserve strategists note one positive development coming out of the subprime crisis. Fed Vice Chairman Donald Kohn proved to be a steadying hand of stability in dealing with liquidity conditions. On monetary policy, Kohn had been re-positioning himself in a more hawkish stance, but quickly called for reductions in short-term interest rates after the seriousness of the credit crisis became apparent. Colleagues express appreciation for Kohn's pragmatic skill in subsequently helping Chairman Ben Bernanke forge a framework for a liquidity auction facility with the cooperation of the international central banking community.

Note that the liquidity auction was announced the day after the December 11, 2007, Federal Open Market Committee meeting. The day of the FOMC, the Fed in its official statement made no mention of the coming auction and, indeed, failed to reduce the discount rate by 50 basis points as expected, which created the impression in financial markets that the Fed was not being sensitive to the deteriorating credit conditions. U.S. markets sold off heavily, but were then whipsawed the following day when the Federal Reserve, the European Central Bank, the Bank of England, and others announced the details of the auction.

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Since these developments unfolded, market commentators have been blistering in their criticism of the Bernanke Fed. That criticism, however, is unfair. According to non-U.S. central bank sources, Fed strategists were forced to delay the announcement of the...