If you've got a WSJ online subscription, check out their headline Fed Races to Rescue Bear Stearns story.

A significant quote from that piece:
"But the central bank has explicitly assumed the risk of the loan. If Bear fails and the collateral it posts is insufficient to cover the loan, the Fed will sustain a loss. Officials say there is no preset maximum amount of the loan, other than how much collateral Bear is able to provide to meet the Fed's requirements."

In other words, the Fed may have effectively purchased a whole bunch of illiquid paper. They can try to call it a loan, but if BSC can't raise the cash to repay, they might decide to just walk away and leave all that paper at the Fed.

Not sure the terms would allow it, but it could also provide a conduit for other firms to dump paper. They could sell or loan it to Bear, Bear passes it to the Fed through JPM, banks walk away and leave the Fed holding a bag full of ?????.

Russell,
What is even more disturbing is that Fed's balance sheet is not that large any more :) Only $200B in treasuries left available before Ben and Co has to go to Treasury begging to print more...