On August 17th the Fed lowered the Discount Rate by .50%, reducing it from 6.25% to 5.75%.  The Discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions and savings and loans. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks.

The Discount rate is typically 1% above the Fed Funds Rate, which makes the Fed a last resort for lending institutions to borrow from - they would prefer to borrow from other banks at a lower rate - but with the current liquidity crisis making that difficult, this move will help provide some liquidity at more desirable rates in the short term. 

Thankfully, the Fed is extending the borrowing period from overnight to 30 days, which could allow some lenders to use the discount window for loan fundings prior to sale in the secondary market.  This 30 day extension allows time for the credit markets to settle so that buyers of mortgage-backed securities can be enticed to reenter the market.  Particularly, great news for Countywide. 

The Fed move does help some large financial institutions better weather the storm.  Hopefully, the Fed may cut the Fed Funds rate on or even before the next meeting on Sept 18th.