“The Federal Reserve has stretched its mandate up, down, and sideways to prevent a financial market deluge,” reports BusinessWeek. “Now it appears to be stretching the English language a bit as well.”

What the Fed is calling a $29 billion “loan” to help finance JPMorgan Chase’s purchase of Bear Stearns looks much more like a $29 billion investment in securities owned by Bear. Although the Fed insists that it isn’t technically buying any assets, in practical terms it’s doing exactly that.

All this adds up to a big and unacknowledged step up in the central bank’s financial intervention with Wall Street investment banks.

Senate Banking, Housing and Urban Affairs Chairman Christopher Dodd is already sniffing around the Fed-Bear Stearns deal and has scheduled hearing to investigate what he has termed the “unprecedented arrangement”.

“As the credit and financial crisis spirals out of control, and the Fed moved $30 billion of garbage Bear Stearns debt onto the public balance sheet,” says Peter D. Schiff, “the proposals coming from other market leaders are taking similarly phantasmagorical turns.”

“Magazine publisher and perennial presidential candidate Steve Forbes, in an interview on CNBC-TV early last week, proposed that the government suspend “mark-to-market” rules for one year so that holders of unsellable mortgage-backed securities no longer have to recognize losses.

“Remember, the dominos began to fall precisely when two Bear Stearns hedge funds were forced to actually sell assets they had failed to properly mark-to-market. Were the government to actually follow this advice it would destroy what little confidence remains in our financial system. However, Forbes believes that the markets can be spared unnecessary pain if participants can simply pretend that their holdings are worth par value. This amounts to a plea for accounting by “mutually beneficial mass delusion.”