Fed Slashes Rate by 75 Basis Points

"There's no free lunch," said Barry Ritholtz, chief investment officer with Fusion IQ and contributor to RealMoney.com, in an interview on CNBC. "You can't give out all this free money and not expect bad repercussions."

The central bank has taken a number of other drastic measures to provide liquidity to the market. Over the weekend, the Fed came to the rescue of Bear Stearns, which was teetering on the brink of bankruptcy as markets refused to provide the bank with cash needed to meet margin calls and run its operations in return for illiquid derivatives and mortgage-backed securities of questionable value that were leveraged to the hilt.

Bear Stearns -- trading at close to $80 a share at the beginning of this month -- was acquired in a fire sale for a stunning $2 a share by JPMorgan Chase (JPM - Cramer's Take - Stockpickr), with $30 billion in emergency funds provided by the Fed.

The bailout came as the Fed slashed its so-called discount rate and let securities dealers borrow funds directly from the Fed on similar terms as banks, marking the broadest expansion of the Fed's powers since the Great Depression. The move was the clearest sign yet that the Fed is scrambling to prevent a systemic breakdown in a financial system loaded bad debt.

Earlier this month, it offered to lend as much as $200 billion in Treasury securities to prime brokerages like Goldman Sachs (GS - Cramer's Take - Stockpickr) and Lehman Brothers (LEH - Cramer's Take - Stockpickr) in return for mortgage-backed securities that have been spurned by the market.

Inflation signs, however, continue to mount.

The Labor Department said its producer price index rose 0.3% in February, meeting expectations on Wall Street and marking a slowdown from January, but the core index, which excludes food and energy items, rose 0.5%-- its highest monthly increase since November 2006. The report showed wholesale price growth slowing last month due to falling food prices but price hikes in consumer products, automobiles and prescription drugs signaled a persistence of inflationary forces.

Meanwhile, crude oil and gold futures prices have soared recently to new record highs, while the value of the U.S. dollar has plummeted, prompting some investors to object to the Fed's willingness to increase the money supply. The dollar rallied slightly vs. the euro and other currencies after the Fed's decision on Tuesday.

Fed Chairman Ben Bernanke has responded to criticism by noting that the central bank has a dual mandate to promote both price stability and economic growth, and currently, risks to economic growth outweigh the risks of inflation. On Monday, Treasury Secretary voiced support for the Fed's actions, saying they are necessary to prevent a catastrophe in the financial markets.

"Our priority is to provide stability for our financial markets," said Paulson.

Know What You Own: Bear Stearns operates in the financial services industry, and some of the other stocks in its field include Citigroup (C - Cramer's Take - Stockpickr) and Bank of America (BAC - Cramer's Take - Stockpickr). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.