LIKE THE CAVALRY coming over the hill just as the Indians were about to overwhelm the wagon train, Ben Bernanke rode to the rescue of beleaguered investors. He opened the discount window, making it possible for those desperate for liquidity to show up, hand over some assets that no one seems willing to buy, and borrow cash against those assets. The Fed specifically listed "home mortgages and related assets" as acceptable collateral.

Bernanke once said that the way to end a liquidity problem is to hop into a helicopter, and shower the country with cash, leading to the nickname "Helicopter Ben." Fortunately, he knows the difference between a professor's joke and a Fed chairman's policy. He knows, too, that he cannot bail out imprudent lenders and borrowers without creating moral hazard--encouraging a repeat of such behavior. So he has made it possible for banks and other institutions to get their hands on sufficient cash to give them time to work out their problems, but only by paying interest rates that are higher than those routinely charged overnight borrowers. Walter Bagehot must be smiling from on high, as his prescription is applied to ailing markets, "Lend freely against good collateral at a penalty rate."

Bernanke also met the economy's liquidity needs without lowering overall interest rates, which he doesn't want to do, at least not quite yet. One commentator called it a surgical strike, as opposed to carpet bombing the entire economy. Another suggested that Bernanke had gone from Scrooge to rock star

Not only has Bernanke managed to hold to his anti-inflation stance by refusing to cut interest rates, but he has gone a long way towards eliminating the uncertainty that has been plaguing the markets. Given the complexity of the various asset-backed securities, and the lack of transparency, no one knew which securities were infected with the problems related to the collapse of the market for troubled subprime mortgages. So they avoided the good as well as the bad and the ugly. Now holders of those pariah securities can use them as collateral at the discount window.

Even more important, he has abandoned the policy of restricting these loans to very short periods. The new liquidity will be available so long as it is needed. So two cheers for Bernanke and his colleagues on the Fed Board of Governors, who unanimously supported the opening of the discount window.

The third cheer has to be held until we see whether this move combines with other Fed policies to keep the economy on its current modest growth course. Wall Street is sighing with relief; Main Street is yet to be heard from. The Fed's critics have not been appeased by its latest move. They want Bernanke to cut interest rates to reverse what they see as a major slow-down in the economy. He is hesitating. The inflation rate remains a bit above the Fed's comfort range, the industrial sector remains strong, the jobs market is in good shape, and consumers' incomes are rising.

But last Friday the Fed noted that "the downside risks to growth have increased significantly." This has many Fed watchers believing that Bernanke is on the verge of striking a new balance between inflation-fighting and economy-stimulating, and will cut interest rates next month.