Recent developments have brought home a number of unsettling truths about the Federal Reserve, including the role it played in bringing about the current crisis and the fact that it is unable to perform what most people believe is its primary function: ensuring the stability of the U.S. financial system.

Under the circumstances, how long will it be before reports like the following from Bloomberg's Rich Miller, "Bernanke Plays 'Whac-A-Mole' With Turmoil in Markets," leave many Americans wondering why we have a central bank at all?

Federal Reserve Chairman Ben S. Bernanke may be facing something worse than a loss of personal credibility on Wall Street and in Washington: waning faith in the ability of the institution he leads to turn around the economy and the financial markets anytime soon.

Bernanke has reached deep into the Fed's toolkit to come up with innovative ways to head off a recession and restore some calm in credit markets. While many have initially been greeted with rallies in stocks, cumulatively they haven't yet had lasting impact on bringing down credit costs and setting the stage for economic recovery.

"The Fed has been playing the equivalent of Whac-A-Mole as financial turmoil keeps cropping up in new and unexpected places,'' says former Fed Vice Chairman Alan Blinder, referring to the arcade game where players try to hammer down plastic critters that randomly pop out of holes. ``Yet many of the problems facing us are beyond its reach."

Home buyers are unlikely to put down offers on houses that they think will lose value -- no matter how much the Fed does to lower mortgage costs. Banks with mounting loan losses will shy away from lending to borrowers they think might go bust -- no matter how much money the Fed pumps into the financial system. And investors will remain jittery -- even after the Fed throws a lifeline to struggling financial institutions, as it did last week with Bear Stearns Cos.

Pressure Building

"The Fed is attempting to catch some of the spillover and plug some of the holes in the system," says Louis Crandall, chief economist at Jersey City, New Jersey-based Wrightson ICAP LLP, a unit of ICAP Plc, the world's largest broker for banks and other financial institutions. "But the amount of pressure in the system is still building and could exceed the Fed's traditional resources."

Yesterday the Fed said it would provide financing for JPMorgan Chase & Co.'s purchase of Bear Stearns Cos. for as much as $270 million after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm. The Fed also reduced the rate on direct loans to commercial banks by a quarter percentage point and said it will allow primary dealers to borrow at the rate in exchange for a ``broad range'' of investment-grade collateral. It extended the maximum term of discount-window loans to 90 days from 30 days.