The harshest criticism of the Federal Reserve is that it is irrelevant: too small, too slow, and too old-fashioned to have any meaningful impact on the fast-changing, complex colossus that is global finance.

Just a week ago, the Fed seemed intent on disproving its critics, standing center stage in the emergency takeover of Bear Stearns by J.P. Morgan Chase and preventing what would have been a huge flameout that could have sparked market contagion around the world.

As economist Nouriel Roubini has put it: "The response of the Fed to this banklike runs on nonbank institutions has been the most radical change in monetary policy and lender of last resort support by the Fed since the Great Depression."

So the news that J.P. Morgan and Bear Stearns have quickly renegotiated their deal appears to have pushed the Fed right back into the role of a bit player.

Also on Portfolio.com: The Rescue of Bear Full coverage of the takeover. The Lawyers How the original deal got done.

For the revised deal, unlike the first one, was clearly driven by J.P. Morgan, not by federal officials. The revision, according to Andrew Ross Sorkin of the New York Times, is intended to mollify shareholders angry at the $2-per-share fire-sale price and to correct an apparent mistake in the original agreement, which would have required J.P. Morgan to guarantee Bear's trades even in the event the takeover was rejected by shareholders.

So J.P. Morgan's liability has now been addressed. And the taxpayers'? Oh, yeah, the Fed is now on the hook for just $29 billion of Bear's debt, not $30 billion as in the original deal.

And should Bear shareholders get anything at all, much less a fivefold sweetener, if the firm was on the brink of bankruptcy?

As Roger Ehrenberg noted on the Information Arbitrage blog, were it not for the Fed's intervention, Bear's equity "was worth precisely zero at that time."

Now that the Fed has signed off on the revised deal, he argues, "if I'm a shareholder and am feeling enlivened and validated by the Fed's behavior, why not hold out for more? I mean, the Fed is apparently in the dealmaking business; why not try and cut yet a better deal?"

If the revised deal is the best possible solution to preventing a messy collapse, then why are not Treasury and Fed official speaking out and making that case? Even the normally press-shy Joseph Lewis is having greater success in getting his message out.

---