A roller coaster day for the markets. It started strong as the Federal Reserve took a measure to pump money into the mortgage market -- and does it need it -- mortgage rates have been going up while the Fed has been cutting interest rates.

But traders resorted to selling financial stocks midday -- a strategy which has worked for two months -- and the markets briefly dipped before recovering and closing near the highs. For the Dow, it was the biggest percentage gain in five years. The question now is, have we broken the cycle of selling any rally?

Those who believe that the Fed will have to get even more aggressive than today's actions were passing around the note Richard Bove of Punk Ziegel issued to his clients this morning. He advocates that the government stop offering to borrow mortgage backed securities as collateral and start outright buying them. Here are excerpts from his note:

"The solution to this dilemma, I think, will be direct buying of all types of securities by the Federal Reserve itself. The Fed has the authority to purchase whatever it chooses. It is in the markets every day buying or selling Treasuries."

"The time has come to sell Treasuries and buy asset backed securities. This would not impact the money supply but it would redirect the funding in the markets to the areas where the stress is greatest. It would allow holders of this debt to sell it and re-establish the credibility of their balance sheets. Losses on this debt would be minimal when viewed against all outstanding debt."

"For example, it is now estimated by most that the losses on mortgage debt may approach $600 billion. Total debt in the United States economy is $48.8 trillion. Thus losses are estimated to be $0.6/$48.8. This is not overwhelming by any measure."

There're calls for even more radical action. There are others calling for some kind of deal with the FHA, where the FHA might buy mortgages with a discounted earnings rate (say, 1 percent), then sell them to Ginnie Mae, which would take a loss and sell them at a market rate (say 6 percent) to Fannie Mae

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[FNM  Loading...      ()   ], and Ginnie Mae books the loss. Sound outlandish? It has been done before.

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