Saturday, March 15, 2008

Fed Races to Rescue Bear Stearns

Front page of the Wall Street Journal:

Storied Firm Sees
Stock Plunge 47%;
J.P. Morgan Steps In

Credit turmoil spread to the heart of the U.S. financial system as Bear Stearns Cos., an 85-year-old institution that has survived the Depression and World War II, sought and received emergency funding backed by the federal government.
n an extraordinary move, the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep Bear afloat following a severe cash crunch.

The maneuver signaled that the Fed was trying to move aggressively to prevent Bear's crisis from spreading to the broader economy. But it seemed to do little to soothe fears. Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading at 4 p.m. The Bear crisis, coming on the heels of this week's implosion of a publicly held affiliate of Carlyle Group, further rattled Wall Street. The Dow Jones Industrial Average fell nearly 195 points.

The lifeline gives Bear access to cash for an initial period of 28 days. J.P. Morgan will borrow the money from the Fed and relend it to Bear. Exact terms weren't disclosed, but the amount is limited only by how much collateral Bear can provide, Fed officials said.

The Fed, not J.P. Morgan, is bearing the risk of the loan. It is the first time since the Great Depression that the Fed has lent in this fashion to any entity other than a bank....Video and the rest of the story.

This is why we were putting up arcane and possibly boring posts last month. If you know what can be done, you can delay panicking, which, I know, contradicts Climateer's first rule of bank runs: "If you're going to panic, panic early".

Here's our Fed stuff:

Feb. 8 Doom and Gloom: What Can the Federal Reserve Do?
Feb. 8 Doom and Gloom: What Can the Federal Reserve Do? Part II
Feb. 14 Depression risk might force U.S. to buy assets