Fed acts Sunday to prevent global bank run Monday ( Bear Stearns Taken over,...rates cut )

MarketWatch ^ | 9:40 p.m. EDT March 16, 2008 | Rex Nutting, MarketWatch

[Ernest_at_the_Beach]

WASHINGTON (MarketWatch) -- Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

he extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by funds borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear. See full story.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the last week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

[javachip]

JPM Chase now makes good on those obligations

Maybe not. Part of the deal for the Bear Stearns credit line arranged on Friday was that JPM would not be liable if Bear defaulted. IOW, there's a really good chance that the Fed effectively bought a ton of questionable paper from Bear.

[Jim Verdolini]

“THEY’RE panicked and I think that others are gonna see that as readily as I do and THEY’RE gonna panic as well. Watch the stampede.”

Bear Sterns lost 95% of its paper value over the weekend as folk b egan to realize mortage instriments could be worthless...

What would you do. I bought more gold yesterday and will max my ATM withdrawals of cash tomorrow befofe I hunker down and wait to see what happens. I figure more cash on hand will not hurt.

[HeartlandOfAmerica]

Yeah. Keep the gold... and some cash. Maximum flexibility.

Hope it's not as bad as I fear.

[Squantos]

Yep you have been dead on as to what and when thus far !

Lets hope it’s a non event at best...........waiting , listening and learning !

[GOPJ]

Asian markets are down tonight.

[hripka]

[AmericanInTokyo]

それは中々いいご質問ですね。さァー良く分からないけど。。。

[AmericanInTokyo]

The true answer is the URL link screwed up there.

[hiredhand]

I would be HAPPY for tomorrow to be just another “bad Monday”, and not the catastrophe that it could be.

[ex-Texan]

Hate to say 'I told you so. But I did. Repeatedly . . .

Blame Greenspan. Blame Bernanke. Don't blame Bush. It's not his fault. But he will get all the blame from the media. Stupid Dims will be yelling and pointing fingers all week.

Oh, well . . . Nothing to see here. Time to move on.

Or . . . Learn something useful . . . Or not. Whatever will be . . . will freaking be.

[Mariner]

Extraordinary.

We're in a full melt down...and it doesn't matter what the dow says tomorrow. IF the stockholders don't sell it's because there's no place left to put their money.

One toilette is as good as another.

[Halgr]

I’m not sure that the Fed really helped matters today....

[Pelham]

AKA “There’s never just one cockroach.”

[lainie]

I was wondering about the same thing. We’re not seeing anyone talking about a ‘selloff,’ just ‘bank runs’.

[NVDave]

Actually, it was the FDIC that called back over 25 retired FDIC employees who were the experts in failed banks during the S&L crisis.

They pulled these people out of retirement.

[SierraWasp]

12:50India Sensex drops 4% in early minutes (from MarketWatch.com)

[B-Chan]

Only small-time criminals go to prison. The biggest thieves and con-men get bailed out by the government.

Moral: If you’re going to steal, steal big.

[NaughtiusMaximus]

Thanks for the little verse. I’m going to locate my apple stand well away from any tall buildings!

[isom35]

maybe we’ll have a bank holiday. mmm, I love holidays....

[SierraWasp]

1:17 India Sensex drops below 15,000, last down 4.9% at 14,992.84 (From MarketWatch.com)