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.

[Ernest_at_the_Beach]

fyi

[vox_freedom]

BAILOUT.
Do we really want the Federal Government to be the backstop for every (major and minor) financial downfall in our country? Just wondering here.

[spanalot]

http://www.youtube.com/watch?v=QPlMmwOq7U8&feature=related

(disregard some of the pix - the rest are somewhat prescient)

[Obadiah]

This is not good. The feds are expected to cut the discount rate another half point on Tuesday. And then Greenspan was grousing about the worst situation since WWII, yet somehow FAILED to mention that he caused much of this mess! He’s the guy who left the fed rate at 1% waaay too long and got us into this mess. Of course, if you remember, Greenspan did this to get us out of te tech bubble he also helped create.

[irish guard]

I don’t really think this was as much of a bailout as you might think. They fascilitated a merger and at the same time made sure the markets had something to rely on. Bear Sterns shareholders were only paid $2.00 per share...effectively JPMorgan Chase got them for nothing. Where’s the bailout in that other than to make sure money market funds didn’t have to break the buck by losing on faile Bear repos. JPM Chase now makes good on those obligations and all Bear shareholders lose everything.

[NaughtiusMaximus]

I’m going to get out early tomorrow morning so I can claim the best corner for my apple stand.

[DuncanWaring]

...all Bear shareholders lose everything.

I wonder how many margin calls that's going to trigger.

[al baby]

I don’t because the Fed is funded by you and me im sick of paying everyones way f them

[Obadiah]

Good point.

[Ernest_at_the_Beach]

I think I need to go to Walmart before the prices go up....

[vox_freedom]

...I don’t really think this was as much of a bailout as you might think. They fascilitated a merger...

From article: 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.

This is what I'm asking about, not just the Bear Stearns "fire sale." The bailout of perhaps dozens or hundred or more will likely be in the offing...

[DuncanWaring]

Merry-Monday-WTF-now ping.

[BellStar]

The sky is falling! Duck!

[kms61]

The Asian markets are down again anyway.

[RayChuang88]

I'm really crossing my fingers and hoping we're NOT going to have a repeat of the 1930's, when the Great Depression lead to political extremism and that led to a world war.

[BGHater]

Wal-mart would actually be a safe bet for a stock investment now. That, BJ warehouse and Costco.

[Southerngl]

Ok, please explain this to this poor girl who does not understand the ins and outs of the stock market.

Thank you.

[irish guard]

While it is unusual, I don’t see the creation of such a facility as a bailout. On the other hand, let me say that a year from now, when the dust has settled and we read about all this, I suspect you might actually feel different about the Fed’s actions.

[ncalburt]

Was Greens pan misquoted again by the Dem party operatives at AP?
I stopped believe these quotes after the Dem Media misquoted the guy twice !

Bearns group was stupid enough to get hooked up with the
Carlye group !