Bear Stearns falls apart. Fed pledges change. Investors get antsy.

Topeka Capital-Journal, The, Mar 18, 2008

Why did the Fed step in, and how is it trying to help?

Wall Street analysts say the rescue bid was more than just saving one of the world's largest investments banks - it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors.

Besides supporting the buyout, the central bank set up a lending option for firms to secure short-term loans for a broad range of collateral. And the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night - two days before its scheduled meeting today, when it's expected to lower the rate further.One thing is for certain - we're in challenging times. But another thing is for certain - that we've taken strong and decisive action. Our financial institutions are strong, and our capital markets are functioning efficiently and effectively. In the long run, our economy is going to be fine.

Comments from President Bush, speaking on Monday after meeting with Treasury Secretary Henry Paulson and other economic advisersHow did Wall Street and world markets respond on Monday?

The Dow Jones recovered from an initial drop of nearly 200 points to finish up about 21 points. The broader Standard & Poor's 500 and Nasdaq composite indexes ended lower as investors bailed out of investment banks and small-cap stocks and fled instead to large companies apt to be reliable during a weak economy.

Global markets plunged as investors struggled to gauge how much worse financial markets could get. Oil prices hit a record in Asian trading, and the U.S. dollar hit record lows. The chief of the International Monetary Fund said the global crisis is more serious and widespread than even a few weeks ago.What exactly happened?

After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan wouldn't suffer any losses on the deal.

Bear Stearns was the most exposed to risky bets on the loans. It is now the first major bank to be undone by that market's collapse. JPMorgan chief financial officer Michael Cavanagh didn't say what would happen to Bear Stearns' 14,000 employees worldwide, or whether the 85-year-old Bear Stearns name would live on .JPMorgan said Sunday it would buy Bear Stearns for $236.2 million - $2 per share - in a stunning fall for one of the world's largest and most venerable investment banks, which was dragged down by exposure to bad mortgages. The following information on the buyout and fallout was compiled from wire reports.