The Federal Reserve and JPMorgan agreed Friday to rescue Bear Stearns after its cash position "significantly deteriorated," sparking concerns of a global financial crisis and sending the brokerage's stock crashing 47% to a 91/2-year low.
JPMorgan will provide Bear Stearns with an undisclosed amount of secured funding for up to 28 days. But it's really just a conduit for the New York Fed, which will assume the credit risk.
Bear Stearns CEO Alan Schwartz said he contacted JPMorgan Thursday after investors, customers and lenders withdrew assets and canceled credit lines. He said the withdrawals could have outstripped the company's resources.
Stocks dived on fears that Bear might not be the only Wall Street giant to fall to the subprime crisis.
"It's the cockroach theory -- if there's one, there's got to be others," said Philip Orlando, chief equity strategist at Federated Investors.
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Although we are not technically in a recession, the leading indicators are certainly starting to show up. Most people believe that we are in a reccesion simply because the press says it, and it is difficult to tell whether it is a self-fufilling prophecy. It is certainly possible that the panic caused by major news stations caused the economy to slow, but the factors involved are far to numerous for it ever to be determined.
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