A Sinking Bear Stearns Re-Ignites Credit Fears

Sat Mar 15, 2008 10:29 am (PDT)

U.S. stocks tumbled on Friday as an emergency rescue of Bear Stearns orchestrated by the Federal Reserve revived fears about a deepening global credit crunch, triggering a massive sell-off in shares across the board.

Stocks plummeted after the New York Fed and JPMorgan Chase & Co (JPM.N) stepped in with short-term financing for Bear Stearns Cos (BSC.N)., the fifth-largest U.S. investment bank. Before the opening bell, Bear Stearns shocked Wall Street when it said its cash position had unraveled in the past 24 hours.

Bear Stearns stock sank as much as 50 percent before closing down 45.9 percent at $30.85. The Standard & Poor's financial index (.GSPF) fell 4.1 percent as investors feared a massive unwinding of Bear Stearns investments could trigger a financial calamity.

Bear Stearns Chief Executive Alan Schwartz said in a conference call at midday that concerns among customers and lenders got to the point where a lot of people wanted to get their cash out. Before the opening bell, the firm said its liquidity position had deteriorated significantly in the last 24 hours.

After the news about Bear Stearns, U.S. interest-rate futures showed the market fully expects that the Fed -- the U.S. central bank -- will cut short-term benchmark interest rates by 75 basis points, or three-quarters of a percentage point, at its scheduled rate-setting meeting on Tuesday.

This would bring the federal funds rate target down to 2.25 percent from the current 3 percent, following cuts by the Fed totaling 2.25 percentage points since mid-September.

Posted by: "Maverick