Bear shares slumped $27 (47.4%) to $30 on news of a critical liquidity crisis at the investment house. The Federal Reserve invoked a rarely used Depression-era procedure today to bolster the firm. The arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. This process will be in place for 28 days. My guess is Bear Stearns will cease to exist as an independent entity before those 28 days are up.
Of course market participants are waiting for the other shoe to drop, which showed up in the stocks of all the other major players. Lehman Brothers down 14.6%, UBS down 8.3%, Citigroup down 6.1%, Goldman Sachs down 5.2%, Morgan Stanley down 4.9%, J.P. Morgan Chase 4.1%.
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