Bear Stearns Receives Emergency Funding; off 40%
The Federal Reserve approved an arrangement between JP Morgan Chase and Bear Stearns that provides short-term financing to Bear Stearns due to liquidity concerns. In a statement Friday, the Fed added, “The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system.”
All major indices were down, and Bear Stearns stock plummeted 40% on the news.
Stearns executives said major investors withdrew funds at a pace that threatened the company’s liquidity, though withdrawals have slowed down since announcing the emergency funding.
Marketwatch had an interesting story on this, noting that J.P. Morgan himself rallied other banks to bail out banks and trusts that had made bad investments in 1907.
Bear Stearns executives brushed off criticism in December, implying that the worst of the sub-prime mortgage crisis was behind them, after the company posted its first loss in 80 years. The fallout of the sub-prime mortgage crisis, however, has yet to be measured. Other investments are being affected, creating a liquidity crisis for major banks.