“As part of the deal, J.P. Morgan Chase, a major Wall Street bank, will buy Bear Stearns for a bargain-basement price, paying $2 a share for a venerable institution that still plays a central role in executing financial transactions. Bear Stearns stock closed at $57 on Thursday and $30 on Friday. J.P. Morgan was unwilling to assume the risk of many of Bear Stearns’s mortgage and other complicated assets, so the Federal Reserve agreed to take on the risk of about $30 billion worth of those investments….” and

“The Fed “is working to promote liquid, well-functioning financial markets, which are essential for economic growth,” Chairman Ben S. Bernanke said in a conference call with reporters tonight. Treasury Secretary Henry M. Paulson Jr., who was deeply involved in the talks though not a formal party to them, indicated support for the actions.”

Comment:

For the first time since the Great Depression (The Guardian) the Fed has extended credit to an investment bank (the normal recipients are the commercial banks). Thus falls an 85 year old Wall Street institution, the 5th largest investment bank, losing 94% of it value. Gold moved up $25 on the news and the dollar sank below 71 against an index of major currencies, hitting fresh lows against the Yen and the Euro.

We think J P Morgan, relatively undamaged by the sub-prime poison, is going to get toxic shock syndrome when this baby (a bank one quarter its size) lodges in its gut.
More at the Washington Post.

Stunning news, this, about Bear Stearns, if there could be anything more stunning than last week’s series of desperate deeds on the Street. There was that quarter of a billion infusion of liquidity from the Fed; there was Hank Paulson’s happy talk about a “strong dollar policy” that quickly morphed into a strangled cry for global central bank intervention; there was a slew of recession-worthy statistics on the economic news; there was gold’s lifetime nominal highs over $1000 and the sickeningly swift decline of the dollar. And to cap it all of there was the suspicious telephone sting operation that tripped up NY Governor Eliot Spitzer over long-term use of call girls as overpriced as any mortgage bond — an investigation that issued, of all places, out of the IRS. [As Greg Palast points out, the IRS is part of the Treasury Dept now overseen by ex-Goldmanite, Hank Paulson]. It couldn’t be a coincidence, could it, that Spitzer (the Sheriff of Wall Street) had earlier tangled with a Goldman Sachs chief over his prosecution of giant insurer AG’s CEO Maurice (“Hank” – they’re all Hank these days) Greenberg and and others in high places. All no doubt joined the traders on the floor to have the only chuckle to be had in last week’s preliminary belches from the financial Vesuvius now erupting in full throttle.

Bill Murphy at Le Metropole Cafe notes:

*Thornburg Mortgage was fine one day, bust the next.

*The Carlyle hedge fund was the crème de la crème one day, and tapioca the next.

*Alan Schwartz, chief executive at Bear Stearns, was on CNBC just the other day saying the rumors about Bear’s problems were UNFOUNDED. Today Bear is going bust.

*So, within 2 weeks, three of the most highly regarded financial entities in the US are gonzo.”

More Comment:

And the billion dollar (oops, Yen, Euro, Swissie..take your pick) question is this.

Who goes next? And for how long?

Stay tuned for more shocks from the United States of Zimbabwe….

Gold could go to $3000 this week or it could freeze and fall. But the odds are we are not just in a recession but on the brink of falling off the cliff.

Expect anything. (Note the resignation of Admiral Fallon, a vocal opponent of war with Iran).

None of the candidates really has a clue. They’re doing nothing more than waltzing on the graves of the middle class while promising them ten acres and a mule.

The only glimmer of cheer is that Ron Paul is still in keeping up the good work.