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Bear Stearns, with backing from the Fed, will provide secured funding to Bear Stearns for an initial period of 28 days. Officials did not say how much money JP Morgan Chase was pumping into its rival. Bear Stearns said in a statement that it is working with JPMorgan Chase to find permanent strategic alternatives to alleviate their cash problems
Top executives from both companies were considering the outright sale of Bear Stearns to JPMorgan, according to a person familiar with the talks who was cited by The Associated Press.
“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,” the central bank said in a statement.
Bear Stearns acted in response to ``market rumors'' of a liquidity crisis, Chief Executive Officer Alan Schwartz said in a separate statement. He said earlier this week that the company's ``liquidity cushion'' was sufficient to weather the credit-market contraction. Traders have been reluctant to engage in long-term transactions with Bear Stearns as the counterparty, the Wall Street Journal reported yesterday.
``We have tried to confront and dispel these rumors and parse fact from fiction,'' Schwartz said in the New York-based company's statement today. ``Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated.''
NEW YORK - Stocks tumbled Friday as a plan to alleviate a liquidity crisis at Bear Stearns Cos. touched off concerns about the severity of credit troubles. Each of the major indexes lost more than 2 percent; the Dow Jones industrial average gave up about 300 points.
Forget talk of soft landings. Ignore those who say that the Federal Reserve is in control of events. Take with a pinch of salt suggestions that the problems at Bear Stearns are a one-off.
The rescue package orchestrated for America's fifth-biggest investment bank makes it abundantly clear that this is now a different sort of market and a different sort of crisis. It is no longer hyperbole to state that the US is facing the most serious threat to its financial system since the Depression of the 1930s.
The troubles at Bear Stearns' hedge funds stemmed from borrowing $10 of investment for every $1 of equity. The managers could not sell in time and the effect of this imbedded leverage triggered a domino-like implosion in a thin market - a margin call for Wall Street. Leverage works both ways. Today, Wall Street's biggest firms are holding all sorts of credit instruments that are either impaired, difficult to value or worth a fraction of what they are on the books. Despite a cash infusion by Bear Stearns, the fifth largest player on Wall Street, unwinding the hedge funds wiped out the available capital and the funds were forced to close, triggering today's collapse.
They'll end up a division of JPM if they're lucky. After all they're the first to fall; they have massive exposure and that Fed infusion is like giving a plasma infusion to a warm corpse.
Originally posted by HimWhoHathAnEar
Secure a food source, starving sucks!
The launch of JPMorgan CommanD was announced in 2005, making it the industry's first full-service collateral management solution for OTC derivatives.