you echo Jim Cramer on the latter; the big boys KNEW back in April 2007 that BSC, et al were fucked.
It is no coincidence that JPM 'bailed out BSC': just check the financial newspapers, less than a year agol [youtube links above].
They were like predators in the night, waiting, waiting. For the Big Kill.
Now they are sated.
It's been in the pipe a year or more; just like the whole sub yeah yeah prime fiasco.
The bigger bully boys crowded out BSC, by stealth, in order to consolidate their combined wealth [read debt], with the tacit backing of the BSC Board of mis-Directors.
Share prices around the world fell sharply today and the dollar plunged as shockwaves from the collapse of US investment bank Bear Stearns swept through financial markets.
Wall Street opened almost 200 points lower this afternoon, at 11,760.67, while the FTSE 100 was more than 200 points lower at one stage.
There was a brief respite across the Atlantic later, with the Dow Jones index briefly moving into positive territory. By 3.30pm, however, it was back in the red with a loss of just under 70 points, at 11,882.
Towards the close of trading in London, the FTSE 100 was still showing a decline of over 150 points, or 2.7%, at 5,478.0. There were sharp falls throughout Europe and in Asia the Nikkei 225 ended the day down 3.7% at 11,787.51, its lowest level since August 2005.
Banking shares were particularly hard hit, with billions of pounds slashed from their stock market value. HBOS was the biggest faller in the FTSE 100, tumbling almost 12% at one stage, although they came off the worst towards the close. Alliance & Leicester, Royal Bank of Scotland and Barclays also suffered sharp falls.
The Bank of England moved to stabilise the markets this morning, offering £5bn of three-day funds in a move designed to bring overnight interest rates down. Banks scrambled for the cash, asking for nearly five times more than was on offer.
The BoE said that along with other central banks it was "closely monitoring market conditions".
Shares in investment bank Lehman Brothers, which has been the subject of intense rumours in recent weeks, plunged more than 25% and there were sharp losses for Morgan Stanley and Goldman Sachs - all are due to report results this week.
The $2-a-share JP Morgan takeover of Bear Stearns was put together rapidly over the weekend, with the US authorities keen to tie up a deal before the Asian markets opened.
The US Federal Reserve took emergency action on Sunday, cutting its discount rate - the rate at which banks lend to each other - by a quarter of a point. It also said it would set up a new lending facility for investment banks - something it has not done since the Great Depression in the 1930s.
US president George Bush attempted to reassure the markets this afternoon, saying that the Fed had taken "strong and decisive" action.
"In the long run our economy's going to be fine. Right now we're dealing with a difficult situation."
But the Fed's actions failed to reassure the markets and traders remained in a state of near-panic, with many fearing that Bear Stearns will not be the last casualty of the credit crunch that has gripped the global financial system since last August.
In London, leading City figures said the scale of the crisis was virtually unprecedented: "It does scare me," said veteran trader Terry Smith, chief executive of specialist inter-bank broker Tullett Prebon.
"I have been working in finance in the City and worldwide for 34 years and I have never seen anything like this," Smith told BBC Radio 4's Today programme.
"I don't think anybody alive has seen events of this seriousness and magnitude affecting the financial markets."
He doubts that lowering interest rates will have any real effect: "High interest rates didn't cause this problem, so lowering interest rates isn't going to solve it. It is hard to see exactly what tools the authorities do have."
Russell Jones, head of fixed income and currencies global research at RBC Capital Markets, said the markets are "in uncharted waters, at least in the modern day context".
The Fed's activities over the last fortnight imply that a number of systemic risks are crystalising - "and this in turn implies a need for an extraordinary response," he said.
"If the US financial system is in as much trouble as it seems, it is a global problem and will require a global policy response."
The dollar extended its recent heavy losses, falling to around ¥95.72 at one stage, the lowest level against the Japanese currency since August 1995. Sterling was one of the few currencies to fall against the ailing dollar today, dropping to around 2.0024 and reflecting the prospect of aggressive UK rate cuts.
In its statement on the emergency funding, the Bank of England said the action was being taken "in response to conditions in the short-term money markets this morning," and said it would continue to act to ensure that the overnight rate is close to Bank rate.
Philip Shaw at Investec said the £5bn represents a "substantial sum" in what is the Bank of England's first "fine-tune" exercise since the Northern Rock crisis.
"Clearly the BoE is sufficiently concerned about the tightness of shortdated cash to take substantial action to add liquidity," he said. "However despite the size of the add, the initial response from UK interbank markets has been one of disappointment, in the sense that it is insufficient."
The situation is "very serious" he said, and "represents a new and unwanted twist to the credit squeeze".
Money markets moved to price in even more interest rate cuts than already expected from central banks.
UK rate futures are now pricing in a whole percentage point of base rate cuts by year-end. In the US, traders fully expect tomorrow's policy meeting to conclude with a whole percentage point cut in one fell swoop. Some even expect the move before the Fed's scheduled meeting.
Meanwhile gold, a traditional safe haven in times of turmoil, jumped by more than 3%, hitting a new record of $1,030.80 an ounce. Oil, reflecting the plunging dollar, spiked to a new peak of $111.80. Both later fell back, however, amid a sell-off of commodities on growing concerns over the state of the US economy.
Last edited by atm on Mon Mar 17, 2008 1:42 pm; edited 1 time in total
Joined: 16 Jun 2006 Posts: 3204 Location: Capacious Creek
Posted: Mon Mar 17, 2008 3:10 pm Post subject:
Did I offend you ATM? My bad.
I'm no troll, sometimes I do post more than one or two sentences, look around.
I didn't have any intentions of undermining your post or research. Days or years or whatever.
I was just trying to say..after all is said and done...anything destructive will be blamed on Bush.
Here they come to save the day!
White House hopefuls attack Bush as Wall St reels
1 hour ago
WASHINGTON (AFP) — Democratic presidential contenders clamored Monday for federal help to "Main Street" homeowners after the US government orchestrated a bailout of crippled Wall Street bank Bear Stearns.
New York Senator Hillary Clinton said she had contacted Treasury Secretary Henry Paulson and New York Federal Reserve president Tim Geithner as the financial markets reeled from the Bear Stearns crisis.
"This is a moment of great unique uncertainty in our financial markets. The crisis that began in the subprime mortgage market has spilled over and now poses a broader threat," she said in a statement.
"In my conversations earlier this morning, I raised my concern about the continuing numbers of foreclosures and my very strong belief that in the absence of addressing that aspect of this subprime mortgage credit crisis, we will not be able to make the progress that we have to make," Clinton added.
Clinton's White House rival Barack Obama said the crisis, triggered by bad investments by Bear Stearns in the crisis-hit US property market, revealed neglect by President George W. Bush's administration.
"History will not judge President Bush kindly for his failure to act in a way that could've prevented or alleviated this economic crisis," the Illinois senator said in his own statement.
"Nowhere has the failure been more pronounced than the president's refusal to address the plight of homeowners and Main Street businesses that lie at the heart of the turmoil right now," he said.
Both Democrats are campaigning for direct federal assistance to householders struggling to pay their mortgages, with Clinton proposing a freeze on repossessions and on interest-rate hikes by lenders.
Aides said Clinton had contacted Paulson and Geithner in her capacity as New York senator, to register concerns about the impact on Bear Stearns employees and their families, and on Manhattan's economy.
The Fed and rival JPMorgan Chase rode to Bear Stearns's aid on Friday in an extraordinary bailout, but by late Sunday JPMorgan said it was buying the troubled firm for a pittance in a Fed-backed rescue.
Last edited by bri on Mon Mar 17, 2008 9:02 pm; edited 1 time in total
The fine details of the Bear Stearns Raid are well worth a look
Just 5 days ago things looked good for the company after this happened:
Bear Stearns CEO: No Liquidity Crisis for Firm
By Andrew Fisher | 12 Mar 2008
Bear Stearns was given a boost this week when Securities and Exchange
Commission Chairman Christopher Cox said his regulatory agency is
comfortable with the 'capital cushions' at the nation's five largest
By late Friday, the rumor mill had ensured that the $17 Billion cash had
been withdrawn by investors.
Of course, the Fed could have intervened without JP Morgan:
Simultaneously with the announcement of Bear Stearns's sale, the
Fed took the extraordinary measure of allowing securities firms to borrow
from the central bank under terms normally reserved for regulated
banks. People close to Bear Stearns were bitter about the move, saying
that had the Fed acted earlier, the firm could potentially have survived
by borrowing directly from the Fed and using its troubled securities as
But the fix was in. To seal the deal the Fed applied the screws:
Yeah. This gives new meaning to the term "bank robbery".
No wonder the Bear Stearns shareholders are up in arms:
The deal already is prompting howls of protest from Bear Stearns
shareholders, since the New York company last week indicated that its
book value was still close to its reported level of about $84 share at the
end of the fiscal year. "Why is this better for shareholders of Bear
Stearns than a Chapter 11 filing?" one Bear shareholder asked J.P.
Morgan executives in a conference call last night.
Which as got to be the best question ever!!
Why is this better than Chapter 11 indeed?
"I've got to think we can get more in a liquidation, I'm not
selling my shares, this price is dramatically less than the book value
Alan Schwartz told us the company is worth," said a midlevel Bear
Stearns executive. "The building is worth $8 a share."
Nice. Two billion dollars worth of brokerage business too!
It doesn't get better.
By the way, the Wall Street Journal played an interesting role in this.
Back in Nov. 2007, they forced the resignation of Bear Stearns Chief
Executive Jimmy Cayne with a 'hit piece' that ensured Alan Schwartz
would be in place as CEO to steer this deal with JPM:
Bear Stearns CEO says pot smoking story untrue
Thu Nov 1, 2007 5:23pm EDT - By Walden Siew
NEW YORK (Reuters) - Bear Stearns Chief Executive Jimmy Cayne denied
he "engaged in inappropriate conduct" after a Wall Street Journal article
said on Thursday he smoked marijuana with a woman in a Memphis hotel
Fox-Pitt Kelton analyst David Trone said the mere accusation alone will
make it difficult for Bear Stearns' board to support the 73-year-old Cayne.
Don't worry about Schwartz. All his eggs are not in the Bear Stearns basket.
Just a couple of weeks ago this happened:
Microsoft Taps Bear Stearns CEO To Assist In Yahoo! Deal
March 06, 2008 - Microsoft Corp. has brought in some muscle to
help it clinch a deal for Yahoo! Inc. The software maker has enlisted Bear,
Stearns & Co. CEO Alan Schwartz to advise it on the $42 billion
deal, according to The Wall Street Journal.
Among Schwartz's recent exploits, in 2006 he helped former Time
Warner Inc. CEO Richard Parsons parry an attack by financier Carl
Icahn and Wasserstein, CEO of Lazard. In another big media deal,
Schwartz advised then Walt Disney Co. boss Michael Eisner
on the company's purchase of Capital Cities/ABC in 1996.
Right now I place my bet also on Goldman Sachs and Citigroup coming out way ahead on all of this.
Goldman's been selling product in their offices and selling off out the back door four a couple of years now when it comes to the current housing crisis.
Citigroup to me is much like JPM they are America's old tied wealth and will weather without much of a blemish.
Of course I could be wrong depending on what kind of a consolidation and financial restructuring war the Money Men wish to play. Either way you guys are on the mark when it comes to outright panic and scam written in glass. Those in glass houses shouldn't throw stones may take on new meaning. Let's see what one of the stooges of this new restructuring of the banking system has to say. Someone who helped to create the crisis in my opinion.
Greenspan: Economy worst since WWII
U.S. financial crisis to continue for months, says former Fed chairman.
Last Updated: March 17, 2008: 7:11 AM EDT
NEW YORK (CNNMoney.com) -- Today's economic condition could likely be seen as "the most wrenching since the end of the second world war," wrote former Federal Reserve chairman Alan Greenspan in the Financial Times on Monday.
The U.S. financial crisis won't end until housing prices stabilize, but that won't happen for months, wrote Greenspan.
The models used by the finance industry to determine risk and measure economic strength are too simple to fully account for human responses, he said. "We cannot hope to anticipate the specifics of future crises with any degree of confidence," he wrote.
However, Greenspan said that he hoped the fallout would not take away the finance industry's ability to regulate itself. Market flexibility and free competition are the most reliable safeguards against economic trouble, he said; the system which is supposed to guard against unanticipated losses will need to be overhauled.
We will never have a perfect model of risk
By Alan Greenspan
Published: March 16 2008 18:25 | Last updated: March 16 2008 18:25
The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.
Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes – those belonging to builders and investors – have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.
The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market.
Home prices have been receding rapidly under the weight of this inventory overhang. Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand. Indeed, this sharply lower level of pending housing additions, together with the expected 1m increase in the number of US households this year as well as underlying demand for second homes and replacement homes, together imply a decline in the stock of vacant single-family homes for sale of approximately 400,000 over the course of 2008.
The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future.
The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.
The problems, at least in the early stages of this crisis, were most pronounced among banks whose regulatory oversight has been elaborate for years. To be sure, the systems of setting bank capital requirements, both economic and regulatory, which have developed over the past two decades will be overhauled substantially in light of recent experience. Indeed, private investors are already demanding larger capital buffers and collateral, and the mavens convened under the auspices of the Bank for International Settlements will surely amend the newly minted Basel II international regulatory accord. Also being questioned, tangentially, are the mathematically elegant economic forecasting models that once again have been unable to anticipate a financial crisis or the onset of recession.
Credit market systems and their degree of leverage and liquidity are rooted in trust in the solvency of counterparties. That trust was badly shaken on August 9 2007 when BNP Paribas revealed large unanticipated losses on US subprime securities. Risk management systems – and the models at their core – were supposed to guard against outsized losses. How did we go so wrong?
The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality. A model, of necessity, is an abstraction from the full detail of the real world. In line with the time-honoured observation that diversification lowers risk, computers crunched reams of historical data in quest of negative correlations between prices of tradeable assets; correlations that could help insulate investment portfolios from the broad swings in an economy. When such asset prices, rather than offsetting each other’s movements, fell in unison on and following August 9 last year, huge losses across virtually all risk-asset classes ensued.
The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics.
The contraction phase of credit and business cycles, driven by fear, have historically been far shorter and far more abrupt than the expansion phase, which is driven by a slow but cumulative build-up of euphoria. Over the past half-century, the American economy was in contraction only one-seventh of the time. But it is the onset of that one-seventh for which risk management must be most prepared. Negative correlations among asset classes, so evident during an expansion, can collapse as all asset prices fall together, undermining the strategy of improving risk/reward trade-offs through diversification.
If we could adequately model each phase of the cycle separately and divine the signals that tell us when the shift in regimes is about to occur, risk management systems would be improved significantly. One difficult problem is that much of the dubious financial-market behaviour that chronically emerges during the expansion phase is the result not of ignorance of badly underpriced risk, but of the concern that unless firms participate in a current euphoria, they will irretrievably lose market share.
Risk management seeks to maximise risk-adjusted rates of return on equity; often, in the process, underused capital is considered “waste”. Gone are the days when banks prided themselves on triple-A ratings and sometimes hinted at hidden balance-sheet reserves (often true) that conveyed an aura of invulnerability. Today, or at least prior to August 9 2007, the assets and capital that define triple-A status, or seemed to, entailed too high a competitive cost.
I do not say that the current systems of risk management or econometric forecasting are not in large measure soundly rooted in the real world. The exploration of the benefits of diversification in risk-management models is unquestionably sound and the use of an elaborate macroeconometric model does enforce forecasting discipline. It requires, for example, that saving equal investment, that the marginal propensity to consume be positive, and that inventories be non-negative. These restraints, among others, eliminated most of the distressing inconsistencies of the unsophisticated forecasting world of a half century ago.
But these models do not fully capture what I believe has been, to date, only a peripheral addendum to business-cycle and financial modelling – the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve. Asset-price bubbles build and burst today as they have since the early 18th century, when modern competitive markets evolved.To be sure, we tend to label such behavioural responses as non-rational. But forecasters’ concerns should be not whether human response is rational or irrational, only that it is observable and systematic.
This, to me, is the large missing “explanatory variable” in both risk-management and macroeconometric models. Current practice is to introduce notions of “animal spirits”, as John Maynard Keynes put it, through “add factors”. That is, we arbitrarily change the outcome of our model’s equations. Add-factoring, however, is an implicit recognition that models, as we currently employ them, are structurally deficient; it does not sufficiently address the problem of the missing variable.
We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.
In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence. Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.
The writer is former chairman of the US Federal Reserve and author of ‘The Age of Turbulence: Adventures in a New World’
I blackened both key points,Key words and some Hyperbole and/or double speak.
I fail to understand why the Financial Times gives this man a forum when he speaks of decades or times past and he has been Chairman as long as he has.
Well I do know but thats why I am on a forum such as this.
I consider myself a layman on the financial issue if you want to judge me by all the schooling you may need as a economic guru but I have followed the markets and economic system for at least twenty years.
Friends of mine (A decent number) stake their livelihood and careers on this industry.
The only time they ever have agreed with my "crazy far out conspiracy theories" is when I spoke of the looming financial crisis as a tool for less competition and the elimination of any true free markets. This is so dam classic that in this world of the internet and truth awakening I can not understand why more people have not grasped onto it. (Let me also state that the U.S. of America is in an election years. How Fitting HUH?
Anyway just a stupid prediction: (I hate it but I must)
This to me has been so obvious and/or transparent that I do believe we will see some sort of MSM publicized event to take place in the near future(within a years time ) where they will come together (very accessible) behind closed doors where they will lay down the gamut of new enforceable laws/procedures/rules/regulations and/or structures of the international financial system. How quaint!
The true story.
The shit was rigged from the beginning, most big wigs new it and took it for a great ride till the old mare got tired. They took the credit system for all they could milk out of the ignorant among us and will now leave a lot of people in large debt or down an economic class.
I do believe in personal responsibility but this shit goes way beyond that!
_________________ "Fear is the passion of slaves."
By the way you guys! My last post was pre-- what you have posted the last couple of posts.
It makes no difference really I think Fintan and ATM are on it here.
But I do say I do not think I am to bad myself.
I did enjoy the last few though. Gives me another insight on timely (play by play) events and how it happened.
The weekend rush no doubt.
I was going home from a friends about 7 or 8pm Sunday evening and put on ABC radio when I heard a financial talk show speaking of this and I thought to myself WOW I never hear anything that exciting as this on a sunday night.
Weekend Rush!!-Got that right.
The host there described it this way:
"It's like swimming at the beach and low tide rolls in abruptly, It's then when you know who is wearing a bathing suit and who is not." (I think I got that right)
He also said (paraphrasing): Two hundred sumthing Million!!! my GOD it's like buying a Bentley for the price of one hub cap! Warren Buffett takes a few steps and walks past that kind of money daily"
WTF!! WHY is no one questioning this BS endeavor? I guess time will tell as lawyers surround the tent. Although, I am not a fan of the law profession I do not blame these investors one bit since I think we are seeing rape before our eyes.
The new thing I have heard today is how great it will be for the economy.
Keep it comin!
Great thread. _________________ "Fear is the passion of slaves."
Continuity: Here's a funny YouTube video that has John Fortune & John
Bird on the South Bank show giving their take on the subprime crisis etc.
Absolutely priceless! ROTFLMAO.
I've always loved the understated but biting sarcasam this pair manage
to put into their mock "discussions." Gonna stick this on the homepage
in a few minutes. Thanks lol
Bri: after all is said and done...anything destructive will be blamed on Bush.
For sure. The timing of all this is very precise.
We knew this was coming since late 2005, when Greenspan
stepped down and handed the poisoned chalice to Bernanke.
Check out the reaction of Wall Street people to what just happened:
Wall Street traders and analysts on their way to work
expressed both skepticism and hope in the wake of JP Morgan's
bailout of Bear Stearns.
Robert Precter has for some time
been one of the few sane voices.
Watch Robert Prechter on Bloomberg TV in Oct, 2007 on the 20th
anniversary of the 1987 stock market crash predict what is unfolding
before our eyes today. An uncannily accurate forecast from the man
that forecast the 1987 stock market crash.
An article last week on Precter's website points out the flimsy nature of
the current Fed so-called "support". More on the Fed in the video above.
The Fed's "Influence" is "Nonexistent"
Is Anyone REALLY Surprised
By Robert Folsom Wed, 12 Mar 2008
Amidst all the happy words and noises that followed yesterday's story that "Fed Offers $200 Billion Lifeline for Spurned Debt," most news accounts either failed to include or buried the truly relevant details:
"As collateral, the Fed will accept debt or mortgage-backed securities issued or guaranteed by Fannie and Freddie, also known as "agency" securities. It will also accept other residential-mortgage-backed securities, provided they are rated triple-A and not on watch for downgrade....
"The Fed is requiring the collateral to exceed the amount of the loan to protect against losses, so dealers could be surrendering more than $200 billion of mortgage-backed securities to the central bank. That figure still equals less than 5% of all agency mortgage-backed securities."
Looked at closely, the Fed's "Offer" of a "Lifeline" comes attached with the kind of terms you'd expect from a benevolent loan shark. Banks can "borrow" Treasury securities from the Fed, but those Treasuries must be "repaid" in 28 days. And, the "borrowing" must be more than fully collateralized -- meaning, the Fed won't even recognize the face value of AAA-rated mortgage backed securities. Banks must put up more than $200 billion in collateral, in case that collateral loses value in the next 28 days.
Panic-stricken financial markets were looking for a full one-point cut in interest rates from the US Federal Reserve later today amid fears that the collapse of the investment bank Bear Stearns could be the trigger for a global financial and economic meltdown.
The International Monetary Fund and the Organisation for Economic Cooperation and Development warned yesterday they would cut their forecasts for the world economy as they predicted that Wall Street's woes were spreading to other countries.
Shares in London lost almost 4% of their value on concern that the Bank of England, which yesterday made another injection of emergency funds to prop up money markets, would have to cut rates further than previously expected to prevent the British economy following America's into a slump.
Gordon Brown tried to calm nerves by telling parliament that the economy was "resilient" and that the fundamentals were strong. His views were echoed by President George Bush who held talks with his top economic advisers and declared that the authorities were "on top of the situation".
But that was not enough to prevent big losses in stock markets, record lows for the dollar and huge swings in the prices of oil and gold.
The sale of Bear Stearns - the fifth biggest US investment bank - to JP Morgan over the weekend for just $2 a share prompted speculation that other financial institutions around the world could be in trouble.
Staff at Bear's Manhattan headquarters were welcomed to work yesterday by a spoof $2 bill stuck to the revolving doors.
The jobs of some of the 1,500 employees of the bank who work in London were rumoured to be under threat. The near-collapse of Bear Stearns echoed the failure of Northern Rock back in September and prompted a similar angry response from shareholders.
British billionaire investor Joe "the boxer" Lewis, who stands to lose around half of his $2.5bn fortune if the Bear sale goes through, said in a television interview that the bank's shareholders would block the deal: "I think it's a derisory offer and I don't think they'll get it."
Lehman Brothers, another big US investment bank, saw its shares fall by nearly half at one stage yesterday on panic selling. The bank, which releases results today, said there was nothing to justify the drop in its share price.
Asian stock markets were the first to feel the impact, dropping heavily with Hong Kong's Hang Seng and Tokyo's Nikkei indices tumbling 5.2% and 3.7% respectively. In Europe, Germany's DAX dropped 4.2%, France's CAC 40 shed 3.5% and the FTSE in London plunged 3.9% to 5,414.4, its lowest close since 2005.
All the indices were dragged lower as nervy investors dumped banking shares. In Britain, shares in Royal Bank of Scotland dropped 8.7% while Barclays lost 9.4% and HBOS nearly 13%.
In the US, though, the Dow Jones fell heavily at the open, down nearly 2% at one point, but recovered later in the day to be up 50 points at just under 12,000 amid hopes that today's rate cut in the US would boost the economy.
On the foreign exchanges, the dollar fell to a record low against the euro, above $1.57, and the Swiss franc, and tumbled 3% against the Japanese yen to a 12½-year low. The pound was the only major currency not to rise against the dollar and fell to its lowest level in a decade against a basket of major currencies. Investors are concerned about the British economy's reliance on the City and growing expectations of more rapid rate cuts from the Bank of England undermined the pound.
The Bank announced an extra £5bn of liquidity into money markets as the market all but froze up as commercial banks refused to lend to each other for fear that other banks may not be solvent enough to repay the loan. The Bank's offer of extra funds was nearly five times oversubscribed.
Speculation was also mounting last night that central banks would soon be forced to intervene in markets to prevent the dollar, which has already shed 13% of its value so far this year, tumbling further. That would mark the first currency intervention since 2000, when the euro was at a record low.
IMF chief Dominique Strauss-Kahn said currency intervention was not needed but added that the economic outlook was worsening. "Obviously the financial markets crisis which started in the United States is now more serious and even more global than it was a few weeks ago. The risks of contagion are very high," he said.
The Fed, which has already cut rates by 2.25 percentage points, is expected to chop another point of its key Fed funds rate later today. But there are rising expectations it will have to go much further. "Further systemic shocks raise the possibility of Fed Funds hitting zero and other more radical policy actions being employed," said Mark Cliffe, chief economist at ING bank.
The gloom over the world's largest economy intensified as figures showed industrial production slumped another 0.5% last month.
"The US economy is slipping into recession, and even though the manufacturing sector is being supported by robust export demand, it is going into recession too," said Nigel Gault, chief US economist at consultancy Global Insight.
Commodities markets also gyrated heavily. Oil prices hit yet another record high of nearly $112 a barrel while gold leapt 3% to almost $1,034. Later, though, a general sell-off in commodities saw oil fall back to $1,05.50 and gold to $996.50.
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