The credit crisis hit a new level last week when brokerage firm Bear Stearns faced near collapse on Friday. This came less than two days after the Fed acted to provide short term liquidity by swapping AAA rated securities for treasury backed securities. The amount of fear and uncertainty has been hovering over the markets for months and culminated this weekend when JP Morgan agreed to purchase Bear Stearns for $2 per share, for a company that has traded over $100 per share this year. The total transaction is valued at two hundred and fifty million dollars, for a stock that had a market cap over two billion dollars just 48 hours earlier. The move will be supported by the Fed for over thirty billion in liquid funding to help with Bear Stearns investments and credit facilities. In addition to helping assist this transaction the Fed has cut the fed discount rate to 3.25% and will allow for primary dealers to participate for a period up to six months. On Tuesday, the fed is likely to announce they will be reducing the Fed Funds rate by a full 1% as they aggressively attempt to restore confidence into the market.

3-16-2008 ©LowRateMortgage.com

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