JPMorgan, N.Y. Fed step in to rescue Bear Stearns

NEW YORK -- Shares of the USA's fifth-largest investment bank plunged more than 50% in the first half hour of trading Friday and at the close were still down more than $26 to $30.92 — a 46% drop that erased more than $3 billion in market value.

The selling spread to the broader market, and the Dow Jones industrial average dropped 300 points, rebounded and then headed back for another 300-point drop before rebounding again.

Bear Stearns said it sought emergency funding after realizing it would not be able to keep up with a spike in demand from lenders and others trying to get their cash back.

CEO Alan Schwartz said had the bank not taken steps to secure temporary financing, the pace of customer withdrawals would have outstripped the company's ability to make payments.

Bear Stearns also said it has hired Lazard to help it consider alternatives, amid talkthat it's up for sale.

Rumors persisted throughout the week that Bear Stearns was facing major cash flow problems, although Schwartz initially denied those rumors. Through Thursday's close, shares of Bear Stearns had already dropped 18%.

"Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," Schwartz said in a statement Friday. "Amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."

In the world of high finance, perception not only trumps reality, it reshapes reality. Bear Stearns became an object lesson this week when the crisis of confidence spawned the equivalent of a "run on the bank," and forced the firm to go begging to the Federal Reserve for a loan.

The Fed complied Friday morning, in a deal struck with JPMorgan Chase, giving Bear access, through Chase, to additional cash from the Federal Reserve Bank of New York for 28 days.