U.S. Stocks on a Rollercoaster Ride, After Weekend of Federal Intervention
But a rare weekend rate cut didn't stop overseas markets from dropping.
March 17, 2008 — -- Wall Street went on a roller coaster ride today following a flurry of weekend activity by the Federal Reserve, spurned by the collapse of the venerable investment bank Bear Stearns.
After dropping 175 points at the open, the Dow rebounded into positive territory within the hour, before retreating again.
It all came after a franctic weekend that started with a deal being struck, backed by the feds, that allows JP Morgan Chase to buy faltering rival Bear Stearns at the fire sale price of $2 a share.
Then in a move to calm the markets and other banks, the Federal Reserve executed a pre-emptive strike with a rare announcement Sunday night that it would cut interest rates once again. The central bank approved a cut to the emergency rate it charges financial intuitions to 3.25 percent from 3.50 percent, effective immediately. The Feds also created a lending facility for big investment banks to secure short-term loans.
President Bush urged calm after the turbulent weekend, and praised the Fed's action. "We've taken strong decisive action." The president said after meeting at the White House with Treasury Secretary Henry Paulson and other members of his economic team.
The Fed's move was the fifth time since September that it lowered interest rates, and it acted after JPMorgan Chase agreed to buy rival Bear Stearns Cos. for $236.2 million. JPMorgan Chase will snatch up the Wall Street legend for a mere $2 a share, down from $170 per share last year.
"JP Morgan got Bear for a song. [The] good news is Bear Stearns got sold and they didn't just go under," said Mesrow Financial chief economist Diane Swonk. "Ben Bernanke is one of the foremost experts on the Great Depression, and he does not want a repeat of those conditions."
The buyout is the culmination of the 85-year-old business' stunning collapse.
JP Morgan Chase was rumored to cut a large number of employees at Bear, the business news channel CNBC reported today, citing unnamed sources.
A JP Morgan Chase spokesman told ABC News by email: "Those rumors are not correct, and it's too early to say how many job losses there will be."
In Europe, stock fell in morning trading. The U.K.'s benchmark FTSE 100 dipped 2.3 percent to 5,503.6 while France's CAC 40 slid 2.7 percent to 4,468.28. Germany's DAX slipped 3.3 percent, according to the AP.Some question whether tax payers should foot the bill for people who made bad investments and took home $3 billion in bonuses last year.
"Right now, we have no other recourse," said "Good Morning America" financial contributor Mellody Hobson. "We can talk about other controls and regulations that will be put in place after the fact. They weren't there, and we are where we are and what we're trying to do is stave off a tsunami of other defaults."
Bear Stearns' financial troubles won't affect the average person's money in the bank.
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