Fed Attempts To Rescue Ailing Financial Sector
March 17, 2008
Shocking global markets on Monday, Bear Stearns announced they were being taken over by JP Morgan Chase as a result of a lack of liquidity. Bear Stearns traded down 90% in 2 days after fears stemming from their inability to finance their current operations surfaced and were verified. JP Morgan Chase, now the owner of Bear Stearns, paid US$236 million or US$2 dollars a share for the struggling firm. The US Federal Reserve immediately cut the Discount rate by 25bps on Sunday in response to the continuing credit crunch, and encouraged a wide range of financial firms to utilize the lending facility to maintain liquidity. The US Dollar continued to remain under extreme pressure, with the news notably weighing on USD/JPY, currently trading at twelve and a half year lows. It is widely anticipated that the US Federal Reserve will aggressively cut the Federal Funds rate on Tuesday in an attempt to avert a recession.