Stearns Sale Sends Markets Tumbling

NEW YORK -- A fire sale of Bear Stearns stunned Wall Street and pummeled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil.

Trying to assuage worries that the credit crisis is spinning out of control, U.S. President George W. Bush said the United States was "on top of the situation."

And the U.S. Federal Reserve geared up for a deep cut in interest rates on Tuesday to blow money into the fragile financial system -- the latest in a series of rate cuts that has brought down borrowing costs by 2 1/4 percentage points and hammered the U.S. dollar to record lows.

Staff at Bear Stearns' Manhattan headquarters were welcomed to work on Monday by a two-dollar bill stuck to the revolving doors -- a spoof on the bargain-basement price of $2 per share that JPMorgan Chase is offering for the firm. A hopeful Coldwell Banker real estate agent was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.

The combination of Bear Stearns' bailout and the Fed's offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.

And it scared market players worldwide.

"If you get a crisis of confidence in the wholesale banking space and something the size of Bear Stearns could go under, then people start to panic. You get a real fear factor," said Simon Maughan, analyst at MF Global in London.

The grim mood spread beyond Bear, Wall Street's fifth-biggest bank, as investors bailed from rival Lehman Bros

for fear it would be next to face a cash crunch. Lehman shares briefly touched a 6-1/2 year low and later traded down 20 percent.

JPMorgan shares, by contrast, jumped 10 percent after the bank worked out a deal to buy Bear for $236 million -- just 1.2 percent of what it was worth a little over a year ago. JPMorgan's chief, Jamie Dimon, a details-oriented Wall Street luminary with a track record of fixing up banks, also got the Fed to agree to finance up to $30 billion of Bear's assets.

The financial world is more interconnected than ever and the merest whiff of trouble can result in an old-fashioned run on a bank: trading partners and funds pulling out money and calling in loans. Indeed, Bear's fall shows how fast things can change on Wall Street.

Bankers around the world were already fretting about job losses because of the endless series of credit losses and paralyzed markets. The mayhem could spill over to Main Street because the financial industry is at the heart of a U.S. economy where services make up 80 percent of the pie.

n Billionaire investor Wilbur Ross, who made his fortune making bold bets on distressed industries, is buying H&R Block's mortgage servicing business for $1.1 billion amid the worst market crisis in decades.

Ross will emerge the No. 2 U.S. subprime mortgage servicer with a deal announced at the same time as humbled investment bank Bear Stearns leaps into the arms of JPMorgan Chase, and mortgage fund Carlyle Capital collapses.

Both developments stem from the accelerating demise of mortgage and credit markets.