The Daily Herald from Arlington Heights, Illinois • Page 10

SECTION 1 DAILY HERALD WOfW lr NmMfl MONDAY, MARCH 17, 2008 Fed tries 'pulling out all the stops' In rare weekend move, emergency lending rate cut Aunrintftl I'TFM WASHINGTON The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy. The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a BenBernanke lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms today. "These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

The Fed acted just after JP Morgan Chase Co. agreed to buy rival Bear Steams Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment banks. Just on Friday the Fed had raced to provide emergency financing to cash- strapped Bear Stearns through JP Morgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.

"It seems as if Bernanke Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus" Research, said Sunday fy. Analysts say the bid to rescue Bear Stearns was a bid to avoid huge losses for banks, hedge funds and other investors to which the ailing investment bank Is connected. And acting before trading on Wall Street, above, opened today was key. evening.

On world financial markets, Asian stocks plunged early Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand also fell. The new lending facility described as a cousin to the Fed's emergency lending "discount window" for banks is geared to give major investment houses a source of short-term cash on a regular basis if they need it. It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral including investment-grade mortgage backed securities will be accepted to back the overnight loans.

Treasury Secretary Henry Paulson said he was pleased by Sunday's developments. "Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liq- Change Your Life Forever! You are cordially invited to attend a Free Dinner hosted by Dr. Clark Benson Regardless of your sickness or diagnosis, Upper Cervical Health Care gives your body the best opportunity to get well and most importantly, to stay well. We believe that whatever created us will heal us, without assistance from man-made drugs or surgery.

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It doesn't apply to individual borrowers. The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least one-half percentage point on Tuesday. Analysts said the Fed's new steps may lessen pressure for a super-sized cut to that rate.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning essential for the promotion of economic growth." Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. CREATIVE CONTRACTOR ROOM ADDITIONS 847-705-6336 www.creativecontractorinc.com Owner established since 1958 June 9 August 14 ages 8-14 COLLEGE enrichment and sports cqmp REGISTER TODAY! To register or request a brochure, visit harpercollege.edu Or call 847,925,6300 Sale: Markets still expected to suffer Continued from Rige 1 tended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession." JPMorgan Chase Co. said it will guarantee all business such as trading and investment banking until Bear Steams' shareholders approve the deal, which is expected to be completed in the second quarter.

The acquisition includes Bear Stearns' Manhattan headquarters. JPMorgan Chief Financial Officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the 85-year-old Bear Stearns name would live on after surviving the Great Depression, two World Wars and a slew of recessions. He told analysts and investors on a conference call that JPMor- gan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds. "Having taking Bear Steams out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday," Cavanaugh said. Some analysts expected it to be a brutal day for global stocks, nevertheless.

Shortly after the news broke, Japan's benchmark Nikkei stock index plunged more than 3 percent in morning trading. A bankruptcy protection filing of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis more write- downs could come. JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb.

29. "The past week has been an incredibly difficult time for Bear Steams," Schwartz said in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances." Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments banks it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

After days of denials it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal. TIRED OF LOUSY SERVICE? Check Angle's List for thousands of unbiased ratings and reviews on service companies in your area. From painters and plumbers to movers and mechanics, Angie's List members report about their real-life experiences to help you decide who to hire, and who to avoid. Angles list More than 600,000 homeowners use the List! AngiesList.com 866-778-3947 As featured in Chicago Tribune, US News and World Report, Real Simple, The New York Times, and on WMAQ NBC 5, CNN, The Today Show, and NPR.

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