Bear Stearns is Gone, But Crisis Remains

Gold, meanwhile, soared to $1,020 an ounce, up from $998.30 late on Friday in New York, as fearful investors sought a safe haven.

While JPMorgan was raiding its petty cash to buy Bear, the Federal Reserve took the highly unusual move of cutting the discount rate, charged on loans to banks, on a Sunday. Not only did it act over the weekend, but it cut just two days before a regularly scheduled meeting at which it was widely expected to reduce the discount and the more important federal funds rates, probably by three-quarters of a percentage point each.

The new discount rate is 3.25%, down from 3.5%, putting it just a quarter percentage point above the 3.0% of federal funds, the interbank loan rate that typically is the cheapest cost of money in the U.S. market.

The Fed acknowledged the extraordinary circumstances, including the collapse of the fifth-largest Wall Street investment house, that have hit the market in the last few days. The emergency lowering of the discount rate and the broader access to the window were "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement Sunday. "Liquid, well-functioning markets are essential for the promotion of economic growth."

The Fed is part of the JPMorgan takeover agreement as well, agreeing to take $30 billion of Bear's less liquid assets as collateral, a move that will no doubt make it easier for JPMorgan to sell the transaction to its own investors.

By "less-liquid assets," the Fed probably meant " mortgage-backed securities." The market for these instruments has evaporated since U.S. homeowners began defaulting on mortgages in sizable numbers a little more than a year ago.