Bear Stearns Bailout

The Feds have bailed out Bear Stearns.

Bear Stearns Cos. Inc. went on life support Friday, forced to accept an extraordinary bailout package after being deserted by the clients and counterparties at the heart of the Wall Street firm's business.

Triggering a sell-off throughout the financial sector, Bear shares slumped 36% to $36.71 during afternoon trading, their biggest one-day drop in at least two decades.

The upshot is this: there is so much uncertainty in the market right now that the major players are hesitant to do much business with anybody who has a large exposure to the mortgage business.

J.P. Morgan was involved as a conduit for the financial support from the Feds, as the Fed can only loan to a commercial bank. This loan is good for 28 days and buys some time to find a buyer for Bear Stearns or some other long term solution.

Don't be surprised other investment houses need to be propped up. Also, don't be surprised if J.P Morgan or some other commercial bank ends up acquiring Bear Stearns for a while.

Long term, I think the Fed's will end up having to buy up a lot of these bad mortgages. They are more or less doing that now anyway.