Financial Institutions Crisis in the US starting Domino Effect?

"Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before."

"The extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear."

Another desperate move by the Fed to prevent the financial market from falling further? Most investors are seeking to liquidate their investments in these financial institutions because of bearish sentiment and these financial institutions are having big problems because they do not have enough liquidity for investors who want to liquidate their investments. Bear Stearns was the first dealer that face this problem.

The equity market did not resond well as the DJI starts to fall after an upward rally in the early morning. Another leading dealer Lehman Brothers fell about 30% in the opening. Is Bear Stearns starting a domino effect to other institutions. Can the Fed help to keep the dominos of the financial institutions from falling?

My 2 sen opinion is, the domino effect will continue and there is nothing Bernanke can do about it. The investors are worried about the US going into recession (Which Warren buffet and Jim Rogers already claimed that the US is already in a recession). Investors still want to cash out in a battered equity market and financial crisis.

Peter Morici, a professor of economics at University of Maryland, criticized the Fed for not imposing meaningful conditions on the financial institutions that it is providing cash. As a result, banks continue to impose onerous conditions on their innocent customers, he said. "Today's moves by the Federal Reserve are the desperate acts of failing men," he said.

Dean Baker, the co-director of the Center for Economic and Policy Research, criticized the Fed's "real turn to secrecy" in the new auction facilities. Baker said he sensed a whiff of panic at the Fed and in the Treasury Department. "The main thing is that they [Fed and Treasury] are really really scared. Telling us that everything is great is an insult to intelligence. They should own up to it and talk seriously to people," Baker said.

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