A fire-sale of Bear Stearns stunned Wall Street and pummeled global financial stocks today on fears that few banks are safe from deepening market turmoil.
President George W. Bush assured that the United States was "on top of the situation" in financial markets as the US Federal Reserve geared up for a deep cut in interest rates today to blow money into the fragile financial system.
Staff turning up for work at Bear Stearns' Manhattan headquarters were welcomed 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 Wall Street firm.
A hopeful Coldwell Banker realtor was hawking cheap apartments to employees who saw the value of their stock options go up in smoke.
The combination of the speedy sale of Bear Stearns at a rock-bottom price and the Fed's offer 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 plummeted 20 percent and briefly touched a 6-1/2 year low.
Hedge funds told Reuters on Friday they were still doing business with Lehman and a spokesman said the firm was in good shape.
The financial world is more interconnected than ever and the merest whiff of trouble can result in a run on a bank: trading partners and funds pulling money and calling in loans. Indeed, Bear's fall shows how fast things can change on Wall Street.
Shares of European banks - including UBS in Switzerland, HBOS in Britain and SocGen in France - fell more than 10 per cent as concern swept markets that the value of risky assets needs to be marked down even further.
In Asia some of Japan's biggest banks also fell, with Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group down 3 per cent or more.