NEW YORK — U.S. stocks plunged as Bear Stearns said it received emergency financing to help it stave off liquidity problems, causing it to lose up to half its value at one point. That the credit crunch could pose such a threat to one of Wall Street's major brokers has unnerved markets.
Bear Stearns stock went into freefall, and was recently off 49%, at $29.50; around 10 a.m., the stock was ticking down $1 every second, astounding one long-time Wall Street trader.
"Someone told me a long time ago: the tape doesn't lie," the trader said.
JPMorgan Chase joined with the Federal Reserve to provide secure financing to the broker, which has exposure to the distressed mortgage-backed securities market. The chief executive of Bear Stearns said its liquidity position deteriorated significantly in the last 24 hours after "market chatter" that it was in trouble.
""I think one major problem is hedge funds exposed to credit. These hedge funds are very leveraged, and they borrow money from the prime brokers" such as Bear Stearns, said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. After the collapse of Carlyle Group hedge fund recently, many of those loans likely aren't being paid, Di Mattia said.
The Dow Jones Industrial Average recently slid 264, or 2.2%, to 11885. The broad Standard & Poor's 500 fell 33, or 2.5%, to 1282. The Nasdaq Composite shed 54, or 2.4%, to 2209.
