Fire Sale

Is the U.S. economy poised to lose a majority of its value?

Not good:

Pushed to the brink of collapse by the mortgage crisis, Bear Stearns Cos. agreed -- after prodding by the federal government -- to be sold to J.P. Morgan Chase & Co. for the fire-sale price of $2 a share in stock, or about $236 million.

Bear Stearns had a stock-market value of about $3.5 billion as of Friday -- and was worth $20 billion in January 2007.

According to the article, the federal government told Bear Stearns to sell rather than go bankrupt and spook the market even worse. Meanwhile the major Asia stock markets have tumbled tonight:

The markets responded negatively to the purchase of Bear Stearns over the weekend by JPMorgan Chase. The acquisition, backed by the Federal Reserve, underscored the severity of the credit crisis in the United States and the weakness of the American economy.

In Tokyo, the region’s largest stock exchange, the benchmark Nikkei 225 index was trading at an almost three-year low. By midday, the index dropped 4.2 percent to 11,726.99, falling below 12,000 for the first time since August 2005.

Elsewhere in Asia, South Korea’s benchmark Kospi index was also down 2.4 percent. Australia’s S&P/ASX 200 index fell 2.4 percent, and in New Zealand, the NZX 50 index dropped 1.9 percent.

The declines in Tokyo came even as the Japanese central bank, the Bank of Japan, moved to shore up financial markets by injecting $4.1 billion into short-term money markets.

The U.S. dollar getting dumped -- don't want to be stuck with worthless paper:

The dollar plunged 3 percent against the yen on Monday to hit a 13-year low below 96 yen, with investors dumping the U.S. currency on fears that more major financial firms will become casualties in the fast-spreading credit crisis that claimed U.S. investment bank Bear Stearns...

..."The market is totally panicking," said a trader at big Japanese bank. "The fact that the Fed had to announce its emergency steps on Sunday night highlighted the seriousness of the situation."

But not only is the Fed essentially taking over Bear Stearns with their $30 billion credit line to push the deal, but:

In a potentially even bigger move, the Federal Reserve also announced its biggest commitment yet to lend money to struggling investment banks. The central bank said its new lending program would make money available to the 20 large investment banks that serve as “primary dealers” and trade Treasury securities directly with the Fed.

Much like a $200 billion loan program the Fed announced last Tuesday, this program will essentially allow the government to hold as collateral a wide variety of investments that include hard-to-sell securities backed by mortgages. But Fed officials told reporters on Sunday night that the new program would have no limit on the amount of money that can be borrowed.

In a conference call with reporters, the Federal Reserve chairman, Ben S. Bernanke, said the central bank was moving to provide money to financial institutions that need it.

What will Monday bring?