JPMorgan is acquiring Bear Stearns at a huge discount of $2 pershare. On Friday the stock closed at $30 per share.

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The Fed's fingerprints were unapologetically all over thetransaction; it is rare for the monetary authority to step into aprivate market transaction. However, given Bear Stearns' reach intothe capital markets and its size--one of the largest brokers andunderwriters in the financial markets--government involvement wasall but expected.

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As part of the deal, the Fed has promised to provide $30 billionto JPMorgan to finance the illiquid assets held by Bear Stearns.The Fed also took two other key steps on Sunday to stabilizemarkets in what was the first weekend emergency action in more than30 years.

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First, the Federal Reserve Board voted unanimously to authorizethe Federal Reserve Bank of New York to create a lending facilityto improve the ability of primary dealers to provide financing toparticipants in securitization markets, the Bank reported on itswebsite on Sunday. This facility is available for business todayand will be in place for at least six months. Credit extended toprimary dealers under this facility may be collateralized by abroad range of investment-grade debt securities and the interestrate charged on such credit will be the same as the primary creditrate, or discount rate, at the Federal Reserve Bank of NewYork.

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Second, it decreased the primary credit rate from 3.5% to 3.25%,thus lowering the spread of the primary credit rate over theFederal Open Market Committee's target federal funds rate toone-quarter percentage point. The Fed also approved an increase inthe maximum maturity of primary credit loans to 90 days from 30days. Although unorthodox for the monetary authority, these stepswere taken with a fundamental goal in mind, the Fed says in aprepared statement. They are "designed to bolster market liquidityand promote orderly market functioning. Liquid, well-functioningmarkets are essential for the promotion of economic growth," itnotes.

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Bear Stearns' troubles metastized on Friday when it became clearthat counterparties and clients had lost confidence in the firm andstopped trading with it. Hoping to stem this flight of investorconfidence, JP Morgan executives told listeners during a conferencecall on Sunday that it would guarantee Bear Stearns' tradingobligations. The acquisition is expected to be complete in 90days.

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