The Fed announces historic steps to calm markets as Bear Stearns is sold for $2 a share.

The Fed announces historic steps to calm markets as Bear Stearns is sold for $2 a share.

The Fed announces historic steps to calm markets as Bear Stearns is sold for $2 a share.

A summary of what's in the major U.S. newspapers.
March 17 2008 7:06 AM

The Fed Goes Deep

The New York Times, Washington Post, Los Angeles Times, and USA Todayall lead with, while the Wall Street Journal devotes much of its Page One to, the Federal Reserve announcing a series of moves to try to bring some stability to the increasingly shaky financial markets. Lest these be confused as just one more of the series of measures the Fed has taken in recent months, the papers make clear that this latest action is "dramatic" ( WP), "extraordinary" ( LAT), and "apparently unprecedented" ( NYT). The Fed opened up its lending practices to make more money available to the biggest investment firms on Wall Street, and cut a key interest rate (the so-called discount window) for financial institutions by one-quarter of a percentage point. The central bank also announced it would extend a $30 billion credit line to help J.P. Morgan Chase complete the purchase of Bear Stearns for what the WSJ calls "the fire-sale price" of $2 a share.

The WSJ leads its world-wide newsbox with the Tibetan protests, which have spread to other parts of western China. The paper says the protests are unlikely to end soon, and they're being "fueled by rapid communications among the monasteries that serve as centers of Tibetan cultural and spiritual life." Although calm was restored in Lhasa, the provincial capital of Tibet, protests continued to break out in other areas. "Just as soon as the troops stamp out one protest, another pops up," says the LAT.

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The fall of Bear Stearns marks a spectacular collapse for a titan of Wall Street that at the beginning of last year was worth $20 billion. After a few days of intense negotiations, yesterday the firm was valued at a mere $236 million, or $2 a share, even though its stock had closed at $30 on Friday. The WSJ makes clear that Bear Stearns executives had little choice in the matter as they had to either agree to sell at any price or file for bankruptcy. The Fed took away much of the risk involved in J.P. Morgan's purchase by agreeing to fund up to $30 billion of Bear Stearns' riskier assets, which the WSJ says "is believed to be the largest Fed advance on record to a single company." This is all a bit complicated, and the Fed didn't give many details about the assets involved, but the bottom line is that, as the WSJ makes clear, "if the assets decline in value, the Fed—and thus, the U.S. taxpayer—will bear the cost."

The LAT notes that the fact that such a large firm fell so quickly "underscored the depth of a crisis that threatens the financial system" as more investors begin to fear that companies won't be able to pay back loans. "It's amazing that a firm with a storied history that has been respected for all these years has within two weeks literally gone from solvent to insolvent," the head of a financial consulting firm said. "It's scary and it's horrible." The WP notes that there may still be trouble ahead for Bear Stearns because shareholders could file lawsuits if there's suspicion that the executives of the company knew on Friday that the company had lost most of its value but decided to keep that information from investors. The WSJ says some Bear Stearns employees were already complaining yesterday about the low price of the sale, which could raise problems since they own about one-third of the company's shares.

Meanwhile, the Fed's other major move of the day was no less dramatic or important, and the WSJ characterizes it as "one of the broadest expansions of its lending authority since the 1930s" because for at least the next six months securities dealers will be able to borrow from the central bank much like traditional banks. By making it possible for the investment firms to borrow money from the central bank as long as they put up collateral, "the Fed in effect is offering to be a lender of last resort for 20 major Wall Street firms, a role it has previously played only for commercial banks," explains the WP. And by lowering the discount rate, borrowing this money will be cheaper for both banks and the big investment firms. Although Fed officials insist that these changes are only recognition of the way the modern financial system operates, the WSJ makes clear that they "also take the central bank into uncharted territory with new and potentially troublesome risks."

Asian and European markets fell today, and the dollar hit record lows as investors reacted to the latest news from Wall Street and Washington. U.S. stocks are largely expected to follow the same downward trend once the markets open for the day.

Aides to the Dalai Lama said more than 80 people had been killed in the Tibetan clashes, but the LAT notes that information relating to the violence has been difficult to verify as China has made it hard for journalists to reach the protest sites. In a news conference, the Dalai Lama called for an independent investigation into the suppression of the protests and said that "some kind of cultural genocide is taking place." He also said he doesn't have any power to stop the protests. "It's a people's movement, so it's up to them. Whatever they do, I have to act accordingly," he said.

As the fifth anniversary of the U.S. invasion of Iraq approaches, the NYT fronts a look at the much-talked-about decision to dissolve the Iraqi army. The paper talks to some key people involved in the administration at the time and concludes that L. Paul Bremer's decree to disband the army went against an earlier plan to build upon the existing military and led to bitter disagreements within the administration. Bush approved the plan, but he did so without consulting many in his administration, including the secretary of state and top military leaders on the ground. Colin Powell, who was secretary of state at the time, said he asked Condoleezza Rice, who was national security adviser, for an explanation, but she said she was surprised as well. Although it was always part of the plan to get rid of the Republican Guard units because they were seen as loyal to the old regime, the rest of the army was supposed to stay in place. Significantly, a PowerPoint presentation that outlined the initial plan warned of the inherent risks of dismantling the entire army and putting so many people out on the street in a country with high unemployment.

In an interesting Page One piece, the LAT takes a look at the tactics that the Chinese government is taking to spin the Tibetan protests to its own people. They may not need much prodding since many Chinese don't have a positive view of Tibet anyway, but the government is employing sophisticated PR tactics and emphasizing the attacks of Tibetans against Han Chinese in order to stir an us-vs.-them mentality that seems to be working. "The government is showing more confidence and learning more about spin," said Michael Anti, a well-known Chinese blogger. "They've learned more PR tactics from Western people. They see the way the White House and the Pentagon do it."

Daniel Politi has been contributing to Slate since 2004 and wrote the Today’s Papers column from 2006 to 2009. Follow him on Twitter.