Fed and Rival Bail Out Bear Stearns

As speculation swelled in the market, investors, customers and lenders raced to withdraw their money or rescind their credit lines. By Thursday night, Bear Stearns Chief Executive Alan Schwartz said, the bank realized the withdrawals might outpace the bank's resources so it reached out to JPMorgan for help.

JPMorgan, the nation's third-largest bank, has been hurt far less by the mortgage mess than other financial institutions. It will provide secured loans to Bear for four weeks insured, in essence, by the Fed.

Schwartz said it would buy Bear time and allow it to convince customers "that we have the ability to fund ourselves every day, to do business as usual." No one has disclosed how large the financing offered to Bear Stearns is.

The CEO also confirmed as many on Wall Street had suspected that Bear Stearns could be up for sale. He told analysts on a conference call that the bailout is a "bridge to a more permanent solution."

Bear is working with investment bank Lazard Ltd. to explore its options. That may include an outright sale of Bear Stearns to JPMorgan, something top executives from both banks were discussing, according to a person familiar with the talks who was not authorized to speak on the record.

JPMorgan is considered to have one of the strongest balance sheets among Wall Street banks, and is not already involved in a rescue like Bank of America's purchase of Countrywide Financial Corp., the nation's largest mortgage lender.

Bear Stearns, which has about 14,000 employees worldwide, has struggled since the two hedge funds under its control lost billions of dollars after investing heavily in securities backed by pools of subprime mortgages.

"They were the dominant firm for repackaging mortgages," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. "That's where all earnings came from. They had the least-diversified earnings stream of all of Wall Street securities firms, and as a result, they're paying the price today."

As delinquencies and defaults swelled among subprime mortgages, investors shied away from buying securities backed by the troubled loans.

Those fears expanded to encompass all but the safest bonds and securities, forcing investment banks to significantly reduce the value of their holdings and drying up money throughout the market.