Fed Announces Unprecedented Programs to Help Investment Firms

Washington–Fearing a chain reaction of financial market defaults, the Federal Reserve approved a $30 billion credit line to allow the takeover of Bear Stearns and revealed a new lending program for Wall Street’s biggest investment firms on Sunday.The Fed also reduced the rate borrowing rate tied to its discount window to 3.25 percent, a quarter of a percentage point decrease, the New York Times reports.The Fed agreed after weekend negotiations to a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns–one of the biggest firms on Wall Street–which mortgage market losses had almost crippled. In addition, the Fed announced a new money lending program to assist troubled investment banks. The program opens up funds for the 20 large “primary dealer” investment banks that trade Treasury securities directly with the Fed.The plan–like the $200 billion loan program announced last week–will allow the Fed to hold various investments as collateral, including securities backed by mortgages, which are difficult to sell. However, unlike the plan announced last week, the new program does not have a limit on the amount of funds that can be borrowed.