St. Patrick's Day Massacre?

Bear Stearns stock closed at $30 a share on Friday. Over the weekend, in a deal brokered by the Federal Reserve, JPMorgan agreed to buy the troubled brokerage for $2 a share.

The quick capitulation by one of the Street's biggest investment banks should tell you how dysfunctional the banking system is right now.

Mix in the Fed's extraordinary Sunday-night decision to cut its discount rate and lend directly to its primary dealers just a day before its scheduled meeting on interest rates, and the threat to Wall Street this week is clear.

Big drops in markets in Europe and Asia over the weekend were precursors to a large decline when U.S. markets opened this morning. Once again, the financial sector led the slide, with Lehman slumping more than 20 percent at the open. By midmorning, however, the market had settled, and JPMorgan stock was registering a strong gain.

David Rosenberg at Merrill Lynch says:

The Fed has pulled nearly every non-conventional rabbit out of the hat to provide liquidity, but when we have a crisis of confidence on our hands over financial sector balance sheet quality, the Fed's medicine, as Larry Summers recently put it, is akin to "fighting a virus with an antibiotic."

Brian Bethune, chief U.S. financial economist at Global Insight, says markets are scared:

Markets have moved into a severe risk-aversion mode as fears have expanded beyond liquidity issues to the solvency of major financial intermediaries, as the credit market crisis continued to intensify in the past two months.

Goldman Sachs on the Fed's moves:

We interpret these measures as an effort to get "ahead of the curve" on the stresses and dislocations currently afflicting markets. Note in this respect that the announcement preceded the open of trading in the Tokyo Stock Exchange, signifying that Fed officials see these problems as global in nature.