The Bail-Out of Bear Stearns, Step 6

Reader Peter sends a link to this article:

JP Morgan Chase will provide the money to Bear Stearns for 28 days with the Federal Reserve of New York’s backing.

JP Morgan is also trying to get long-term financing for Bear Stearns.

…

BBC business editor Robert Peston said that the move by JP Morgan and the Fed of New York was essentially a central bank bailout.

“In just the last 24 hours Bear Stearns came close to running out of the cash or liquidity it needs to meet its daily requirements,” he said.

“So enter the US Federal Reserve. It is promising to supply whatever liquidity is required by JP Morgan Chase, the leading bank, to help Morgan provide whatever funds are required by Bear Stearns.

“Since JP Morgan is saying there is no risk to its shareholders, this represents a central bank bailout of Bear Stearns.

“This is America’s Northern Rock.”

Emphasis mine. As I mentioned in recent posts, the Fed has been slowly upping the, ahem, assistance its offering to the banks that have done the most to create this mess, and each step along the way, in addition to being larger than the one before, is more opaque. I hadn’t anticipated this though – the Fed is essentially give something (what?) to JP Morgan Chase for JP Morgan Chase to help Bear Stearns. (You don’t think JP Morgan Chase is doing any of this out of the kindness of its heart, do you?) Essentially, this makes it very, very hard to figure out what the size of the give-away to Bear Stearns.

So…

1. What is it that JP Morgan Chase is going to get out of this?
2. What is Step 7 going to be? I.e., what’s the next thing the Fed is going to try to save this man’s retirement package at the expense of the long term health of the economy when this fails?