The big picture: Will tremors spread?

The great fear is that the run on liquidity at Bear Stearns will spread to other tottering institutions. Lehman Brothers, which hasn't been nearly as hard hit by the crisis, announced it secured a credit line as its stock tanked. The real danger here is that the rumor mill gets cranked up. As with Bear, if the talk gets heated enough, people start believing it. And people stop lending to the bank. All talk of moral hazards go out the window at a time like this. These are the sort of events that keep Fed and other officials up all night. This ranks right up there with the LTCM gyrations and the failure of Continental Illinois. It's unclear to what extent the industry will suffer. Presumably, the Fed-backed credit line will keep the bank fulfilling its trading and counterparty obligations until someone can buy it.  

For more:
- here's a New York Times article

Related Articles:
Credit crisis to worsen. Article
Credit crisis rolls on. Article