When Wall Street got the news of the Bear’s predicament, stocks were sold off - driving the Dow down 300 points. Then came word that the Fed and JP Morgan Chase were on the case, and the index bounced back, closing down 194 points. Hardest hit was Bear Stearns itself - down 47%.

“He that did ride so high doth lie so low…”

You will recognize that line, dear reader. It describes what happened to Julius Caesar after he was stabbed to death by a group of rivals on the Ides of March in the year 44 B.C.

The Ides of March came this past Saturday. When it had gone, the bloody corpse on the ground was that of one of Wall Street’s biggest players - Bear Stearns (NYSE:BSC).

Last week, we reported a rumor - that a large Wall Street firm was in trouble - which was said to be the real reason that the Fed announced its new $200 billion of loans.

By week’s end the news was out: the Bear had gotten the ‘Margin Call from Hell.’

The Fed and J.P. Morgan Chase (NYSE:JPM) rushed in to give aid and comfort. But officials were very worried that if a deal to rescue Bear Stearns were not completed before the Asian markets opened this morning, there could be a financial meltdown.

“I’ve been on the phone for a couple of days straight, throughout the weekend,” said U.S. Treasury Secretary Hank Paulson on television…”but I’m not going to project right now what the outcome of that situation is…”

“That situation” of course, was the situation at Bear Stearns. Early reports here in London say that a deal was finally struck with J.P. Morgan Chase to buy out the Bear for a reported $2 a share.

The background for this latest crisis is what we’ve been reckoning with in these Daily Reckonings for lo so many months. The geniuses at Bear Stearns had their calculators…their Black Sholes Option Pricing Model…their mathematicians…their risk figures… They had some of the finest minds in the country - or at least, some of the finest minds money could buy on Wall Street.

And yet, a year ago they also had a stock trading for $150. Now, it is down to $2…the shareholders have been largely wiped out.

He that did ride so high doth lie so low…

When Wall Street got the news of the Bear’s predicament, stocks were sold off - driving the Dow down 300 points. Then came word that the Fed and JP Morgan Chase were on the case, and the index bounced back, closing down 194 points. Hardest hit, (this will come as no surprise) was Bear Stearns itself - down 47%. Other financial stocks took a beating too.

We began last week worrying that we might be wrong. We begin this one worrying that we are probably right. At the beginning of the week, U.S. stocks seemed to be rising more than gold. By week’s end, things were happening as they should: God was in his heaven. The queen was on her throne. Gold was rising…and stocks were going down. All is right with the world…or as right as it can be after a 27-year credit expansion.

Little noticed in the Bear affair is the role of Chinese investment firm, Citic. The Chinese were going to put up some money to prop up Bear Stearns. There might be many explanations for why the Citic deal didn’t go forward, but here we suggest one that is the most far-reaching: the foreigners are growing wary of the United States. You will recall our friend in Geneva told us to “Sell the United States…sell its money…sell its stocks…sell its debt.” That attitude is spreading - the belief that the United States is a short sale.

“For years,” begins a report in the Wall Street Journal, “the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.”

“Clearly, the whole world is focused on the financial crisis and the US is really the epicenter of the tension,” the paper quotes Carlos Asills, at Globista Investments. “As a result, we’re seeing the capital flow out of the US.”

Ed Hadas adds:

“The Fed’s rescue of Bear increases the odds of a generalized, taxpayer-funded financial bailout. Combined with superlow rates, that will add to pressure on the beleaguered dollar. Bear is the biggest firm so far to hit the wall this time around. But the biggest name in financial distress could eventually be the US.”

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.