WASHINGTON -- Casting aside fears of the "moral hazard" of rescuing an investment bank that bet so heavily on mortgage backed securities, the Federal Reserve and US Treasury Department engineered a buy-out of Bear Sterns by JP Morgan Chase for a mere $270 million, or $2 per share. Acting to prevent the failure of one of Wall Street's most storied firms from cascading to others, the Fed will guarantee JP Morgan's backing of Bear's financial obligations.

On Sunday, the Fed also announced the lowering of its lending rate to banks and thrifts to 3.25% from 3.50%, effective immediately, and announced that it was making its lending facility for large investment banks unlimited after initially setting a $200 billion loan limit only last week.

The facility will be available for business starting today, said the Fed, and will be in place for at least six months and "may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities."