Desperate Times for the Economy

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WASHINGTON - Nervous investors from New York to Shanghai are on edge.

News of J.P. Morgan's government-backed buyout of Bear Stearns sent the world markets into a tizzy. And even extraordinary weekend moves by the Federal Reserve aren't helping to calm the situation down.

Watch for comments for financial expert and author Ben Stein, following this report.

The signs point to a potentially dismal day for Wall Street. The Dow futures fell sharply ahead of trading, the dollar hit new lows amid a record high for oil, and world financial markets plunged in reaction to the takeover of Wall Street giant Bear Stearns.

The Bush administration says it's on the move to do what it takes to keep the economy stable.

"One thing is for certain, we're in challenging times," President Bush said after meeting with Treasury Secretary Henry Paulson and other senior economic advisers.

"But another thing is for certain: We've taken strong, decisive action."

Bush said "our financial institutions are strong" and "our capital markets are functioning efficiently and effectively."

Still, Bush said his administration is monitoring economic developments closely.

"When need be, we'll act decisively in a way that continues to bring order to financial markets," Bush said.

He did not indicate any other steps his government might take, or when.

"In the long run, our economy is going to be fine," Bush said. "Right now we're dealing with a difficult situation."

Fragile Economy

But the fear is that the situation is fragile. With Bear Stearns facing a run on the bank, government regulators approved J.P. Morgan's takeover of the brokerage firm - at just $2 a share - a far cry from when shares traded at their peak of $159 a share.

The firm became a victim of the credit crunch, with J.P. Morgan now guaranteeing its transactions pending final approval this summer.

Money managers from Wall Street and the government worked through the weekend to come up with the arrangement to keep Bears Stearns from going bankrupt.

But the Fed didn't only put the deal on the fast track - in a rare emergency weekend move, it also cut the lending rate for banks to 3.25 percent, ahead of its official meeting on Tuesday.

The Fed is taking these drastic steps to help banks and prevent global widespread panic.

Too Little, Too Late?

But critics fear it may not be enough.

"We're in a crisis in the banking sector, retail sales are contracting, people are losing their jobs, the economy is headed south very quickly. The programs they have put in place are just not large enough, they're not sweeping enough, and they won't arrest the problem," said Peter Morici of University of Maryland's College of Business & Management.

Last week, the President acknowledged the nation's economic challenges but expressed confidence in the resilience of the American economy.

Despite the government's assurances, Americans aren't nearly as optimistic.

One man said, "It was a nightmare three months ago and now it's just getting worse."

Bush: We're in Challenging Times

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John Jessup

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