NEW YORK — The battered global financial system looked a lot more fragile Friday as one of Wall Street's biggest investment houses was forced to get an emergency loan from the Federal Reserve, raising the specter of more giant securities firms laid low by the global credit crisis.
Bear Stearns Cos. said its ability to finance its operations had "significantly deteriorated" in the preceding 24 hours, compelling it to borrow an undisclosed amount of money from the Fed.
The disclosure sent the stock market down sharply and underscored how vulnerable the global financial system has become since a wave of defaults on home loans given to people with bad credit led to the collapse of the sub-prime mortgage market.
Bear Stearns is heavily exposed to faltering securities tied to sub-prime mortgages, and as credit markets seized up in recent weeks, confidence waned that the company would be able to make good on its own obligations.
That triggered a classic run on the bank, with clients pulling out money and other financial firms refusing to do business with the company.
"A lot of people wanted to get cash out," Alan Schwartz, Bear Stearns' chief executive, said in a conference call with analysts.
A lack of confidence is undermining much of Wall Street and is threatening to become a self-fulfilling prophecy that could intensify the country's credit squeeze, doing more damage to an economy that many experts say is already in a recession.
"This transcends Bear Stearns," said Bruce Foerster, a Wall Street veteran and president of South Beach Capital Markets. "It shows the fragility of all these institutions, particularly investment banks and commercial banks."
Bear Stearns' stock plunged $27, or 47%, to $30. It has plummeted 79% in the last year.
The Dow Jones industrial average sank 194 points, or 1.6%, to 11,951.09. Other major indexes fell more sharply. At one point, the Dow was down 313 points.
Despite word early Friday of the cash infusion from the Fed -- in the form of a 28-day loan -- it was unclear if confidence in Bear Stearns would recover.
"We've received plenty of directives from our clients today telling us to do no business with Bear Stearns," said Jeffrey Gundlach, chief investment officer at TCW Group, the large Los Angeles-based investment management firm.
Because of such sentiment, "Bear Stearns as we know it is gone," said Allen Sinai, a veteran Wall Street economist and head of Decision Economics Inc. in New York.
