It will be difficult for the economy to grow or for the market to reverse its course while fear is stalking the financial world.

Fear is why Bear Stearns Cos. was hit with what amounted to a run on the bank and now is being sold for $2 a share, a 97 percent discount to where its shares were trading a week ago.

Fear is why the Federal Reserve is pulling out all the stops to manage the financial market turmoil, hoping to prevent conditions from turning so ugly that investors everywhere run for the doors.

Fear is why this credit crisis won't be resolved any time soon, because there are too many unknowns still lurking around the financial system that make it hard for anyone to feel confident about a better tomorrow.

The financial problems are not new. The troubles were initially set off last year by the alarming rate of defaults on subprime mortgages, which then caused an aversion to risk among lenders everywhere who tightened their borrowing standards.

What's different now is how the turmoil has intensified in the last week. Suddenly, we are seeing a massive retrenchment of funds from all corners of the financial world.

That's particularly problematic for Wall Street firms, which have a client base consisting of individuals, companies, hedge funds and pension funds. They also lend and borrow billions of dollars daily with their financial-company peers. Should questions of liquidity arise at any of those players, it can roil the entire financial system.

''Wall Street CFOs have known for over twenty years that the loss of confidence is a life-threatening risk for a securities firm,'' said Brad Hintz, senior analyst at Sanford Bernstein. ''Liquidity risk has been and remains the Achilles heel of the securities firms.''

For Bear Stearns, problems have been building since last summer when the company revealed that some of its hedge funds had made bad bets on securities backed by risky subprime loans. The nation's fifth largest investment bank has looked troubled, but never seemed to be in dire shape, even after reporting more than $2 billion in write-downs on mortgage assets last year and seeing its CEO James ''Jimmy'' Cayne step down in January.

Things drastically changed over the last week, when rumors started that the investment bank was short on liquidity and might not have enough cash to do business. The company's executives quickly tried to temper the market chatter. ''Bear Stearns' balance sheet, liquidity and capital remain strong,'' said a March 10 news release. ''There is absolutely no truth to the rumors of liquidity problems that circulated today in the market.''

CEO Alan Schwartz two days later made an appearance on CNBC to reassure investors that the company had ample liquidity and he was ''comfortable'' it would turn a profit in its fiscal first quarter.

By Thursday, the firms' solvency was being called into question, fueled by nothing but market speculation. Fear, not news, may have driven Bear Stearns to collapse.

The company was forced to seek out emergency funding from the federal government and JPMorgan Chase & Co. because it was not able to keep up with a spike in demand from its lenders. The arrangement, the first of its kind since the 1930s, resulted in Bear Stearns getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.

Then on Sunday, JPMorgan announced it would be buying Bear Stearns for the shockingly low price of $2 per share, or $236.2 million, in a deal that was fast-tracked by the federal government to avoid a bankruptcy. A week ago, Bear Stearns shares were just over $60 each.

''The past week has been an incredibly difficult time for Bear Stearns,'' Schwartz said in a statement. ''This represents the best outcome for all of our constituencies based upon the current circumstances.''

The Fed played a heavy hand in the Bear Stearns' action, by approving $30 billion in special financing to facilitate the acquisition.

It didn't stop there: the nation's central bank is trying to restore confidence in panicked financial markets by becoming a lender of last resort for Wall Street investment houses that now can secure short-term emergency loans. The central bank also approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately.

''These steps will provide financial institutions with greater assurance of access to funds,'' Federal Reserve Chairman Ben Bernanke said late Sunday.

The Fed's focus now is crisis management, not crisis prevention, said Merrill Lynch's chief North American economist David Rosenberg, who noted its next steps ''may be to try and prevent contagion, or a domino impact.''

But investors still can't get over their fears. They are already speculating ''who is next'' to fall, said Marc Chandler, global head of currency strategy at the investment firm Brown Brothers Harriman.

As we've seen in the case of Bear Stearns, that alone can bring a bank down.

Source: Associated Press