It is open season for Wall Street rumours. In recent days, Bear Stearns faced huge selling pressure as fears over its financial stability hit fever pitch. Counterparties either reduced their exposure to the firm or ratcheted up collateral requirements. The need for a rescue became self-fulfilling.

The Federal Reserve could not afford the systemic risk of Bear falling over. Its trades are so intertwined with the rest of Wall Street that a disorderly rush for the exit could have created a domino effect on other institutions.