JPMorgan Chief Executive Officer Jamie Dimon yesterday agreed to buy Bear Stearns, the second-biggest underwriter of U.S. mortgage securities, for $240 million, less than a 10th of its value last week. In order to strike a deal before the opening of Tokyo trading, the Fed agreed to help JPMorgan finance up to $30 billion of Bear Stearns’s “less liquid assets.”

“It is a serious extension of putting the Federal Reserve’s balance sheet in harm’s way,” said Vincent Reinhart, former director of the Division of Monetary Affairs at the Fed. “That’s got to tell you the economy is in a pretty precarious state.” “We learned that Bear Stearns’s balance sheet on close examination was worth a 10th of its market value,” said Reinhart. “Second, the Federal Reserve wants to be sure the other entities coming to them are covered by a broader umbrella,” he said, referring to the primary dealers.