Here’s this nugget about the credit-ratings firms, who still can’t find a nut:

Late Friday, credit-ratings firms downgraded Bear Stearns to two or three levels above junk status. The downgrades also had a big impact on Bear Stearns’s viability, as they severely crimped the firm’s number of potential trading partners.

Let’s see, a company that’s for all intents and purposes insolvent still merited an investment-grade debt rating on Friday?

But what is essentially the bankruptcy of a Wall Street titan, which the Journal ceaselessly reminds us was one of the most-respected at managing risk, will shake markets to their core. Even on Friday, when Bear Stearns announced it required a Fed-backed cash infusion, it ended the day worth $30 a share, or $3.5 billion.

So what are we in for? It’s impossible to tell, but watch for stock markets to gyrate wildly in the coming days and weeks as the shock is digested. This crisis began in earnest with news of the implosion of two Bear Stearns hedge funds last June, now it seems as if the U.S. itself is an imploding hedge fund (a comparison that’s not so out of line given how debt-laden it is and how much risk it has taken on in the last decade).

Investors might like to think this is a bookend to the disaster, but it’s only going to get worse from here. We haven’t really had one of those truly stomach-churning stock-market freefalls in this crisis, but we will. The Dow Jones Industrial Average is still (!) not in bear-market territory, meaning it hasn’t dropped 20 percent from its peak.

The FT says it’s going to be grim with Goldman Sachs and Lehman Brothers due to report earnings this week that are likely to be losses. And the WSJ on A1 says the big banks think this mess is going to last well into 2009.

“The most pressing question on investors’ minds: who’s next?” said Jeffrey Rosenberg, head of credit strategy at Banc of America Securities. Analysts expect US banks to report some $50bn in additional losses in the first half of this year—in addition to the $100bn-plus in writedowns announced so far—as key markets such as leveraged loans, home equity and real estate continued to deteriorate.

Throw money at it

In an unprecedented move coinciding with its deal with JP Morgan to buy what’s left of Bear Stearns, the Federal Reserve—again—dropped cash from the proverbial helicopter to try to ease a crisis that is less about access to cash than about the fundamental insolvency (or fear of insolvency) of major financial institutions in the U.S. and Europe. The Fed will now lend money not just to banks, but to brokers, as well—just a tad late for Bear Stearns.

Two of the papers and Bloomberg get the import of the news just right in their page-one ledes. The NYT says the Fed is “Hoping to avoid a systemic meltdown in financial markets,” while the WSJ says the move is “one of the broadest expansions of its lending authority since the 1930s in an effort to stem a credit crisis that is engulfing the financial system and threatening a deep recession. ” Bloomberg says “The Federal Reserve, struggling to prevent a meltdown in financial markets, cut the rate on direct loans to banks and became lender of last resort to the biggest dealers in U.S. government bonds.”

The Fed cut one of its lending rates by a quarter-point and the Journal’s Fed-mole Greg Ip says it “is expected” to cut the federal-funds rate charged for loans overnight between banks by up to 0.75 percent.

The historic nature of the steps the Fed has taken reflects what the central bank sees as the unprecedented scale of the storm now sweeping through the markets and the economy. Starting with rising defaults on subprime mortgages a year ago, the crisis now has caused investors to question the ability of once rock-solid firms to repay loans.

That has triggered a massive deleveraging. Investors, banks and others are hoarding cash, pulling in their loans and trying to reduce their own exposure to risky markets. That has sent yields on risky securities such as mortgage-backed bonds up, dealing the housing market and the economy a fresh blow and leaving the Fed seemingly powerless to restore a willingness to lend by cutting interest rates, its traditional tool…

The NYT says that like the Fed’s $200 billion program unveiled last week, the new one that lends to Wall Street will take the junk securities nobody wants as collateral. That essentially means taxpayers are taking some big ones for the team by taking on those mortgage-backed securities that are unlikely to be in more demand any time soon, if ever.

Who’s next?

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.