Bear Stearns has racked up $2.75 billion in write-downs since last year. The bank lost $859 million during the quarter that ended Nov. 30.

The rescue came from JPMorgan Chase & Co. and, in an extraordinary step, the Federal Reserve, both rushing to pump new money into the venerable Wall Street firm after its financial state deteriorated so much in a 24-hour period that it threatened to fail.

JPMorgan purchased Bear Stearns for $260.5 million on March 16. The Sunday sale price for the stock was $2 a share. Two days earlier, the stock sold for $30.85 a share. Angry stockholders threatened to sue over their losses.

Bear Stearns stock had already lost nearly half its market value, about $5.7 billion, in a matter of minutes, and pulled the broader market down with it. The Dow Jones industrial average fell nearly 200 points.

If Bear Stearns were to go under, “it has the potential of bringing down the whole market,” said Richard Bove, an analyst at Punk, Ziegel & Co. “This is the crescendo of the crisis.”

JPMorgan and the central bank reached a deal with the Fed backing up to $30 million of the company’s lagging mortgage-backed securities. Bear Stearns, the nation’s fifth-largest investment bank, was hardest hit by the subprime mortgage mess.

Two hedge funds managed by Bear Stearns failed last summer, setting off a credit crisis that has swept up banks and brokerages around the globe.

In backing up JPMorgan, the Fed dusted off a rarely used, decades-old provision to provide loans. It also said it was ready to step in to fight an erosion of confidence in the nation’s largest financial institutions.

For Bear, the crisis started when market speculation grew that it might have to seize collateral—mostly mortgage-backed securities worth next to nothing—from the private equity firm Carlyle Group.

Carlyle runs a bond fund and has come under intense pressure during the past week from creditors demanding collateral to back their investments.

As speculation swelled in the market, investors, customers and lenders raced to withdraw their money or rescind their credit lines. By Thursday night, March 13, Bear Stearns Chief Executive Alan Schwartz said, the bank realized the withdrawals might outpace the bank’s resources—so it reached out to JPMorgan for help.

JPMorgan, the nation’s third-largest bank, has been hurt far less by the mortgage mess than other financial institutions.

No one disclosed how large the financing offered to Bear Stearns was at the time.

The CEO also confirmed—as many on Wall Street had suspected—that Bear Stearns could be up for sale. He told analysts on a conference call that the bailout was a “bridge to a more permanent solution.”

Bear worked with investment bank Lazard Ltd. to explore its options. That ended up as an outright sale of Bear Stearns to JPMorgan, something top executives from both banks discussed.

JPMorgan is considered to have one of the strongest balance sheets among Wall Street banks, and is not already involved in a rescue like Bank of America’s purchase of Countrywide Financial Corp., the nation’s largest mortgage lender.

Bear Stearns, which has about 14,000 employees worldwide, has struggled since the two hedge funds under its control lost billions of dollars after investing heavily in securities backed by pools of subprime mortgages.

“They were the dominant firm for repackaging mortgages,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. “That’s where all earnings came from. They had the least-diversified earnings stream of all of Wall Street securities firms, and as a result, they’re paying the price today.”

As delinquencies and defaults swelled among subprime mortgages, investors shied away from buying securities backed by the troubled loans.

Those fears expanded to encompass all but the safest bonds and securities, forcing investment banks to significantly reduce the value of their holdings and drying up money throughout the market.

Bear Stearns has racked up $2.75 billion in write-downs since last year. The bank lost $859 million during the quarter that ended Nov. 30, a stark contrast to its $558 million profit during the same period just one year earlier—before the credit crisis.

The broader financial services sector has racked up nearly $160 billion in write-downs since the middle of last year.

“My guess is by next week, there will be rumors of other large, familiar institutions” that could be in trouble, said Anil Kashyap, a University of Chicago professor.