Late Sunday, the Federal Reserve made three announcements hoping to calm world financial markets and forestall a financial panic.

First, the Feds are again reducing the interest rate they charge banks by a quarter point and extending the period from 30 to 90 days. Another rate cut could occur Tuesday.

Second, after playing the middleman to enable the Fed’s multi-billion bailout of Bear Stearns last week, JP Morgan has agreed, with the Federal Reserve backing the risks, to purchase Bear Stearns for a mere $2 per share.

Yep, two bucks. As The Agonist noted, Bear Stearns was trading last week at $50 per share, but even at $2/share, the Feds, who stand behind JP Morgan, may be taking a risk if Bear Stearns "assets" are in fact net liabilities. (h/t Ian and nomolos).

UPDATE: Third, expanding on the deal it gave Bear Stearns last week, the Fed further opened its loan windows directly to other non-bank Wall Street financial institutions, offering them what appears to be unlimited credit through loans/exchanges of the firms’ shaky assets for safer US securities. It appears to be a massive bailout of those firms whose teetering financial conditions are based on the shaky mortagage markets.

The Fed’s unprecedented actions are meant to ward off a broader collapse as the financial/confidence crises spread. If you haven’t read Ian Welsh’s excellent background explaining all this, you should do so. Today’s New York Times summarizes the concerns this morning.

The cash squeeze that brought Bear Stearns to its knees is fanning fears that other investment banks might be vulnerable to the crisis of confidence gripping Wall Street.

Investors are bracing for another volatile week in the markets as bankers and policy makers deal with the fallout from their bid to rescue Bear Stearns.

For now, the prospect of a new wave of consolidation in the beleaguered financial services industry seems remote. That is because would-be acquirers and everyday investors alike have lost faith in the values that Wall Street firms are placing on their own assets.

Of particular concern are the so-called marks placed on mortgage-linked investments like those that undid Bear Stearns, prompting a run on the firm that led the Federal Reserve and JPMorgan Chase to throw Bear Stearns a financial lifeline last week. . . .

The unhappy experience of Bear Stearns proves that it is a lack of confidence, not capital, that ultimately topples even the savviest financial institutions.

“Once you have a run on the bank you are in a death spiral and your assets become worthless,” said David Trone, a brokerage analyst at Fox Pitt Kelton.

On Saturday, Martin Feldstein, president of the Cambridge/Harvard economic research group that makes the official call on whether we’re in recession, delivered his opinion. His assessment was that we’re not only in a recession but could be facing the worst recession since World War II. "The situation is bad, it’s getting worse, and the risks are that the situation could be very bad," he warned. Udpdate II: Alan Greenspan concurs (h/t Biodun, Bilbo).

To borrow my favorite economic term, this is serious stuff. We need the wisest, most mature leadership we can muster to avert a serious recession or worse. The entire financial system is on the verge of collapse, with the Fed using every tool in its limited monetary arsenal to prop up confidence in the system.

As Ian noted, with the Fed’s monetary tools stetched, we could use some fiscal policy help from Congress and the President. But as if to mock us, President George "Hoover" Bush warned business leaders that government should avoid "overcorrecting the economy" — as though the problem we’re facing is not a Fed running out of options but rather a government trying to do too much instead of relying on the unfettered markets.

Markets? The Fed has already used $400 billion of its $800 billion of readily available funds trying to bail out the wizards of Wall Street, and is facing the need to print money — and risk inflation — to retain further leverage. The Fed is in the process of taking over and running Wall Street financial institutions, only a step removed from nationalization.

Meanwhile, we’re stuck with President Hoover and in desparate need of FDR. So it would be helpful if the media, who are recently into censoring black ministers, began instead to ask Obama and Clinton about how good their economic advisers are. Update III: I see I’ve been far to harsh on Herbert Hoover. Point taken.

All eyes will be in the world’s and US financial markets to see how they respond to the Fed’s unprecedented interventions this weekend. Will they hold? Or panic? Hang on.