No one knows where this ends: James Saft

(James Saft is a Reuters columnist. The opinions expressed are his own.)

By James Saft

LONDON (Reuters) - All bets are off.

No one knows where the financial crisis is going, no one knows who might be next to fail, and no one knows what the Federal Reserve can do about it.

The bank run on Bear Stearns BSC.N, ending as it did with an almost unprecedented Federal Reserve bailout and a sale to J.P. Morgan Chase (JPM.N: Quote, Profile, Research, Stock Buzz) at an ominously low price, has undermined the confidence needed for banking and markets to function.

Bear Stearns fell because others lost faith in it, and in the absence of better information, refused to extend it credit or do business with it.

That it was forced to sell itself to Morgan for about 2.5 percent of its recent stock market value would tend to back up those concerns.

And though Bear Stearns was undoubtedly among the most aggressive players in mortgages, how fundamentally different is it from its peers? It is impossible to know, and that very impossibility breeds doubt which feeds upon itself.

Though the Federal Reserve has taken heroic measures to avert the chaos that a Bear Stearns bankruptcy would have brought, as it is in medicine, the outcome for patients on whom heroic measures are taken is usually not so good.