In Washington, the Treasury secretary, Henry M. Paulson Jr., signaled strong support for the Fed’s role in supplying a lifeline to Bear Stearns during the crisis negotiations, saying that his priority was to stabilize the financial system and to worry less right now about the problem of avoiding a “moral hazard” by bailing out errant institutions.

“We’re very aware of moral hazard,” Mr. Paulson said in a television interview with George Stephanopoulos on ABC. “But our primary concern right now  my primary concern  is the stability of our financial system, the orderliness of the markets. And that’s where our focus is.”

Indeed, investors are taking a grim view of the prospects for other investment banks like Lehman Brothers and Merrill Lynch. Managers of hedge funds and mutual funds say the problems at Bear confirmed their worst fears about the brokerages  that they have relied too much on leverage and have done a poor job managing the risks they took on during the boom.

The price of insurance on investment banks has surged in the last few days and is exponentially higher than it was last spring. Credit default swaps that offer protection on Bear Stearns debt traded as low as $35 per $10,000 of bonds in May. As of last Friday, the cost was $830.

Shares of investment banks in the Standard & Poor’s 500-stock index are down nearly 28 percent so far this year, and stock futures on Friday showed that a few investors were betting that Bear Stearns stock could lose virtually all of its value in the next few weeks.

“People have started to realize the risks that are there,” said Steven Gross, a principal at Penso Capital Markets, an investment firm in Cedarhurst, N.Y. “The question is have we reached the bottom.

Citigroup, one of the nation’s largest banking companies, is now trading below its book value. Lehman Brothers, at $39, is trading just below the book value it reported at the end of last year. This year, Bear’s stock is down 65 percent and Lehman’s has sunk 40 percent.