Brace yourself for a mad, mad, mad, mad Monday.

The slow-motion meltdown of Wall Street picked up momentum on Sunday as one crippled investment bank reportedly agreed to be acquired, a second failed to find a buyer at any price, and a third major financial firm was forced to seek capital and sell a jewel asset it had sworn to keep just a few months ago.

Eager to ease fears and facilitate trading, the Federal Reserve took several steps to increase liquidity in the markets. Among other things, it agreed to accept any investment-grade debt as collateral on its loans to investment banks. [See related article.]

The cascade of bad news was enough to lead the International Swaps and Derivatives Association, a trade group, to organize an extraordinary ad hoc Sunday trading session. The goal was to give financial institutions a chance to offset their exposure to credit derivatives tied to the weakest of the stricken banks, Lehman Brothers.

The trade group said the extraordinary session was needed "to reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy filing." Any trades made on Sunday were "contingent on a bankruptcy filing on or before 11.59 p.m. New York time," it added. Without such a filing, the trades would be canceled, the group said.

Sunday began on a grim note when Bank of America and other potential rescuers of Lehman Brothers backed away from the venerable firm in the morning after the federal government declined to guarantee any of the failing firm's assets. The last known potential buyer, Barclays PLC of Britain, threw in the towel early on Sunday afternoon.

The absence of a credible buyer greatly increased the likelihood that Lehman, which has suffered life-threatening losses on mortgage investments it made with borrowed money, would be forced to liquidate in bankruptcy court, perhaps within a matter of hours.

While the company has some valuable assets remaining, liquidation could strain derivatives markets in which the 158-year-old firm was a counterparty on credit default swaps and other instruments.

A desire to minimize chaos in those markets on Monday in the event of Lehman's liquidation, the International Swaps and Derivatives Association hastily arranged its ad hoc trading session on Sunday afternoon.

As that was getting underway, Bank of America dropped another bombshell: It was in talks to acquire a different investment bank, Merrill Lynch. Like Lehman, that firm has seen its stock hammered in recent weeks as investors grew wary of its exposure to mortgage investments.

Rather than risk the fates of other Wall Street firms poleaxed by leveraged-mortgage bets gone bad—Bear Stearns hastily sold itself to J.P. Morgan in March after its stock collapsed and its reputation evaporated, and now Lehman, which was in a similar position—Merrill Lynch opted to welcome a suitor before its situation was untenable.