Gold And Silver Shorts Were The Real Demise For Bear Stearns

In this excerpt, precious metals market analyst Ted Butler describes an important finding in the gold market. The real reason Bear Stearns went under in 2008 has never been revealed in public. JP Morgan, bailing out the bankrupt investment bank Bear Stearns, as well as the Federal Reserve, remained vague. Ted Butler reveals in this article his findings based on facts and data. This article was published in Ted Butler’s latest newsletter to its premium subscribers.

Six years ago the well-known investment bank Bear Stearns imploded. In February 2008, Bear Stearns stock traded as high as $93; by mid-March the insolvent company agreed to be taken over by JPMorgan for $2 a share (later raised to $10 after class-action lawsuits). In the annals of Wall Street, there was hardly a more sudden demise than the fall of Bear Stearns. The cause was said to be a run on the bank as nervous investors pulled assets from the firm. Bear Stearns was said to be levered by 35 times, meaning it had equity of $11 billion and total assets of $395 billion. This is a very small cushion if something negative suddenly appears.

Something negative did hit Bear Stearns in the first quarter of 2008; although there are remarkably few details of what went wrong. Since Bear had a significant presence in sub-prime mortgages and that market was in distress, it is assumed the fall of the firm was mortgage related. That may be true, but there was no general stress in the stock market through mid-March 2008 reflecting a credit crisis. Was there instead some specific trigger behind the company’s sudden collapse?

I believe that sudden and massive losses and margin calls of more than $2.5 billion on tens of thousands of short COMEX gold and silver contracts were the specific triggers that killed Bear Stearns. Let’s face it – Bear was so leveraged that a sudden demand of more than $2.5 billion in immediate payment for any reason could have put them under. Bear Stearns’ excessive gold and silver shorts on the COMEX are the most plausible reason for the sudden demise. Bear Stearns did fail and due to a sudden cash crunch was acquired by JPMorgan for a fraction of what it was worth two months earlier. Bear Stearns was the largest short in COMEX gold and silver at the time. The day of Bear Stearns’ demise coincides precisely with the day of the historic high price points in gold and silver. That is also the same day the biggest COMEX gold and silver short would experience maximum loss and a cumulative demand for upwards of $2.5 billion in cash deposits for margin. It was no coincidence the music stopped for Bear Stearns that same day.

Gold prices rose from under $800 in mid-December 2007 to $1,000 in mid-March 2008, a gain of more than $200. Silver prices rose from under $14 in mid-December to $21 when Bear Stearns failed on March 17, 2008. That was a gain of $7. This was the highest price for silver and close to the highest price of gold since 1980. Obviously, a $200 rise in the price of gold and a $7 rise in the price of silver is not good if you are the biggest gold and silver short.

The concentrated short position of the 4 largest short traders in silver was at an extreme level of more than 300 million ounces. In contrast, the concentrated long position of the 4 largest long silver traders was a bit above 100 million ounces. In COMEX gold, the big shorts held two and half times what the biggest longs held.Since we know that Bear Stearns was the largest short in COMEX silver and we also know how much gold and silver prices rose in that time period, all that has to be established is how many short contracts Bear Stearns held. That would tell us how much money they had to come up with in margin money. All market participants on the COMEX, including the leading clearing member (which Bear Stearns was), must deposit additional funds daily to cover adverse price movements.

Thanks to historical Commitments of Traders report (COT) data from the CFTC, in the relevant time period (December 31, 2007 to March 17, 2008) the net short position of the 4 largest gold and silver shorts on the COMEX averaged 165,000 contracts and 60,000 contracts respectively. My analysis indicates Bear held 75,000 net gold contracts short and 35,000 net silver contracts short. Those are minimum numbers, as I think Bear’s position could have been higher.

A $200 adverse price move on 75,000 COMEX gold contracts would result in a mark to market loss and margin call of $1.5 billion. A $7 adverse price move on 35,000 COMEX silver contracts would result in a mark to market loss and margin call of $1.2 billion. Bear Stearns had to come up with $2.7 billion because gold and silver prices rose sharply in the first quarter of 2008 and the company bet the wrong way. That it couldn’t come up with all the margin money for the losses in gold and silver, is the most visible reason it went under…..

Currently, eight US banks do all the massive naked shorting on PM’s….they haven’t learned from Bear Sterns, no tears when they suffer the same fate.

So they bet big on gold and silver going down, and they went up. Is that the executive summary ?

The real reason Bear Stearns went under in 2008 has never been revealed in public.

They had giant mortgage bond positions financed with overnight loans.

It's never been a secret.

by mid-March the insolvent company agreed to be taken over by JPMorgan for $2 a share (later raised to $10 after class-action lawsuits).

The lawsuits were thrown out.

[They had giant mortgage bond positions financed with overnight loans.

It’s never been a secret.]

Indeed. As someone who shorted this almost to its takeout price, but chickened out before the denouement in fear of a bailout that might keep shareholders whole, I had more than a passing interest in what transpired. Amusing that the author is using a looking glass version of the true events as a prop for a whole new fairy tale about how precious metals are the future of investing.

4 posted on 10/11/2025 7:28:28 PM PDT by Zhang Fei (My dad had a Delta 88. That was a car. It was like driving your living room)

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