Posted on 05/20/2009 6:59:17 PM PDT by CutePuppy
Bear Stearns Cos., the 85-year-old Wall Street firm known for its tough trading culture, was rescued from impending bankruptcy by a deal with J.P. Morgan Chase & Co. on March 16, 2008 -- making Bear the first major casualty of the financial crisis. The firm spiraled from being healthy to practically insolvent in about 72 hours.
The meltdown began in earnest the evening of Thursday, March 13, 2008, when Bear executives made a shocking discovery: They were nearly out of cash. Faced with a slew of withdrawals from worried clients and a sudden pullback from lenders, the firm had less than $3 billion on hand -- not enough to open for business on Friday.
Bear chief executive Alan Schwartz immediately called J.P. Morgan, which as Bear's clearing agent managed its cash, to ask CEO Jamie Dimon for an overnight loan. Mr. Schwartz knew that if a deep-pocketed creditor like J.P. Morgan didn't come through, Bear's only option was bankruptcy, and he later phoned New York Federal Reserve Bank president Tim Geithner to say so.
Mr. Dimon, a veteran dealmaker, was willing to try to help. But, concerned about making a major financial commitment after just a few hours of research, he prevailed on the Federal Reserve Board for the funding instead.
During the wee hours of March 14, Fed officials relied on legislative powers that hadn't been used since the 1930s to find a temporary solution: a loan to Bear of undetermined size, to be provided through J.P. Morgan. What follows is an account of some of the events that surrounded their move.
Thursday, March 13, around 7:45 p.m.
Tim Geithner wasn't surprised to hear that night from Bear. .....
(Excerpt) Read more at online.wsj.com ...
Didn't see it posted, but it's an important piece that deserves to be read. This was a successful trial run of liquidity-based ("run on the bank") attack on financial system, which was repeated in stages, with other institutions, culminating in September's fall of Lehman.
Related article (excerpt from the same book) that fills the gaps on financial condition of Bear Stearns at the time of collapse: Diary of a Bear Stearns Executive - WSJ (public), May 8, 2009, by Kate Kelly.
"In office," wrote Mr. Friedman. "Rp isn't the problem, free credits, cp and bank lines are," he explained, referring to client cash that had flown out the door, commercial paper, and loans from banks that were now looking like an endangered species. Where are you?" replied Mr. Geismar [Bear's head of operations], who had gone home earlier. "Were repo lines pulled?" he asked, referring to the type of short-term loans on which Bear was heavily reliant.
That was a description of a "giant sucking sound" of cash withdrawals and credit not being available to fund operations.
So, Who did the run? Was it another country?
That’s a $Trillion$ question. It may also depend on who you would consider the agent(s) of other countries, and who was just along for the ride, knowingly or unknowingly seeking profit by short selling and contributing to panic atmosphere that creates the run?
mark
The run? It was customers who didn’t want to lose their money, that’s who.
Interesting. BTTT!
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