Ben Bernanke admits Bear Stearns was hours from collapse

Times of London ^ | 04/03/08 | Dearbail Jordan

[TigerLikesRooster]

April 3, 2008

Ben Bernanke admits Bear Stearns was hours from collapse

Dearbail Jordan

US Federal Reserve chairman, Ben Bernanke, today revealed that Bear Stearns was just one day away from going bust when the central bank stepped in to save the Wall Street bank to prevent chaos and a "severe" impact on confidence.

Speaking for a second day in front of US Congress, Mr Bernanke attempted to justify JP Morgan Chase's rescue of Bear Stearns, in a deal that included the US Fed agreeing to back $29 billion of the troubled investment bank's assets.

Mr Bernanke said: "... on March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for bankruptcy the next day unless alternative sources of funds became available."

The Fed chairman said that the central bank was forced to step in because the US financial system is "extremely complex and interconnected", and the collapse of Bear Stearns would have led to a "chaotic unwinding of positions in those markets are could have severely shaken confidence".

Mr Bernanke added: "Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."

JP Morgan Chase agreed to acquire Bear Stearns for an initial $2 a share, valuing the lender at just $240 million. However, an investor outcry forced JP Morgan to increase the offer to $10 a share, as well as taking on $1 billion of Bear Stearns' assets with the remaining $29 billion backed by the US Fed.

Jamie Dimon, chief executive at JP Morgan, who was also appearing before Congress today, said the bank would not have offered to buy Bear Stearns if the Fed had not agreed to back the assets. His co-speaker, Alan Schwartz, chief executive at Bear Stearns, said today that the bank was not involved in negotiations between JP Morgan and the government regarding the $30 billion asset deal.

Mr Schwartz also maintained, as he said days before Bear Stearns nearly went bust last month, that the run that brought the lender to its knees was due to a lack of confidence and not because of a lack of capital or liquidity.

Mr Bernanke today reiterated his forecast that the US economy would slow in the first half before staging a recovery in the second half. However, like yesterday, Mr Bernanke refused to label the current economic situation as a recession.

It emerged today that US unemployment claims unexpectedly spiked last week by 38,000 to the highest rate since September 2005, alarming investors ahead of monthly jobless figures due out tomorrow.

New data revealed that the number of unemployment claims rose to 407,000 for the week ended March 29, above an expected 370,000 and the previous week's total of 369,000.

The sudden rise in benefit claims sent the Dow Jones industrial average down 48.6 points at 12,556.7 as investor grew nervous that today's figures are an indication of employment numbers that are due out tomorrow that are expected to show non-farm pay rolls for March have fallen by 60,000.

[nicmarlo]

The snowball is now just gaining speed as a result of the allowed legal over leveraging of banks and brokers. It's not going to be pretty.

This is what I also believe. BTW, you will be interested in my post #222 of a video and the transcript I prepared from it.

[null and void]

The big question is whether it will hit

1) before the election, so it can be blamed on Bush.
2) shortly after the election, so in can be blamed on Bush.
3a) well after the election so it can be blamed on the incumbent Republican.
3b) well after the election so it can be blamed on Bush.

[nicmarlo]

gosh.......you sound so....cynical.

: )

[groanup]

I will note that, when I first began posting on "these threads", because I refused to allow the propaganda to be posted as if it was fact, rather than disinformation and lies, I was FReepmailed by others and told to be careful because it is believed that .gov employees post on these threads.>

Yes. And soon you will have to present your papers to us or else.

I was told that these degenerate posters go after people who refute their propaganda, lies, and other disinformation

Well I'm telling you right now that the only propoganda around here is from nickie. You really thought you could get some traction out of that commission report. You just didn't realize that there were some people around here with actual real world EXPERIENCE in the matters that you want to propogandize. You got caught slickie. Nice try but no horseshoe.

And trying to lie about it by implying that we distorted your post won't work. You can't wiggle hard enough to throw that hook.

You are as dishonest as the day is long.

[Halgr]

I’m emotional too...its there recent legislation that makes that a crime???