Posted on 04/03/2008 9:22:59 AM PDT by 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.
I’m aware of the context.
I’m doing just fine.
As for Dimon's bank being exposed as a clearing entity and responding zero, The two can be mutually exclusive
"J.P. Morgan CEO James Dimon said his firm may have been the only institution in a position to help Bear Stearns and stop a potential chain reaction among other investment banks.
“Bear Stearns would have failed without this effort, and the consequences could have been disastrous,” Mr. Dimon told the committee in remarks prepared for delivery. “The idea that the Bear Stearns fallout would have been limited to a few Wall Street firms just isn’t so.”
He said J.P. Morgan couldn’t and wouldn’t have entered the transaction without the Fed’s backstop, but that it was the firm’s obligation as a “responsible corporate citizen” to help stem potential systemic risk if it could.
Mr. Dimon also took issue with the notion that the Fed has taken responsibility for Bear Stearns’ riskiest assets.
“We did not cherry pick the assets in the collateral pool,” Mr. Dimon said. “The assets taken by the Fed consist entirely of loans that are current and domestic securities rated investment grade.”
I want to state on the record for the benefit of those who do not know: I pressed the abuse button.
Thanks for letting us know.
You didn’t need to own up to it, doing so was a class act.
My computers have been down all afternoon. Wow, someone really got p.o.’ed. Sorry I missed all the excitement. Thanks for dinging the perpetrators and also for being honest enough to own up to it.
Without a doubt, W will get the blame.
Excellent post on #223. That is exactly has happened to the banking industry. Banking and brokerage and mortgage and real estate firms firms should have never been allowed to be ‘the same’ corporation.
Countrywide was never a brokerage firm, Bear Stearns was never a mortgage firm. They managed to screw things up just fine.
Very telling dollar chart. Thanks for posting the data.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.