Wednesday, May 28, 2008
The Collapse of Bear Stearns: Part Two
The Wall St. Journal, in the second part of its series on the collapse of Bear Stearns, describes the events leading up to March 14, 2008 when the Fed agreed to provide financing for JP Morgan Chase's bailout of Bear Stearns. This installment ends with Bear Stearns' believing that it had 28 days to solve its problems, which of course turned out not to be the case. As the article details the "run on the bank" that caused trading partners to pull their money out of Bear, it describes a Bear CEO (Alan Schwartz) who is too slow to recognize the severity of the situation and to seek the Fed's help. WSJ, Fear, Rumors Touched Off Fatal Run on Bear Stearns.
A related story focuses on the SEC's ongoing investigation into Bear's demise. The SEC is expected to look into the records of the major investment firms who were parties with Bear in credit default swaps to see if the "run on the bank" could have constituted illegal market manipulation. The article includes a good schematic of how credit default swaps work. WSJ, SEC Will Scour Bear Trading Data.