Bear Stearns was a New York City-based global investment bank and financial company that was founded in 1923 and collapsed during the 2008 financial crisis. Exposure to collateralized debt obligations and toxic assets held in its flagship hedge funds that were purchased with a high degree of leverage led to its demise.
The Fed lent up to $30 billion to Chase to purchase Bear. Chase could default on the loan if Bear did not have enough assets to pay it off. Without the Fed's intervention, the failure of Bear Stearns could have spread to other over-leveraged investment banks.
Impact of Bear Stearns' Collapse. Bear's demise started a panic on Wall Street. Banks realized that no one knew where all the bad debt was buried within the portfolios of some of the most respected names in the business. This caused a banking liquidity crisis, in which banks became unwilling to lend to each other.
The Federal Reserve bails out Bear Stearns in a deal structured as a loan to JPMorgan, a bid to halt a run on the company and broker an orderly sale. It's the Fed's first loan to a nonbank since the Great Depression.
Kareem Serageldin (/ˈsɛrəɡɛldɪn/) (born in 1973) is a former executive at Credit Suisse. He is notable for being the only banker in the United States to be sentenced to jail time as a result of the financial crisis of 2007–2008, a conviction resulting from mismarking bond prices to hide losses.
Before founding his hedge fund, Kyle Bass worked for Bear Stearns in Dallas.
The Financial crisis of 2007–2008 led to many bank failures in the United States. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012.
The Fed agreed to provide an emergency loan, through J.P. Morgan, of an unspecified amount to keep Bear afloat. But soon after the New York Stock Exchange opened on Friday, March 14, Bear's stock price began plummeting. By Saturday, J.P. Morgan Chase concluded that Bear Stearns was worth only $236 million.
Bear Stearns had originally put up just $25 million, so they were hesitant about the bailout; nonetheless, CEO James Cayne and other senior executives worried about the damage to the company's reputation. The funds were invested in thinly traded collateralized debt obligations (CDOs).
J. P. Morgan originally agreed to pay $2 a share for Bear Stearns, with the Federal Reserve promising to cover $30 billion of mortgage securities to get the deal done.
On Sept. 15, 2008, Lehman Brothers, a well-known and respected investment bank, filed for bankruptcy protection after the Bush Administration's Treasury Secretary, Hank Paulson, refused to grant them a bailout.
The financial crisis was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives. ... That created the financial crisis that led to the Great Recession.
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