Current Events

More Bear Woes

Wall Street Ponders Extent Of the Woes At Other Firms
March 15, 2008

Behind the swift decline of Bear Stearns Cos. is a deepening worry on Wall Street that some financial institutions might not be able to make good on their commitments.

Such angst about the health of an institution holding somebody else’s money is an age-old worry in finance. The federal government created the Federal Deposit Insurance Corp. in 1933 to give bank depositors confidence they would never again face such concerns.

Bear had denied rumors of financial stress for days, but Friday said persistent rumors about its financial health had caused some lenders and clients to back away from financing or trading with the firm and forced it to turn to JPMorgan Chase Co. for help.

Some hedge-fund clients had demanded that Bear come up with cash as collateral on trades they had done with the firm or had withdrawn funds from their accounts with the firm, further straining its finances. Taken together, it was like a modern version of a bank run.


Fed’s Bear Stearns Rescue Is Rarity for Wall Street
March 15, 2008

Bear Stearns Cos. once prided itself on trading securities other firms wouldn’t touch — such as New York City bonds during the city’s mid-1970s’ fiscal crisis.

On Friday, the firm, in the middle of its own crisis, was being kept alive only with the help of a government regulator, the Federal Reserve, which was sponsoring emergency credit support for the once-proud bond firm.

The role of the Fed in brokering a temporary rescue shows how Bear, now Wall Street’s fifth-largest firm, has so many connections to other big dealers and investors that regulators are loath to allow a sudden collapse.

Like Drexel Burnham Lambert Inc., which collapsed in 1990 after its main market, junk bonds, suffered a steep downturn, Bear’s main market of mortgages has been the center of bond-market woes that hit Wall Street starting in June.

But the Federal Reserve didn’t intervene to stop Drexel’s collapse, partly because the firm had been the subject of a bruising series of regulatory investigations that took hold in 1986.