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Why did Bear Stearns fail?

Updated: 9/13/2023
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15y ago

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Bear Stearns' leverage (the money it borrowed) was so high (30x plus) that a "crisis of confidence" developed. Investors began withdrawing money from Bear and counter parties (their customers) stopped doing business with them - effectively their liquidity dried up. It was a classic Run on the Bank. Financial institutions foundations are based upon confidence and trust, so a healthy institution can become insolvent almost overnight. Due to the "run", Bear Stearns was forced to sell to JP Morgan at a fire sale price.

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Q: Why did Bear Stearns fail?
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