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Why did Bear Stearns fail? |
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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.
First answer by Bruce. Last edit by Bruce. Contributor trust: 305 [recommend contributor]. Question popularity: 6 [recommend question]
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What is bear stearns? Why did bear stern fail? What does Bear Stearns do? When did bear stearns fail? When did bear stearns collapse? What is the bear stearns thing about? What is Bear stearns financial status? Why is bear stearns in financial trouble? When did bear stearns go out of business? Why was Bear Stearns in Financial Trouble? In March 2008 why did Bear Stearns capital decrease from 12B to 2B in less than 24 hours?
