This month marks 15 years since the shocking collapse of Bear Stearns, the once-venerable investment bank. Its downfall in March 2008 was an early sign of the global financial crisis that would soon follow.
At its peak, Bear Stearns ranked as the fifth-largest US investment bank. Founded in 1923, it managed over $350 billion in assets and employed 14,000 people worldwide. Yet within just one week in 2008, the major Wall Street firm completely unraveled.
Several factors caused Bear’s abrupt demise. Like other banks, it held billions in subprime mortgage assets that were rapidly losing value. Bear was highly leveraged, with an overdependence on short-term funding sources. And it lacked adequate risk management controls.
As concerns about Bear Stearns mounted, clients and counterparties quickly pulled back. The company saw its liquidity evaporate in days. The crisis peaked when Bear became unable to fund its operations, prompting emergency acquisition talks.
On March 16, 2008, JP Morgan announced plans to buy Bear Stearns for $2 per share, about 1% of its pre-crisis market value. The deal included financial backing from the US Federal Reserve. It marked the first open market intervention amid the brewing mortgage meltdown.
Bear Stearns’ shocking freefall rattled investors worldwide. It made clear the systemic vulnerabilities building in global markets and presaged the much larger financial earthquake on the horizon.
While dramatic government actions eventually stabilized markets, the reverberations from Bear Stearns’ failure continue to be felt. Its demise both revealed and accelerated the dramatic unwinding of the debt-fueled housing bubble and fragile banking system.
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