The Bear Stearns Buyout:
In Opposition to the Federal Reserve’s Involvement
History of Bears Stearns
Bear Stearns was once a top investment banking and securities brokerage firm and a leading market-maker for NYSE-listed securities. The Delaware corporation operating primarily out of New York provides a variety of services to corporations, institutional investors, governments, and wealthy individuals. One of the services that Bear Stearns provided were loans that had been extended to clients secured by liens on real property and then transfers the interest to third parties of into capital markets. Bear Stearns subsidiaries provided services that included asset management, clearing and custody, securities lending, trust, and mergers and acquisitions advisory services. (4,8)
Background of the Buyout
The collapse of Bear Stearns happened quickly over a ten-day period. (2) In June 2007, Bear Stearns had serious financial problems. The collapse of the housing market had left two hedge funds that were invested in subprime mortgages in trouble. Bear invested $1.6 billion into the funds in an attempt to save them. In the end, the hedge funds still lost their value and Bear lost the trust of many of its customers and other financial intuitions. (6)
This lack trust continued to build and “speculation about its balance sheet” floated around for months (2). Continued rumors led other financial institutions to become wary of doing business with Bear. Traders learned of this and also stopped their business with Stearns. The remaining companies who wanted to conduct business with Bear Stearns started requiring cash collaterals on all trades and withdrew funds from their accounts.&nb ...