"The fate of Bear Stearns was the result of a lack of confidence, not a lack of capital"

From: The day the financial world almost ended

 

"Given the exceptional pressures on the global economy and financial system, the damage caused by a default of Bear Stearns could have been severe and extremely difficult to contain," said Bernanke.

Those words should send chills down every spine in America.

I might understand such damage occurring if one of our major commercial banks failed. But an investment bank?

"The fate of Bear Stearns was the result of a lack of confidence, not a lack of capital," continued Christopher Cox, chairman of the SEC, making it abundantly clear the real problem was the lack of confidence in Bear Stearns.

Alan Schwartz, Bear Stearns CEO, echoed the Cox comments by adding that what brought Bear Stearns to its knees was not a lack of capital or liquidity, but a lack of confidence. Schwartz added "unfounded" rumors caused that loss of confidence.

Jamie Dimon, CEO of JP Morgan, asserted, "A Bear Stearns bankruptcy could well have touched off a chain reaction at other major financial institutions that would have shaken confidence in the credit markets that already have been battered."

Dimon, while not explaining the degree to which the institutions are connected through the $135 trillion credit and interest-derivative market, knows full well the domino effect a Bear Stearns collapse would have triggered.