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MARCH : THE FALL OF BEAR STEARNS 

That summer, the SEC felt Bear’s liquidity was adequate for the immediate future,
but supervisors “were suitably skeptical,” Eichner insisted. After the August  meet-
ing, the SEC required that Bear Stearns report daily on Bear’s liquidity. However,
Eichner admitted that he and his agency had grossly underestimated the possibility
of a liquidity crisis down the road. 
Every weeknight Upton updated the SEC on Bear’s  billion balance sheet,
with specifics on repo and commercial paper. On September , Bear Stearns raised
approximately . billion in unsecured -year bonds. The reports slowed to once a

week. The SEC’s inspector general later criticized the regulators, writing that they
did not push Bear to reduce leverage or “make any efforts to limit Bear Stearns’ mort-
gage securities concentration,” despite “aware[ness] that risk management of mort-
gages at Bear Stearns had numerous shortcomings, including lack of expertise by risk
managers in mortgage backed securities” and “persistent understaffing; a proximity
of risk managers to traders suggesting a lack of independence; turnover of key per-
sonnel during times of crisis; and the inability or unwillingness to update models to
reflect changing circumstances.” 
Michael Halloran, a senior adviser to SEC Chairman Christopher Cox, told the
FCIC the SEC had ample information and authority to require Bear Stearns to de-
crease leverage and sell mortgage-backed securities, as other financial institutions
were doing. Halloran said that as early as the first quarter of , he had asked Erik
Sirri, in charge of the SEC’s Consolidated Supervised Entities program, about Bear
Stearns (and Lehman Brothers), “Why can’t we make them reduce risk?” According
to Halloran, Sirri said the SEC’s job was not to tell the banks how to run their compa-
nies but to protect their customers’ assets. 

“TURN INTO A DEATH SPIRAL”
In August, after the rating agencies revised their outlook on Bear, Cayne tried to ob-
tain lines of credit from Citigroup and JP Morgan. Both banks acknowledged Bear
had always been a very good customer and maintained they were interested in help-

ing. “We wanted to try to be belts-and-suspenders,” said CFO Samuel Molinaro, as
Bear attempted both to obtain lines of credit with banks and to reinforce traditional
sources of short-term liquidity such as money market funds. But, Cayne told the
FCIC, nothing happened. “Why the [large] banks were not more willing to partici-
pate and provide lines during that period of time, I can’t tell you,” Molinaro said. 
A major money market fund manager, Federated Investors, had decided on Octo-
ber  to drop Bear Stearns from its list of approved counterparties for unsecured

commercial paper, illustrating why unsecured commercial paper was traditionally
seen as a riskier lifeline than repo. Throughout , Bear Stearns reduced its unse-
cured commercial paper (from . billion at the end of  to only . billion at
the end of ) and replaced it with secured repo borrowing (which rose from 
billion to  billion). But Bear Stearns’s growing dependence on overnight repo
would create a different set of problems.
The tri-party repo market used two clearing banks, JP Morgan and BNY Mellon.