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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
That startled Kyle Bass, Hayman’s managing partner. He told the FCIC he could not
recall any counterparty rejecting a routine novation. Pressed for an explanation,
Goldman the next morning offered no details: “Our trading desk would prefer to stay
facing Hayman. We do not want to face Bear.” Adding to the mystery, minutes later
Goldman agreed to accept Bear Sterns as the counterparty after all. But the damage
was done. The news hit the street that Goldman had refused a routine transaction with
one of the other big five investment banks. The message: don’t rely on Bear Stearns.
CEO Alan Schwartz hoped an appearance on CNBC would reassure markets.
Questioned about this incident, Schwartz said he had no knowledge of such a refusal
and rhetorically asked, “Why do rumors start?” SEC Chairman Cox told reporters
his agency was monitoring capital levels at Bear Stearns and other securities firms
“on a constant basis” and has “a good deal of comfort about the capital cushions at
these firms at the moment.”
Still, the run on Bear accelerated. Many investors believed the Fed’s announce-
ment about its new loan program was directed at Bear Stearns, and they worried
about the facility’s not being available for several weeks. On Wednesday, March ,
the SEC noted that Bear paid another . billion for margin calls from nervous
derivatives counterparties.
Repo lenders who had already tightened the terms for their contracts over the
preceding four or five months shortened the leash again, demanding more collateral
from Bear Stearns. Worries about a default quickly mounted.
By that evening, Bear’s ability to borrow in the repo market was drying up. The
SEC noted that some large and important money funds, including Fidelity and Mel-
lon, had told Bear after the close of business Wednesday they “might be hesitant to
roll some funding tomorrow.” The SEC said that though they believed the amounts
were “very manageable (between and billion),” the withdrawals would not send
a helpful signal to the market. But the issue was almost moot. Schwartz called New
York Fed President Timothy Geithner that night to discuss possible Fed flexibility in
the event that some repo lenders did pull away.
Upton, the treasurer, said that before that week, he had never worried about the
disappearance of repo lending. By Thursday, he believed the end was near. Bear ex-
ecutives informed the board that the rumors were dissuading counterparties from
doing business with Bear, that Bear was receiving and meeting significant margin
calls, that billion in repo was not going to roll over, and that “there was a reason-
able chance that there would not be enough cash to meet [Bear’s] needs.” Some repo
lenders were already so averse to Bear that they stopped lending to the company at
all, not even against Treasury collateral, Upton told the FCIC. Derivatives counter-
parties continued to run from Bear. By that night, liquidity had dwindled to a mere
billion (see figure .).
Bear had run out of cash in one week. Executives and regulators continued to be-
lieve the firm was solvent, however. Former SEC Chairman Cox testified before the
FCIC, “At all times during the week of March to , up to and including the time
of its agreement to be acquired by JP Morgan, Bear Stearns had a capital cushion well
above what is required.” 
