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

Bear Stearns Liquidity
In the four days before Bear Stearns collapsed, the company’s
liquidity dropped by $16 billion.
IN BILLIONS OF DOLLARS, DAILY
$25

20

15
10

5

0
22 23 24 25 26 27 28 29 1 2 3 4 5 6 7 8 9 10 11 12 13
FEBRUARY 2008 MARCH 2008
SOURCE: Securities and Exchange Commission

Figure .

“THE GOVERNMENT
WOULD NOT PERMIT A HIGHER NUMBER”
On Thursday evening, March , Bear Stearns informed the SEC that it would be
“unable to operate normally on Friday.” CEO Alan Schwartz called JP Morgan CEO

Jamie Dimon to request a  billion credit line. Dimon turned him down, citing,

according to Schwartz, JP Morgan’s own significant exposure to the mortgage mar-
ket. Because Bear also had a large, illiquid portfolio of mortgage assets, JP Morgan
would not render assistance without government support. Schwartz spoke with Gei-
thner again. Schwartz insisted Bear’s problem was liquidity, not insufficient capital. A
series of calls between Schwartz, Dimon, Geithner, and Treasury Secretary Henry

Paulson followed. To address Bear’s liquidity needs, the New York Fed made a .
billion loan to Bear Stearns through JP Morgan on the morning of Friday, March .
Standard & Poor’s lowered Bear’s rating three levels to BBB. Moody’s and Fitch also
downgraded the company. By the end of the day, Bear was out of cash. Its stock
plummeted , closing below .
The markets evidently viewed the loan as a sign of terminal weakness. After
markets closed on Friday, Paulson and Geithner informed Bear CEO Schwartz that
the Fed loan to JP Morgan would not be available after the weekend. Without that
loan, Bear could not conduct business. In fact, Bear Stearns had to find a buyer be-

fore the Asian markets opened Sunday night or the game would be over. Schwartz,