8 Financial Collapse
The uncertainly on Wall Street took a new, more ominous turn, and once again, Bear Stearns is at the center of the storm. It would overwhelm the firm, and during the course of just a few days, one of Wall Street's most venerable names would be taken over by a rival, despite unprecedented government efforts to prevent the company from failing.
Bear Stearns Stock Drops On Wall Street Rumors
On Monday, March 10, Bear stock starts plummeting, as rumors escalate the investment bank is in danger of collapsing under the weight of massive exposure to risky subprime mortgage related investments. Bear denies the rumors and tries to stop the bleeding.
CEO’s Message Creates Unexpected Panic
For three days straight, Bear executives go on CNBC in a last-ditch effort to save the company and convince investors the firm will survive. The turning point is CEO Alan Schwartz's interview with David Faber on Wednesday, March 12. It backfired—and magnified Bear's problems. Schwartz failed to convince Wall Street that investors had confidence in the company and that Bear's foundation was solid.
Federal Reserve Tries To Save Bear
The day after Schwartz's interview with Faber, the damage was clear: Bear Stearns was now desperately scrambling to find a buyer. However, it was too toxic to touch. On Friday, March 14, after a series of overnight phone calls among Federal Reserve officials and Wall Street power brokers, the Fed announced a $29 Billion dollar loan to JPMorgan, which funneled the cash directly to Bear Stearns.
JPMorgan Buys Bear Stearns
At the end of a tumultuous week, Bear Stearns stock hovered around $30 a share, down from its all-time high of $171 in January, 2007. But the deal brokered by the Fed was too little, too late. Despite a frantic weekend of negotiations, Bear was all but dead. In close cooperation with the Treasury Department and the Federal Reserve, JPMorgan bought Bear Stearns, offering $2 per share.
Paulson Sends A Tough Message To Wall Street
The company had no choice but to accept the offer, which Treasury Sectretary Henry Paulson insisted should be intentionally low in order to send a sobering message about moral hazard. JPMorgan later increased the offer to $10 per share. But the damage was done. And it wasn't over yet.
Trouble Spreads To Consumer Banking
While the Wall Street investment bank Bears Stearns was struggling, so was the Main Street retail bank Washington Mutual. For months, WaMu had been consolidating its mortgage operations, closing offices, and laying off thousands of employees. In June 2008, Washington Mutual CEO Kerry Killinger resigned. His departure marked the end of a tenure that included aggressive acquisitions of other financial institutions, a marketing campaign built around the slogan "Whoo Hoo", and a strategy to become "the Wal-Mart of banking."
Collapse of A Few Affects Many More
The upheaval at Bear Stearns and Washington Mutual foreshadowed a global financial crisis that would erupt in the coming weeks and months. Many more well-known companies would collapse, the federal government would face unpredictable challenges, and Americans would lose their sense of prosperity that had accompanied rising home prices for much of the decade.
CNBC anchors and reporters share their stories about the weeks following the collapse of Bear Stearns, the purchase of Merrill Lynch and the bankruptcy of Lehman Brothers.