FAQ: Bear Stearns banking crisis

bear jp morgan stearns

US investment bank Bear Stearns, America’s fifth-largest bank, has been sold to rival JP Morgan Chase at a knockdown price of $2 a share, valuing it at $236m (£117m). Last week it was worth $140bn.
How did Bear Stearns, founded in 1923, get into this state?
It specialised in credit products such as mortgage-backed securities that left it heavily exposed to American sub-prime home loans. It has less capital than rivals like Citigroup and Merrill Lynch, which have also been heavily exposed to the crisis, to make up the shortfall.
What does this mean for the rest of the world?
Bear Stearns has become the biggest casualty so far of the global credit crunch, sparking fears that the crisis is far from over. Share prices around the world plummeted today on the news and the dollar fell to a fresh low, while gold and oil prices shot up.
Why did JP Morgan want to buy Bear Stearns?
JP Morgan is taking advantage of the current crisis to expand its operations. And it is doing so at little risk to itself — the US Federal Reserve is backing the deal with $30bn of special financing to fund Bear Stearns’ less liquid assets. It is the first time the central bank has bailed out a brokerage firm since the 1920s.

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This entry was posted on Monday, March 17th, 2008 at 5:56 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

7 Responses to “FAQ: Bear Stearns banking crisis”

  1. Rosanne says on March 17th, 2008 at 10:08 am :

    wrong - bad analogy.Stock market is vast - there is more than enough quantity and volume in mid and large cap stocks to go around. If anything, having people act on recommendations (as Cramer home gamers infamously do) drives the price of the shares up, ultimately benefiting share-holders.

  2. Kendra says on March 17th, 2008 at 10:58 am :

    So one out of three hysterical premonitions ain’t bad?

  3. Lalla says on March 17th, 2008 at 11:49 am :

    There’s some good blogs that do that:http://www.cramerproject.com/stocks.php

  4. Kenyon says on March 17th, 2008 at 12:39 pm :

    I guess he figured that someone was going to buy Bear over their market value, instead of far under.

  5. Doreen says on March 17th, 2008 at 1:30 pm :

    Anyone else heard the rumors that Jim Cramer is Client 8?

  6. Nikole says on March 17th, 2008 at 2:20 pm :

    he’s a prick but he was right. they ARE being taken over. i fail to see how cramer thought that was a good thing for their shareholders, though. they weren’t exactly in a good position to negotiate terms.