For Frank, Bear Stearns failure convinced him that the government needed a better way to deal with failing institutions an authority he wrote into the Dodd-Frank financial reforms that carry his name. Theres a lot happening in the world. Tesla is expanding access to its superfast car chargers. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you. 2022 Minnesota Public Radio. You rely on Marketplace to break down the worlds events and tell you how it affects you in a fact-based, approachable way. Anybody involved in the financial industry will never forget the first time they heard the price for Bear Stearns, recalled Mike Mayo, managing director and bank analyst with Wells Fargo Securities. Through it all, Marketplace is here for you. But can he heal the country? Only one serious suitor emerged JPMorgan. Bear Stearns employees: "Poor, smart and had a deep desire to be rich", When a cryptocurrency you never heard of drains your life savings. In a 2015 letter to shareholders, Dimon wrote that the banks legal costs related to mortgage-backed securities totaled nearly $19 billion, 70 percent of which he said came not from bad acts at JPMorgan but from Bear Stearns and another bank itd acquired, Washington Mutual. The previous summer it had seen dramatic lossesfroma pair of its hedge funds that had bet heavily on subprime loans. We rely on your financial support to keep making that possible. By mid-March, 2008, Bear Stearns investment bank had been fielding questions about its financial health for months. How far will the European Central Bank go to curb inflation? Sri Lanka has a new president. Marketplace is a division of MPR's 501 (c)(3). Hundreds of housing activists overwhelmed security and stormed the lobby of the Bear Stearns skyscraper in Manhattan, staging a noisy rally and protesting the government-backed sale and bailout of the investment bank. All Rights Reserved. On Thursday, March 13, Schwartz notified the Federal Reserve that it would have to file for bankruptcy protection the following morning. Dimon wrote: In case you were wondering: No, we would not do something like Bear Stearns again in fact, I dont think our board would let me take the call.. The market thought for JPMorgan, this was a home run, said Mayo. Your donation today powers the independent journalism that you rely on. EIN: 41-0953924. Moreover, the Federal Reserve Bank of New York helped facilitate the deal by essentially buying billions of Bear Stearnss riskiest assets. This story is part ofDivided Decade, a year-long series examining how the financial crisis changed America. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you. The housing market is cooling off, but homes aren't necessarily more affordable. Two dollars a share. Incredible.. I think having pressed JPMorgan Chase to take over Bear Stearns, it was unfair to penalize them for the bad acts, said former U.S. Rep. Barney Frank, a Democrat from Massachusetts, who was the chairman of the House Financial Services Committee during the crisis. Protestors walk out of the lobby of the Bear Stearns headquarters March 26, 2008 in New York. By Wednesday March 12, Bear Stearns CEO Alan Schwartz was compelled to go on CNBC to try to quash reports that Bear was running out of money and that other firms didnt want to do business with it anymore. Could the 2008 financial crisis happen again? But almost six years later, JPMorgan agreed to a $13 billion payment with the U.S. government to settle charges that it had mislead investors about the quality of mortgages it sold in the lead up to the financial crisis. Our liquidity position has not changed at all, Schwartz said. Just a year earlier, Bear stock had traded as high as $170 a share. Instead, the Fed arranged for an emergency bridge loan. But those questions morphed into powerful rumors of a liquidity crunch during the week of March 10. The purchase price was revised up to $10 a share a week later, but still, it seemed like a bargain for JPMorgan and a coup for its CEO, Jamie Dimon. The New York Federal Reserve Bank actually made a profit on the Bear assets it bought, more than $750 million, but many people have criticized the governments involvement in this deal and the precedent it may have set. It all looked fantastic.. What are stablecoins, and why are regulators worried about them? Our balance sheet has not weakened at all., He added: Part of the problem is that when speculation starts in a market that has a lot of emotion in it, and people are concerned about the volatility, then people will sell first and ask questions later, and that creates its own momentum.. Then, Friday evening, Fed officials told Bear executives that they had to find a buyer for the firm. Your donation today powers the independent journalism that you rely on. Having the federal government, frankly, press a bank to take over a failing investment house wouldnt be what you would do in an ideal situation, he added. It had dropped to about $30 that Friday, March 14. Did the government meddle too much during the financial crisis? But from the publics perspective, Frank thinks the deal was better than the alternatives: let [Bear] go bankrupt and not pay any debts and cause great reverberations of a negative sort the system or have the public pay the debts, which wouldnt be attractive.. Investors werent reassured; Bears rumored cash crunch became reality, as spooked investors continued to batter the stock, and the short-term loans the bank needed to run its daily operations dried up.