Bear Stearns Case Study

1008 Words 5 Pages
Kimberly Amadeo described Bear Stearns as “an investment bank that survived the Great Depression only to succumb to the Great Recession.” Founded in 1923, Bear Stearns was a big investment bank which offered a series of financial services including, but not limited to securities, hedge funds, and brokerage. Following the real estate crisis in 2006, two of Bear Stearns hedge fund firms High-Grade Structured-Credit Strategies Fund and Enhanced Leverage Fund with investments in mortgages began to crack. Bear Stearns, in June 2007, injected 3.2 billion dollars to bail the hedge funds out. This proved insufficient as the funds filed for bankruptcy. This became the genesis of the problem that consumed Bear Stearns and forced them into a Fed-guaranteed …show more content…
Shareholders too can be counted as beneficiaries despite seeing their share values fall from 133 dollars to 10 dollars per share. But that they retained this against the alternative of losing everything was a plus. The management and the employees too benefited.
The ultimate question is should Bear Stearns should have been allowed to fail? The answer is yes, Bear Stearns should have been allowed to fail for these reasons. One, the bailout of Bear Stearns did not prevent the global financial crisis and recession of 2007-2008. The bailout did not stop the liquidity crisis in the industry in which banks became too afraid to lend to one another, undermining repurchase agreement. Symbolically, another bank Lehmann Brothers failed.
Secondly, Bear Stearns bailout pushed the effect of the failure of the bank which was caused by what Smith termed the “greed, irresponsibility, and stupidity” of its managers on the public purse. Smith added that: “Many Americans believe that the managers themselves are bailed out if they are allowed to keep their jobs, stocks, severance pay, and pensions.” At the expense of the taxpayer. The bailout not only failed to hold the executives of Bear Stearns accountable, it exonerated

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