It
is quite obvious from the Bear Stearns' (Bear) episode that
no one is immune to the subprime shock which has ravaged the
global stock markets in recent times. The red alarm for Bear
was rung just a few days before the catastrophe with rumors
spreading like wildfire about the liquidity problems that
Bear was facing which ultimately led to the demise of the
much-vaunted investment bank. Bear Stearns' CEO Alan Schwartz
made a last-ditch effort to win-back investors' confidence
but in absolute vain. As the cliché goes, in a business
based on confidence, when the confidence evaporates, so does
the business. This has once again been testified in Bear's
case.
With
dissipating investors' confidence, other firms also refused
to lend money or trade with it. Finally, when the e-mail of
the highly-respected investment bank Goldman Sachs to Bear's
hedge fund clients was leaked out, which confirmed that it
would no longer step in for them on Bear derivatives deals,
floodgates were opened and clients began pulling out their
funds. Unable to withstand the setback Bear sent an SOS to
the Fed for emergency funding. And, Fed in association with
another investment bank JP Morgan devised a rescue plan to
prevent an outright collapse of Bear as well as the entire
financial system, which is directly or indirectly linked to
Bear.
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