Why Bear Stearns Was Rescued

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If Bear Stearns had declared bankruptcy, many trades would not have cleared and there would have been widespread chaos.

[The Financial Meltdown: Genesis]

People are continually asking why was Bear Stearns bailed out via a merger with J P MorganChase with a government guarantee of $30 billion and Lehman Brothers was permitted to fail.

This question has not been successfully answered in the press. The reason is because reporters were never traders. The answer is very simple- and is obvious to any professional trader. Bear Stearns was a far larger clearing house than Lehman Brothers. If Bear Stearns had declared bankruptcy, many trades would not have cleared and there would have been widespread chaos. It must be here noted that in 1998 Bear Stearns was the clearing broker for Long Term Capital and was responsible for not requiring adequate net capital for the risky trades in which Long Term Capital invested and which trades almost brought down the American Financial System.

American journalists, especially Maria Bartiromo, the anchor of CNBC’s "Closing Bell with Maria Bartiromo" have always used the New York Stock Exchange as a symbol of the strength of capitalism, even though professional traders know that the NYSE is incidental to the flow of capital. The mainstream press overlooked the prominence of Bear Stearns Clearing on the New York Stock Exchange. Bear Stearns Clearing was the largest clearing house on the floor of the New York Stock Exchange.

If Bear Stearns had declared bankruptcy many stock (equity) trades would not have cleared. The reputation of the New York Stock Exchange, that bastion of capitalism, would have been tarnished. And that was one reason that Bear Stearns was not permitted to simply go out of business like Lehman Brothers.



 

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