Bear Stearns Collapse
What It Is
The collapse of Bear Stearns in March 2008 was one of the earliest major failures of the Global Financial Crisis, driven by exposure to subprime mortgage securities and a sudden loss of market confidence.
Why It Matters
Bear Stearns’ failure signaled that the U.S. financial system was far more fragile than regulators believed, setting the stage for the broader 2008 meltdown.
How It Happened
- Heavy exposure to mortgage‑backed securities
- Two hedge funds collapsed in 2007
- Repo lenders refused to roll funding
- Liquidity evaporated within days
- Emergency sale to JPMorgan at $2 per share (later raised to $10)
Key Components
- Liquidity crisis
- Counterparty confidence collapse
- Repo market dependence
- Forced acquisition
Example
Bear Stearns went from solvent to insolvent in less than a week as lenders pulled short‑term funding.
Key Takeaways
- Liquidity can disappear faster than solvency.
- Repo market dependence is a systemic vulnerability.
- Bear Stearns was the warning shot before Lehman.