Money  /  Oral History

The Weekend That Shook the World

Lessons from Bear Stearns's collapse 17 years ago.
SAMUEL L. MOLINARO JR.
CHIEF FINANCIAL OFFICER, BEAR STEARNS

We started hearing about hedge funds who are prime brokerage clients who wanted to get their excess funds out of Bear Stearns. Hedge funds pulling prime brokerage balances is somewhat destabilizing from a liquidity standpoint, but not tremendously. The more destabilizing part is that it’s not good for your business to be losing their balances.

KEVIN WARSH
MEMBER, FEDERAL RESERVE BOARD OF GOVERNORS

This is not happening in a vacuum. Fannie Mae and Freddie Mac and the Federal Home Loan Banks at the time had outstanding debt greater than the debt of the United States government. Fannie and Freddie, which at the time were implicitly backed by the government but were private companies trading on the New York Stock Exchange, those share prices were also under real pressure. Our narrow question is: Do we have a Bear Stearns problem, or do we have a broader safety and soundness problem of the financial system?

ALAN SCHWARTZ
CEO, BEAR STEARNS

Things had frozen up late ’07, and in the financing markets, we had a difficult period. We had a loss for the first time in our history in the fourth quarter. That first quarter was going to be our test case — if we had another bad quarter, they were going to be all over us. But by the beginning of March, I was breathing a sigh of relief. We had just closed a very strong first quarter at the end of February, and so were going to be able to sit back and say, “We got through this.”

SAMUEL L. MOLINARO JR.

Seemingly out of the blue, there’s an issue. It started to build Monday into Tuesday. There’s more market noise. We’re looking under every rock, but there’s nothing really happening. That started to change, probably late Tuesday and Wednesday — when there’s enough noise in the marketplace, people start to take action, because nobody wants to be holding the bag if there’s a problem.

ALAN SCHWARTZ

We were trying to do everything we could to calm things down. But there were a lot of rumors out there. Wednesday, we had said, okay, let’s get this message out to here, there and everywhere. Then by Thursday we were getting a run on the bank.

HENRY BIENEN
BOARD MEMBER, BEAR STEARNS

In his news conference [on Wednesday,] Alan had said, “Well, we have something like $17 billion cash on the books so we can weather the storm.” Well, by the end of the day they did not have any money on the books. It was a classic bank run. My strong view always has been that nobody would have survived.