When Bear Stearns nearly failed, made to merge, in March 2008 it wasn’t really a surprise. Yes, markets were shocked by the demise of the ancient firm, one of the bulge bracket cartel which suggested surprise over the severity of it more than that things were going bad. For more than a year, starting in early 2007, Bear had been steadily in the news for a few of its hedge funds.
These were investment vehicles not owned but sponsored by Bear Stearns, which meant they had no legal obligation to stand behind them. Yet, they did, sensing that to leave them hung out to dry and their investors holding the bag would be more than bad for business. Subprime was contained according to Ben Bernanke, but for these two ‘high grade’ funds people started to realize that wasn’t true.
It wasn’t Bear’s products that ultimately started the crisis, however. Perhaps I am being too semantically rigid, as I classify those hedge funds as a warning of what was coming. Instead, it was a French bank that was to American ears as foreign as possible which truly triggered the end.
Reuters filed a single report at 2:44am ET on August 9, 2007, detailing the relatively non-specific plans of BNP Paribas to halt NAV calculations for three of its funds. The world hasn’t been the same since.
This post was published at Wall Street Examiner on August 9, 2017.