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 6/10 Very Good --- feeds.huffingtonpost.com http://feeds.huffingtonpost.com/FeaturedPosts
Wednesday, July 09, 2008 --- 42 days ago http://feeds.huffingtonpost.com/click.phdo?i=84794e0aad13c5cf835670ae1e091f9b
| Yesterday, Ben Bernanke gave a speech about financial regulation . In the speech he discussed what happened with Bear Stearns. It is an interesting explanation. As you are aware, one of the key events in financial markets in recent months was the near-bankruptcy in March of the investment bank Bear Stearns. The collapse of Bear Stearns was triggered by a run of its creditors and customers, analogous to the run of depositors on a commercial bank. This run was surprising, however, in that Bear Stearns's borrowings were largely secured--that is, its lenders held collateral to ensure repayment even if the company itself failed. However, the illiquidity of markets in mid-March was so severe that creditors lost confidence that they could recoup their loans by selling the collateral. Hence, they refused to renew their loans and demanded repayment. This is a really interesting situation and it explains a great deal about the problems in the credit markets. Even though the lenders had collateral in their hands they were unsure they could actually sell the collateral. Bernanke makes no mention of what type of collateral the lenders had. However, I seriously doubt lenders took highly exotic paper to secure a loan. Assuming that to be a fair reading of the situation, we know the credit markets were literally frozen solid. Bear Stearns's contingency planning had not envisioned a sudden loss of access to secured funding, so it did not have adequ ... |
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