Wall Street Law Blog occasionally takes a deep breath and reflects on the evolution of the financial crisis. Looking through our huge archive of bookmarks, we sometimes find a bit of analysis that, in real time, was right on the money.
The following excerpt is from a March 18, 2008 post on the Stanton Champion website called Bear Stearns Meltdown:
"Bear's real problem was a lack of faith in their assets: mortgage securities. Over the past several weeks, the markets for these assets have simply stopped moving, meaning that in many cases buying and selling them is very difficult."
"For Bear Stearns, the problem was simply that some of their creditors wanted repayment on their repos (they wanted their money they had lent to Bear back), but Bear was unable to find enough liquidity in the market using its large portfolio of mortgage securities. In other words, Bear couldn't find enough money through additional repos and nobody would buy their mortgage securities outright. Other creditors, sensing trouble, began piling on and trying to get their money back as well. Since Bear Stearns had $75 billion more borrowed than lent, they were ultimately screwed without extra financing."
Pretty good stuff considering the quoted material was posted just a few days after Bear Stearns collapsed...
Wall Street Law Blog; published by The Sherman Law Firm 2009